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BOEING CONFIRMS INTERSET IN EUROPEAN ACQUISITIONS

7 Mar 03. The possibility of Boeing making a major European acquisition, with BAE Systems being the favourite target, reported so many times in BATTLESPACE, has not gone away. Phil Condit, chairman and chief executive of Boeing (NYSE:BA – News), reiterated the company’s desire to make major acquisitions in Europe, despite the difficulties it faced in winning regulatory approval for its $15 billion takeover of McDonnell Douglas in 1997. Last month we reported on the company’s interest in making a major alliance with Italy’s Finmeccanica.

Speaking in Brussels after a meeting with thee E.U. Commission’s anti-trust chief Mario Monti, Condit said BAE Systems PLC of the U.K. remained one of the companies Boeing had in its long-term sights.

“We want to build a global presence,” Condit said. “We are looking at a number of possibilities, including BAE.” He made similar comments earlier this week in London. In Brussels, he added a caution, saying “there is nothing in the offing here shortly.”

The Boeing chief also announced the creation of a new E.U. and NATO public relations post. Joris Vos, a seasoned diplomat who served as Dutch Ambassador to the U.S. for nine years, will raise the company’s profile in the two institutions.

While Condit declined to name any other potential European acquisition targets, he said a small acquisition was just as likely as a large one. A model was the recent purchase of smaller U.S. company Conquest Inc., which provides systems engineering and software to U.S. intelligence. Condit said Boeing didn’t have any specific timescale in mind and the closure of deals wouldn’t depend on a recovery in the company’s share price.

“We have significant cash generation” and could use “cash or a mix of cash and stocks,” he said. But while cash isn’t a problem, getting approval from the E.U. antitrust authorities might be harder. Karel van Miert, the E.U.’s former anti-trust czar, risked a trade war with the U.S. by holding up Boeing’s takeover of McDonnell Douglas. The Commission cleared the deal after Boeing agreed at the last minute to loosen its exclusive contracts to sell planes to three major U.S. airlines.

Monti’s decision to block General Electric Co.’s $43bn purchase of Honeywell International Inc. (NYSE:HON – News) in summer 2001 proved even more controversial.

“Some people in the U.S. were quite worried” after the GE problems, said Condit. Since then, however, he says Monti has been more conciliatory.

“Post the GE-Honeywell decision, the Commissioner has done an amazing job, an excellent job of building together with his counterparts in the U.S.,” Condit said.

Still, a merger between Boeing and BAE could prove problematic. BAE is Europe’s largest builder of military equipment. In addition, BAE owns a 20% stake in Boeing’s chief rival European aircraft-making consortium Airbus.

Boeing’s business activities have also come under close scrutiny from European trade officials. The E.U. and U.S. have long argued over subsidies to aircraft makers. In 1992, they attempted to settle the issue, but the agreement is open to several interpretations.

The E.U. argues that the billions in aid to Airbus comply with the agreement because the money pays for research. But the U.S. says Airbus now has more than half of the new aircraft market. This year, Airbus is looking to build around 300 planes. Condit said his prediction that Boeing will deliver around 280 commercial aircraft this year ” holds,” though he admitted a protracted war in Iraq could hurt. Condit said he was “comfortable” with the current level of the dollar against the euro. Although airliners are priced globally in dollars, he said Boeing spends around €4bn on parts in Europe. Likewise, Airbus spends a similar amount in the U.S.

Comment: Three factors will affect the timing of this deal, one the value of the 20% stake in Airbus which BAE holds. The s

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