Julian Moxon and Andrew Doyle/PARIS

Airbus partners EADS (European Aeronautic Defence and Space) and BAE Systems have agreed to form Airbus Integrated Company (AIC) and commercially launch the ultra-large A3XX. The deal comes just two weeks ahead of the planned flotation of around a third of EADS shares on the Paris, Frankfurt and Madrid stock exchanges.

Dr Manfred Bischoff, EADS co-chairman designate, caught the mood of the moment, saying: "We have reached two landmark agreements which change the face of the industry."

BAE chairman Sir Richard Evans took a more pragmatic view, saying that the creation of AIC will enable the partners to eliminate the "unproductive wrangling" over workshare and production issues that had threatened the future development of Airbus.

The UK company's concerns that it will contribute more than 20% of the total assets of the Airbus system to the AIC have been resolved, with BAE securing the right to receive "enhanced dividends" on deliveries of A340-500/600s above an agreed rate between 2003 and 2012, inclusive. This dividend is expected to yield up to €237.5 million ($226 million) to BAE, based on deliveries of around 400 aircraft, and will be "indexed" to increase in line with future growth of the AIC's profits and turnover.

The A340-500/600 has been chosen as the focus of the compensation package because it is the programme where BAE, which produces the wings, will derive most value. BAE builds the wings for all Airbus aircraft and John Weston, the UK group's chief executive, says it has agreed a deal to guarantee that the UK remains the centre of excellence for wing design and manufacture.

EADS will own 80% of AIC - which will be formally established on 1 January, 2001 - with BAE holding the rest, in line with its current workshare. The company will be registered in France and is expected to deliver annual cost savings of €350 million by 2004, by enabling the partners to streamline procurement, eliminate duplication and cut production overheads.

Had it been in existence last year AIC would have achieved an operating profit of €1.03 billion on sales of €15.71 billion and would have shown an operating margin of 6%, according to EADS figures, with net liabilities totalling €5.3 billion.

Employing 40,000 people, AIC will incorporate all of the Airbus-related design, engineering and manufacturing assets of the partners in France, Germany, Spain and the UK. EADS has offered part of its stake in AIC to partner Alenia, with BAE's blessing. "We have offered Alenia a 5% stake in the AIC, so it's their decision whether they want to be a partner or not," says Rainer Hertich, co-chief executive designate of EADS.

AIC will be governed by a seven-member shareholder committee, with five representatives from EADS and two from BAE. Hertrich will be the chairman and the day-to-day management team will be headed by Noel Forgeard after BAE dropped objections to the Airbus boss heading both AIC and the EADS Airbus division.

"He [Forgeard] will have a duty of responsibility to Airbus full-time and we are very happy about that," says BAE chief operating officer Mike Turner. EADS co-chief executive designate Philippe Camus says the new structure will "give a clear authority and accountability for the business to the management of the company".

BAE has secured the option to sell its stake in AIC to EADS after three years "if as a 20% shareholder we were not happy with the way things were going", says Turner. The opt-out clause can be exercised earlier if there is disagreement over "significant events" such as a new aircraft launch or major acquisitions or disposals.

Weston says BAE will retain its influence over Airbus through the "fundamental right to veto the business plan". He called the agreement "a great deal financially and for our employees and gives us long-term stability as well as considerable value for our shareholders."

Source: Flight International