BAE Systems - Europe's largest defence firm - yesterday confirmed it was in talks to sell off its 20 per cent stake in plane maker Airbus to parent firm EADS. Both firms are a huge source of work for aerospace component firms in the West Midlands.
"Discussions are at an early stage and a further announcement will be made if and when appropriate," BAE said in a brief statement to the London Stock Exchange.
"We believe that now is the right time for us to divest our Airbus shareholding to allow us to concentrate on our core transatlantic defence and aerospace strategy," BAE chief executive Mike Turner added.
BAE's stake is valued at 3.5 billion euros (#2.44 billion) in EADS' books, but analysts expect a sale could be worth as much as #4 billion, buoyed in part by the currently high level of EADS and BAE share prices.
Sector analysts have said BAE was expected to sell its stake in civilian airliner maker Airbus at some stage, likely spending the proceeds in the US defence sector.
"Disposal of Airbus and BAE's remaining European interests could clear the way for a major US merger," Numis Securities analyst Andrew Gollan said in a research note.
The deal could well provoke political concerns about keeping Airbus's wing-making technology as well as some 13,000 Airbus jobs in Britain, concerns which EADS and Airbus said were without basis.
"We are fully committed to the UK and to Airbus' highly skilled employees," said an Airbus spokeswoman, noting its UK facilities are already owned by Airbus, not BAE.
Airbus contributed #273 millions in earnings before interest, taxes and amortisation (EBITA) in 2005, 32 per cent of BAE's total. It contributed sales of #3 billion, 19 per cent of BAE's total.
But in recent years BAE has focused much of its growth on the US defence market, by far the world's largest.
It paid about $4 billion (#2.79 billion) for Bradley fighting-vehicle maker United Defense Industries in a move which underscored the importance of the US market to BAE's future.
However, a BAE spokeswoman yesterday said speculation about a pending bid by BAE for US defence firm L-3 Communications Holdings was unfounded.
"We can state that L-3 is not a target for BAE Systems," she said.
One of Britain's largest unions immediately called on the Government to block BAE's proposed deal.
"The Government should step in and block this sale," said John Wilson, a representative for the GMB union. "There should be no dallying about this."
But the Transport and General Workers Union (TGWU) said it was confident there would be no job losses.
"Our local representatives have reported it is business as usual'," said Andy Richards, regional secretary for the TGWU.
Nevertheless, BAE's proposals come at a time when Airbus is still embroiled in a bitter dispute with US arch rival Boeing.
Seattle-based Boeing has long been upset that Airbus has received launch aid - albeit repayable - from European governments including the UK Government.
The Americans have complained to the World Trade Organisation at what they see as an unlevel playing field.
Last October Airbus said that it would postpone drawing down any launch aid for the new A350 airliner for 12 months in an effort to sort out the row with the USA.
But last February EADS said no progress had been made in the trade dispute with the Americans and that Airbus would probably go ahead and ask for repayable launch aid for the A350.