BAE Systems’ board of directors has agreed to sell the company’s 20% stake in Airbus to EADS in a deal that will reap the British company a little over ₤1.2 billion ($2.3 billion).

The board’s support of the sale, which requires BAE shareholder approval, comes after the UK company undertook an independent review of the European aerospace manufacturer’s commercial unit.

“Having assessed the results of the audit, the board believes that Airbus is facing a challenging short to medium-term outlook, in particular with respect to certain of its principal programmes,” says BAE’s board today in a statement following a scheduled meeting. “The board believes that a significant amount of management focus, time and investment will be required to address the issues currently facing Airbus to improve its operating and financial performance and thereby to increase its value.

“Inevitably, there are risks involved in such a recovery programme and, having reviewed the audit, the board is concerned about the possible cash requirements of the Airbus business in the medium-term.”

As a result, BAE’s board says the company should proceed with a ₤1.9 billion exit price determined by the auditor, which will ultimately give the company ₤1.2 billion in cash after debts between the company and Airbus and transaction fees are paid.

“In arriving at this judgment, it weighed with the board that if it does not proceed with the proposed disposal, it may be necessary to retain BAE Systems’ interest in Airbus for an extended period to be confident that it could be sold for materially more than the price,” notes BAE.

The UK firm will distribute up to £500 million from the sale to its shareholders by way of on-market stock purchase. “The board also intends to consult with the trustees of the company’s pension schemes and the pensions regulator with regard to any further investment in those schemes,” BAE adds.

The remainder will be used with “other cash resources” for debt repayments and “selected acquisitions in the core defence business”.

BAE must call an extraordinary general meeting to ballot its shareholders. A time and location has to determined.

EADS must purchase BAE’s stake under contractual agreements.