BAE is set to sell space stake

BAE SYSTEMS is understood to be close to clinching the sale of its 25% stake in Astrium, Europe's biggest space company, to its partner Eads, which holds the remaining 75%. The British defence group and its continental European peer are said to have reached agreement on price, but the planned disposal is likely to need approval from Britain's Ministry of Defence because of the group's military contracts.

BAE's withdrawal could prove extremely sensitive because it would end its involvement in the manufacture of Britain's military satellites and could affect the £2bn military communications contract awarded to the Paradigm consortium, which includes Astrium. It could also influence Britain's controversial commitment to the planned Galileo European satellite navigation system for which Astrium will be lead contractor.

BAE could not be reached for comment, but BAE chief executive Mike Turner is reported to have acknowledged earlier this year that withdrawal from the business was under consideration.

Outline agreement on the terms of BAE's exit coincides with the announcement of a far-reaching overhaul of Astrium that will result in the loss of 1,200 jobs among the 8,000 staff. Some 400 jobs will be lost in Britain among employees of the former Matra Marconi Space business which was merged by BAE with French, German and Italian interests to form Astrium in March 2000.

Despite annual sales of around e2bn (£1.3bn), Astrium's profitability has been dragged down by the poor performance of the satellite launch business injected by German defence group Dasa when Astrium was formed, as well as a slowdown in the market for telecoms satellites.

The reorganisation, apparently agreed by BAE and Eads to take effect from 1 July, will bring manufacturing activities under single control as a supplier to business divisions focused on military communications, telecoms, and earth observation, which will include the Galileo programme. Eads is subsequently expected to separate the launchers business, possibly merging it with French rival Arianespace, and seek closer ties with French rival satellite maker Alcatel.

BAE, meanwhile, is in talks with US defence to car parts group TRW, apparently attracted by the hope of gaining sole control of TRW's space systems division, a major contractor to the US Department of Defence. TRW, which plans to spin-off its car components, has already received a $6.68bn (£4.5bn) bid from US defence group Northrop Grumman.