Europe's largest defence firm, BAE Systems, said it wants to sell its 20 per cent stake in top airliner maker Airbus to EADS, which could give it at least £2.85 billion for acquisitions in the United States.
"Discussions are at an early stage and a further announcement will be made if and when appropriate," BAE said in a statement to the London Stock Exchange.
BAE has an option to sell its stake in Airbus to EADS, the Franco-German-Spanish firm which owns the remaining 80 per cent.
"We believe that now is the right time for us to divest our Airbus shareholding to allow us to concentrate on our core trans-atlantic defence and aerospace strategy," BAE Chief Executive Mike Turner said.
The stake is valued at £2.44 billion in EADS' books but analysts expect any sale to be worth three billion pounds to £4.5 billion, buoyed in part by the currently high level of EADS and BAE share prices.
Sector analysts have said BAE was expected to sell its stake in Airbus at some stage, likely spending the proceeds in the US defence sector.
"Disposal of Airbus (and BAE's remaining European interests) could clear the way for a major US merger," Numis Securities analyst Andrew Gollan said in a research note.
BAE in recent years has focussed much of its growth on the US defence market, by far the world's largest.
It paid about $4 billion for Bradley fighting vehicle maker United Defence Industries in a move which underscored the importance of the US market to BAE's future.
Media speculation about a pending bid by BAE for US defence firm L-3 Communications Holdings Inc., however, was unfounded, a BAE spokeswoman said.
"We can state that L-3 is not a target for BAE Systems," she said.
The potential Airbus stake sale drew swift opposition from one of Britain's largest unions over concerns about keeping Airbus's wing-making technology as well as some 13,000 Airbus jobs in the UK.
"The government should step in and block this sale," John Wilson, a representative for the GMB union said in a news release.
BAE, EADS and Airbus said those fears were without basis.
An Airbus spokeswoman stressed that its UK facilities are already owned by Airbus, not BAE: "We are fully committed to the UK and to Airbus' highly skilled employees."
Analysts said a further drive into the US defence sector could potentially help margins, while potential for further growth in the UK was also seen as possible.
The company last month acknowledged discussions with fellow UK firm VT Group regarding a possible joint bid for smaller support services firm Babcock International Group. Getting out of the airliner sector would reduce BAE's exposure to the industry's notorious cyclicality, but analysts also noted BAE would have to find an investment to make up for the loss in operating profits.
"The challenge is to re-invest proceeds to mitigate dilution and therefore execution risk increases," Numis' Mr Gollan said. Its Airbus stake contributed £273 million to BAE's earnings before interest, taxes and amortisation (EBITA) in 2005, 32 per cent of its total. It contributed sales of three billion pounds, 19 per cent of BAE's total.
For EADS, the potential deal marks a second shake-up in its capital structure inside a week, after core industrial shareholders Lagardere of France and German automaker DaimlerChrysler announced plans to lower their stakes.
BAE shares were down 0.3 per cent at 429-3/4 pence versus the FTSE 100 index which was up 0.25 per cent at noon. EADS was off just 0.03 per cent at €32.17 in Paris, in line with the CAC 40 index.
In the debt markets, the cost of insuring the debt of both BAE and EADS against default via credit derivatives was unchanged, though analysts said the final impact on EADS would hinge on how any deal was financed.
"A full cash payment ... could weaken credit metrics sufficiently to result in one notch (credit rating) cuts," one bonds analyst said.
EADS is rated A1 by Moody's Investors Service and A by both Standard & Poor's and Fitch Ratings.