Boeing raises BAE merger stakes

Phil Condit, Boeing's chief executive, has raised the prospect of a transatlantic merger with BAE Systems, boosting the troubled British defence contractor's shares yesterday.

Speaking in London late on Tuesday, Mr Condit made it clear that Boeing, the world's largest aerospace group, was keen to establish a stronger presence both in the UK and in continental Europe.

"I happen to believe that we are moving into an era of integrated systems and inter-operability that's significantly higher than anything we have seen before and we will need to work with companies on this side of the Atlantic in a much closer way than in the past," he said.

One BAE executive said the company was "under no illusion" that if a US group such as Boeing wanted to increase its European presence it would look closely at Britain's leading defence contractor. "We are obviously an attractive company for them," he said.

Talks between Boeing and BAE about closer links have taken place over the years and Mr Condit and Sir Dick Evans, BAE chairman, were at a private top-level Whitehall conference yesterday to discuss closer defence collaboration.

But the recent collapse in BAE's share price, after the row with the Ministry of Defence over two military contracts, may have scuppered prospects of an immediate merger.

Analysts have warned that BAE's depressed value would make it hard to reach an equitable deal and one industry source said shareholders could demand too high a premium.

Mr Condit, who underlined the strong relationship be tween Boeing and BAE, said: "We are not in a place that says it is a merger opportunity... Not now."

Boeing insiders also took issue with reports in the German newspaper Die Welt. In an interview Mr Condit was quoted as saying BAE was "an interesting candidate for a merger," but they insisted he had said no such thing.

BAE said, however, that if the share price had not fallen so sharply because of the MoD row "things might be moving much further forward".

The company's stock rose 3.5% yesterday to close at 116p on merger talk.

With Sir Dick pointing to "shifting geo-political sands", his aides said BAE wanted to expand its US business, which now accounts for a quarter of sales.

The company sees a growing gap in technology between the US and Europe, with American groups likely to win more contracts this side of the Atlantic.

Mr Condit, meanwhile, conceded that the longer any Iraqi conflict lasted the greater the damage to air travel and to airlines' ability to recover and order more planes, especially in the US where some airlines are in bankruptcy protection.

The fragility of the market was underlined yesterday when British Airways said that traffic on its flights had fallen by 5.6% last month and warned that the growing threat of war and terrorism posed a serious challenge.

Mr Condit, who expects the Iraqi conflict to be short, thinks Boeing will deliver just 280 planes this year and between 275 and 300 next year.

The US company hopes to decide around the turn of the year on the launch of its new 7E7 plane which Mr Condit said could be used by the first low-cost carrier to offer transatlantic flights.