Airbus valuation

BAE SYSTEMS PLC
02 July 2006

BAE SYSTEMS PLC

2 July 2006



   Not for release, publication or distribution in or into the United States,

              Canada, Australia, Japan or the Republic of Ireland.


          BAE SYSTEMS PLC PROPOSED DISPOSAL OF ITS AIRBUS SHAREHOLDING


BAE Systems plc ('BAE Systems' or the 'Company') announces that the price (the '
Price') payable by European Aeronautic Defence and Space Company EADS N.V. ('
EADS') in relation to the proposed disposal of BAE Systems' entire interest in
Airbus S.A.S. ('Airbus') (the 'Proposed Disposal') has today been determined by
an independent expert to be €2,750 million (£1,903 million(1)).


Summary:


•        Aggregate consideration for the Company's 20 per cent. interest in
         Airbus of €2,750 million (£1,903 million)

•        Net proceeds to BAE Systems, after offsetting outstanding loans between
         BAE Systems and Airbus and transaction costs, of approximately 
         €1,650 million (£1,142 million)

•        Price determined by the independent expert appointed in accordance with
         the terms of the shareholders' agreement between BAE Systems, EADS and 
         Airbus

•        Proposed Disposal subject to the approval of BAE Systems' shareholders

•        Having received the determination of the Price, the Board of BAE
         Systems will now consider its recommendation to shareholders regarding 
         the Proposed Disposal

•        Further details regarding the Proposed Disposal will be set out in a
         circular to be sent to BAE Systems' shareholders shortly


This summary should be read in conjunction with the full text of this
announcement.


Enquiries:


BAE Systems
Andy Wrathall (Investor relations)                         Tel: [phone]
John Neilson (Media relations)                             Tel: [phone]


Goldman Sachs International (Financial adviser to BAE Systems)
Simon Dingemans                                            Tel: [phone]
Dominic Lee


Gleacher Shacklock LLP (Financial adviser to BAE Systems)
Tim Shacklock                                              Tel: [phone]
James Dawson


This announcement is for information purposes only and does not constitute an
offer or invitation to acquire or dispose of any securities or investment advice
in any jurisdiction.


Goldman Sachs International, which is authorised and regulated by the Financial
Services Authority, is acting exclusively for BAE Systems in relation to the
matters described in this announcement and is not advising any other person and
accordingly will not be responsible to any person other than BAE Systems for
providing the protections afforded to the customers of Goldman Sachs
International or for providing advice in relation to the matters described in
this announcement.


Gleacher Shacklock LLP, which is authorised and regulated by the Financial
Services Authority, is acting exclusively for BAE Systems in relation to the
matters described in this announcement and is not advising any other person and
accordingly will not be responsible to any person other than BAE Systems for
providing the protections afforded to the customers of Gleacher Shacklock LLP or
for providing advice in relation to the matters described in this announcement.


This announcement includes 'forward-looking statements'. All statements other
than statements of historical facts included in this announcement, including,
without limitation, those regarding the Company's financial position, business
strategy, plans and objectives of management for future operations are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors which could cause the
actual results, performance or achievements of the Company or the markets and
economies in which the Company operates to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements.  The Company cannot give any assurance that the
Proposed Disposal will be completed or that it will be completed on the terms
described in this announcement.


This announcement is not an offer for sale within the United States of any
security of the Company. Securities of the Company, including its ordinary
shares, may not be offered or sold in the United States absent registration
under the U.S. securities laws or unless exempt from registration under such
laws.



   Not for release, publication or distribution in or into the United States,
              Canada, Australia, Japan or the Republic of Ireland.



          BAE SYSTEMS PLC PROPOSED DISPOSAL OF ITS AIRBUS SHAREHOLDING



1.   Introduction


BAE Systems plc ('BAE Systems' or the 'Company') announces that the price (the '
Price') payable by European Aeronautic Defence and Space Company EADS N.V. ('
EADS') in relation to the proposed disposal of BAE Systems' entire interest in
Airbus S.A.S. ('Airbus') (the 'Proposed Disposal') has today been determined by
an independent expert to be €2,750 million (£1,903 million(1)).


Due to its size, the Proposed Disposal requires the approval of BAE Systems'
shareholders at an extraordinary general meeting (the 'Extraordinary General
Meeting').  Having received the determination of the Price, the Board of BAE
Systems will now consider its recommendation to shareholders, details of which
will be set out in a circular (the 'Circular') to be sent to shareholders
shortly.



2.   Background to and Reasons for the Proposed Disposal


BAE Systems' 20 per cent. shareholding in Airbus (the 'Airbus Shareholding')
represents a minority shareholding in a business over which BAE Systems does not
have full control.  Furthermore, the Board of BAE Systems has determined that
the Airbus Shareholding is non-core to the long-term development of BAE Systems.
On 7 April 2006, BAE Systems therefore announced that it had entered into
discussions with EADS regarding the disposal of its Airbus Shareholding.


In accordance with the provisions of the shareholders' agreement dated 11 July
2001 between EADS, BAE Systems and Airbus (the 'Shareholders' Agreement'), BAE
Systems served upon EADS on 7 June 2006 a formal notice of exercise of its put
option requiring EADS to purchase the Airbus Shareholding on the terms set out
in that agreement.  On 20 June 2006, in accordance with the Shareholders'
Agreement, BAE Systems and EADS appointed N M Rothschild & Sons Ltd and
Rothschild & Cie (together, 'Rothschild') to act as an independent expert for
the purposes of determining the Price.  Rothschild today informed BAE Systems
and EADS of its determination of the Price.



3.   Information on Airbus


Airbus is a leading manufacturer of commercial aircraft.  The Airbus product
line includes a comprehensive range of passenger aircraft models, from the
100-seat, single-aisle A318 jetliner to the new, long-range 555 (or more) seat
A380.  In addition to commercial jet airliners, Airbus produces freighter
aircraft and is developing the A400M military transport aircraft.


The Airbus Shareholding represents 20 per cent. of Airbus' ordinary issued share
capital.  The remaining 80 per cent. of Airbus' ordinary issued share capital is
owned by EADS.  Airbus has no other shareholders.


For the year ended 31 December 2005, BAE Systems' 20 per cent. share in Airbus
generated profits before taxation of £254 million on sales of £3,002 million.
As at 31 December 2005, BAE Systems' 20 per cent. share in Airbus represented an
amount of net assets of £110 million and gross assets (including goodwill) of
£5,847 million.


On 13 June 2006, Airbus announced that the delivery schedule for the A380
programme would undergo a delay of six or seven months due to production ramp-up
issues, which are likely to limit aircraft deliveries to nine in 2007 and result
in further delivery shortfalls in 2008 and 2009.  Airbus stated that these
delays were caused by industrial issues, which are mainly traceable to
bottlenecks formed in the definition, manufacture and installation of electrical
systems and resulting harnesses.



4.   Principal Terms of the Proposed Disposal


The Proposed Disposal would be structured as the sale by BAE Systems to EADS of
BAE Systems France (Holdings) S.A.S., a wholly owned subsidiary of BAE Systems
and the entity that holds its 20 per cent. shareholding in Airbus.


Under the terms of the Shareholders' Agreement, the form of the aggregate
consideration to be paid by EADS to BAE Systems will be determined by EADS prior
to completion of the Proposed Disposal.  EADS can elect to satisfy the aggregate
consideration in cash, by an allotment of shares in EADS to BAE Systems, or by a
mixture of cash and EADS shares.  In the event that EADS were to elect to
satisfy part or all of the consideration by an allotment of EADS shares, the
number of shares is to be determined on the basis of the average closing mid
market price of EADS over the period of ten trading days prior to completion of
the Proposed Disposal.  Depending on prevailing market conditions, BAE Systems
will seek to sell any EADS shares received as part of the consideration for the
Proposed Disposal as soon as it deems the sale both practicable and attractive
for the Company.


The Proposed Disposal is conditional upon the approval of BAE Systems'
shareholders at the Extraordinary General Meeting.  If BAE Systems shareholder
approval for the Proposed Disposal is obtained, completion of the transaction
will take place not later than ten days after the date of receipt of such
approval.



5.   Financial Effects of the Proposed Disposal and Use of Proceeds


Although the Proposed Disposal would result in significant near-term earnings
dilution, it would strengthen BAE Systems' financial position.  The Proposed
Disposal would also enable BAE Systems management to focus on the Company's core
defence and aerospace businesses, which it believes offer good prospects for
growth both organically and through selective acquisitions.


The aggregate consideration for BAE Systems' 20 per cent. shareholding in Airbus
is €2,750 million (£1,903 million).  Following repayment of debts outstanding
between BAE Systems and Airbus at completion and the payment of transaction
related costs, net proceeds to BAE Systems are estimated to be approximately
€1,650 million (£1,142 million).


It is anticipated that there would be no material taxation payable on the
Proposed Disposal, although this would require formal clearance from HM Revenue
& Customs.


It is expected that the Circular will contain additional information regarding
the use of proceeds in the event that BAE Systems shareholder approval for the
Proposed Disposal is obtained.



6.   Management and Employees


So as to provide continuity of pension rights, it is intended that the Airbus UK
employees would remain in the BAE Systems group pension plans and that the
contributions for both employees and Airbus UK would remain unchanged.  These
arrangements are the subject of continuing discussions between BAE Systems and
EADS.  BAE Systems also understands that EADS has reiterated its strong
commitment to Airbus' UK operations and the sites at Broughton and Filton.



7.   Extraordinary General Meeting and Shareholder Approval


The Proposed Disposal will be subject to the approval of BAE Systems'
shareholders at the Extraordinary General Meeting.  The Circular containing
further details of the Proposed Disposal and setting out the notice of the
Extraordinary General Meeting will be sent to BAE Systems' shareholders shortly.



Enquiries:


BAE Systems
Andy Wrathall (Investor relations)                         Tel: [phone]
John Neilson (Media relations)                             Tel: [phone]


Goldman Sachs International (Financial adviser to BAE Systems)
Simon Dingemans                                            Tel: [phone]
Dominic Lee


Gleacher Shacklock LLP (Financial adviser to BAE Systems)
Tim Shacklock                                              Tel: [phone]
James Dawson



This announcement is for information purposes only and does not constitute an
offer or invitation to acquire or dispose of any securities or investment advice
in any jurisdiction.


Goldman Sachs International, which is authorised and regulated by the Financial
Services Authority, is acting exclusively for BAE Systems in relation to the
matters described in this announcement and is not advising any other person and
accordingly will not be responsible to any person other than BAE Systems for
providing the protections afforded to the customers of Goldman Sachs
International or for providing advice in relation to the matters described in
this announcement.


Gleacher Shacklock LLP, which is authorised and regulated by the Financial
Services Authority, is acting exclusively for BAE Systems in relation to the
matters described in this announcement and is not advising any other person and
accordingly will not be responsible to any person other than BAE Systems for
providing the protections afforded to the customers of Gleacher Shacklock LLP or
for providing advice in relation to the matters described in this announcement.


This announcement includes 'forward-looking statements'. All statements other
than statements of historical facts included in this announcement, including,
without limitation, those regarding the Company's financial position, business
strategy, plans and objectives of management for future operations are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other important factors which could cause the
actual results, performance or achievements of the Company or the markets and
economies in which the Company operates to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements.  The Company cannot give any assurance that the
Proposed Disposal will be completed or that it will be completed on the terms
described in this announcement.


This announcement is not an offer for sale within the United States of any
security of the Company. Securities of the Company, including its ordinary
shares, may not be offered or sold in the United States absent registration
under the U.S. securities laws or unless exempt from registration under such
laws.


---------------------------------

Notes:


(1)  All figures in this announcement, excluding the historical information set
out in Part 3, have been converted at an exchange rate of €1.445 = £1.000,
unless otherwise stated.


                      This information is provided by RNS
            The company news service from the London Stock Exchange