BAE agrees to merge avionics unit

BAE has announced a number of significant operational changes

UK defence firm BAE Systems has agreed to merge its aircraft electronics division with that of an Italian rival in return for £364m ($686m).

BAE, which on Thursday announced 1,400 job losses, will own 25% of the new company, with the other three-quarters held by Italy's Finmeccanica.

The newly-formed business will have a market value of about £1.1bn.

Finmeccanica also will buy BAE's UK air traffic management business and its British communications operation.

'Securing control'

The money from the sales will be used to pay off debt, BAE said, adding that 2005 earnings would take a slight hit from the deals.

It said the agreements were aimed at "securing control and clear management responsibility" for key businesses in the European defence industry.

BAE stands to get a further £269m if it decides to sell its holding in the newly-formed electronics business.

Finmeccanica will pay £10m for BAE's air traffic business, as well as taking on £3.5m of debts. It will spend £24.5m to get control of BAE's UK communications operation.

Falling sales

The UK operations are worth more than the Italian, and BAE will have to pay £50.5m to 'equalise' the transaction.

BAE said on Thursday that it plans to cut 1,396 jobs across the UK, citing a lack of orders.

BAE employs 40,000 people at 70 sites across the UK, almost half of its 90,000 staff worldwide.

The company has said that business has been hit by cuts to defence budgets and there was speculation last year that the firm would be broken up and sold off.