The news is out -- and so is BAE.
Over the weekend we learned that British defense contractor BAE Systems -- bane of MRAP-maker Force Protection
At first glance, the headline news isn't all that surprising. We all know how the Pentagon has been twisting arms and pinching pennies in the defense sector, axing first the Lockheed Martin Raptor fighter jet, then making a quick march to kill General Electric's
It's not the defense sector that BAE's fleeing. It's aerospace.
Fly free, BAE!
Yes indeed, folks. According to news reports, BAE's put its North American commercial aerospace division up for auction, anointing JPMorgan Chase
What's got BAE so down on its up-in-the-air business? It's hard to say; BAE hasn't broken out numbers for its Commercial Aerospace division since 2004. Media reports, however, tell us that the businesses going up for sale generated a combined $200 million in earnings before interest, taxes, depreciation, amortization (EBITDA) last year. If the company gets its asking price, therefore, BAE would be selling for about 10 times EBITDA -- a hefty premium, when you consider that the entirety of BAE currently commands a price-to-EBITDA ratio of less than four.
BAE may also be paving the way for an orderly withdrawal from the U.S. market entirely. Slice off the commercial end of the North American business, and you're left with a rump "BAE N.A." that consists largely of defense businesses. In an environment where U.S. rivals are looking to make acquisitions to shore up their revenue streams, that could be a very savvy move -- appeasing government regulators, streamlining the accounting books, and making for an easier-to-digest acquisition, all in one fell swoop.
If that's the British plan, I've got just one word to day about it: Brilliant!
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