British Aerospace has signed a potentially wide-ranging agreement with the Malaysian state-owned investment house Kazanah Nasional Berhad. It could lead to Kazanah taking up to a 50% stake in the UK company's Avro International aerospace division and producing locally parts for the Avro RJ regional-jet range.

"What we have signed is a framework agreement to develop Malaysia's aerospace industry, following on from that will be a lot of other agreements, the first of which will be for Kazanah to take a major equity stake in Avro," says Allan MacDonald, BAe's regional managing director.

BAe hopes to conclude an equity deal with Kazanah by March, giving the Malaysian investment company as much as a 50% stake in Avro. BAe says that management control of Avro will be unaffected. The company's involvement in Aero International (Regional) for marketing the aircraft is intact.

BAe's regional-jet operations have racked up huge losses over the past 20 years, but the company finally managed to break even this year, producing 22 regional jets in the 85- to 110-seat range for blue-chip customers such as Lufthansa, Sabena and Crossair.

Follow-on discussions will focus on identifying areas of aerospace technology and competence which Malaysia wants to develop. MacDonald says :"There will be another agreement to transfer technology, with Malaysia taking over production of parts of the Avro".

He emphasises, however, that it would "never be feasible" to transfer complete production of the Avro to Malaysia".

Kazanah, or a "nominated Malaysian company", will supply the yet-to-be-determined aerospace structures. Malaysia is known to be keen to develop a composite- structures industry, and it has been suggested that this could lead to wing-component production. In the longer term, it is hoped that involvement with Avro will be extended to new developments such as the Airbus A3XX.

"Malaysia wants to be a big player in aerospace, and this agreement offers them a fast track," says MacDonald.

This is the second attempt by both companies to marry European regional-jet know-how with Asian finance. Kazanah had earlier been looking to acquire Fokker in a last-ditch effort to rescue the bankrupt Dutch regional jet maker. Talks collapsed after receivers demanded that the Malaysian company demonstrate its financial commitment to a rescue ahead of concluding due diligence.

Earlier in the decade, BAe made an abortive attempt to seal a deal with Taiwan Aerospace to set up assembly of the aircraft in Taiwan and has maintained a strong relationship with Malaysia on the back of the sale of 28 of its Hawk jet trainers and light combat aircraft.

Source: Flight International