More Airbus factory sale talks collapse

By Tim Hepher and James Regan Reuters - Wednesday, May 7 03:26 pm

PARIS/FRANKFURT (Reuters) - Airbus scrapped plans to sell two French factories to one of its suppliers on Wednesday, bowing to the global credit crisis for the second time in a month after a similar sale collapsed in Germany.

The move comes a day after the European planemaker rattled investors by confirming it had alerted customers to "challenges" in delivering the A380, triggering speculation of a fourth set of delays to the superjumbo which is already two years late.

Airbus, owned by European aerospace group EADS, said it had abandoned plans to sell production plants in Meaulte, northern France, and Saint-Nazaire on the French Atlantic to Toulouse-based supplier Latecoere.

Following a year of talks, it said "a viable solution could not be finalised within the required timeframe, in particular due to the current difficult financial environment".

Latecoere immediately announced it would end temporary contracts with 200 workers when they came up for renewal and said it could be forced to move some of its operations to cheaper countries and sack some of its workers.

Shares in EADS rose 1 percent to 16.31 euros after falling earlier in the week on speculation of the collapse of factory talks and possible delays to the A380.

Latecoere stock fell 2 percent to 13.98 euros.

Airbus said it was sticking to its operating and cash savings targets under its Power8 restructuring plan. The factories had not been expected to raise much cash.

However the breakdown of factory sales cast a shadow over Airbus's hopes of transferring costly research into new materials for its future A350 plane to its suppliers, with only Filton in Britain on course to be sold out of an original six.

A separate sale of a seventh plant, a cabins factory at Laupheim in Germany -- which is not part of the drive to develop a new airframe for the planned A350 rival to Boeing's 787 Dreamliner -- is also going ahead.

The Laupheim and Filton deals will be finalised within weeks, Airbus said in a statement. It is in talks to sell the Filton wings factory to GKN of Britain.

A380 FEARS

The fate of the factories is directly linked to fluctuations in the dollar, one of the main factors behind a 26 percent drop in EADS shares this year. But analysts said investors would focus more for the time being on any possible A380 delays, for which customers could seek compensation.

A timetable review is expected to be concluded in 2-3 weeks.

"The factories will be sold at a later date when conditions are more favourable. In our view, it is better not to sell than to sell on poor terms," said Natixis analyst Olivier Brochet.

Latecoere said it was studying the possibility of taking part in the A350 programme in other ways with Airbus.

"What is difficult to work out but is very important is the impact on the A350 programme," said Oppenheim analyst Winfried Becker. "So far, market participants do not judge it as negative (for EADS). I am 100 percent sure (management) will look for alternatives and they will keep an eye on cost control."

Power8 is an umbrella plan calling for annual savings of 2.1 billion euros (1.65 billion pounds) and 10,000 job cuts by 2010. It includes plans to sell the factories to attract investment in lightweight composite materials needed to compete with Boeing's Dreamliner.

However, industry officials said Airbus and suppliers could not agree how to share currency risk, with EADS anxious to pay for parts in dollars. Doubts also grew over the ability of its relatively small suppliers to weather the global credit crisis.

Boeing sold factories to lower its costs and forged risk-sharing partnerships with other firms as it embarked on development of the 787, though the U.S. company has since encountered delays in delivering the futuristic aircraft.

French unions predicted the collapse of the Latecoere talks earlier this week and the equipment maker said on Tuesday it remained prepared to buy the Meaulte and Saint-Nazaire factories under the original offer of majority control.

It denied that it faced difficulties raising finance.

Airbus said it would now spin off the two French sites into a separate subsidiary, ready for sale talks to resume later and matching the option chosen when talks to sell three German plants to MT Aerospace broke down last month.

"This does not change the site divestment strategy and Airbus will proceed with the carve-out of these sites into a separate unit, as is being implemented for the sites of Augsburg, Nordenham and Varel," it said in a statement.

"This will prepare the sites for a partnership and sale at a later stage."

(Editing by Jason Neely and David Holmes)

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