Shropshire Star

R&D spending key to GKN future, says Airbus

Airbus has warned Melrose Industries that it will monitor its spending on research and development should the industrial turnround specialist win its hostile £8 billion cash-and-shares bid for aerospace supplier GKN next week.

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The European aircraft manufacturer, which is GKN's biggest aerospace customer, held a conference call with Melrose management to discuss its concerns about a change of ownership at the FTSE engineer.

"We made our position very clear that we expect our suppliers not only to perform and ramp up in line with our projections, but that we expect them to invest for long-term sustainability and the effectiveness of their business," said one Airbus insider close to the discussions.

"If they skimp on R&D it will come back to bite them."

The insider said the same warning applied to GKN should it defeat Melrose's bid.

"This is a warning shot across the bows of both companies," he said.

GKN has a major operation in Telford and employs about 340 people at Hadley Park, making structural parts including wheels.

Melrose's bid for GKN was dealt a severe blow last week when Airbus said it would be "practically impossible" to give new work to the aerospace and automotive engineering group should the turnround specialist take it over.

Tom Williams, chief operating officer of Airbus's commercial aircraft division, voiced concerns about the Melrose model, which is to acquire underperforming companies with a view to improving them for sale. Mr Williams suggested that such an owner might not have the same commitment to "long-term investment and strategic vision" – a charge Melrose fiercely denied.

Both Melrose and Airbus refused to comment on the conference call. However, people close to the discussions on Wednesday confirmed that Mr Williams and Simon Peckham, Melrose chief executive, were both involved.

GKN announced an agreed deal with pension fund trustees early in March when it unveiled its plan to sell control of its Driveline business to automotive supplier Dana of the US. Under the terms, it is injecting £235 million in cash while Dana is putting in £124m. It has also promised a further £390m from the proceeds of planned disposals.

This week it emerged Dana is to invest £21m in its Birmingham site after winning contracts to supply axles to the next generation of Jaguar and Land Rover luxury vehicles. It expects the value of the programs for front and rear axles to total more than £300m.