Formation of New Company, etc

BAE Systems PLC
23 June 2000


     BAE SYSTEMS and partners agree Airbus restructuring
               A3XX authority to offer signed
               
               
BAE SYSTEMS, in conjunction with its Airbus partners,
announces the formation of a new Airbus Integrated Company
('AIC').

Separately, the four members of the Airbus Supervisory Board
have signed an authority for Airbus Industrie to offer the
A3XX to potential airline customers.

AIC will incorporate all the major Airbus activities of BAE
SYSTEMS and European Aeronautic Defence and Space Company
('EADS'), the company currently being formed by Aerospatiale
Matra, DASA and CASA, who are BAE SYSTEMS' partners in the
current Airbus consortium.

AIC will be an integrated organisation under the day to day
control of a single, focused management team, with the
objective of delivering improved operating performance and
greater shareholder value.

Efficiencies and savings are expected from the removal of
interfaces, full cost transparency and procurement.

Under the terms of the agreement to form AIC.  BAE SYSTEMS
will be transferring to AIC its 20 per cent. interest in the
Airbus GIE (the Airbus marketing, sales and customer support
partnership). In addition, BAE SYSTEMS' design, engineering
and manufacturing assets (principally associated with the
supply of Airbus wings, located at Filton and Broughton in
the UK) will be transferred to AIC.  Similarly, the GIE
interests and the design, engineering and manufacturing
activities of EADS, located in France, Germany and Spain,
will also be transferred to AIC.

BAE SYSTEMS will own a 20 per cent. interest in AIC, EADS
will own the remaining 80 per cent.  BAE SYSTEMS will have
the right to appoint two representatives to the seven person
shareholder board of AIC and, in addition, will have
appropriate minority shareholder protections including the
requirement for unanimous shareholder agreement on certain
matters.

BAE SYSTEMS will also be entitled to receive enhanced
dividends on its AIC shareholding, based on A340-500/600
aircraft deliveries over a 10 year period, conditional upon
achieving certain delivery thresholds.  This could yield up
to an additional Euros 237.5 million , which
amount will be indexed to future turnover and profit growth
in AIC.

BAE SYSTEMS will have an option to sell its 20 per cent. AIC
interest to EADS, exercisable at any time after 3 years from
completion and earlier in the event of a specified change of
control of EADS or a disagreement over certain defined
matters.  EADS will have a call option over BAE SYSTEMS'
interest in AIC exercisable in the event of a specified
change of control of BAE SYSTEMS.  The purchase price
payable on exercise of these options will be the market
value of BAE SYSTEMS' interest in AIC (including the right
to enhanced dividends) at the time of exercise.

On BAE SYSTEMS' current accounting policies, BAE SYSTEMS'
Airbus interests being contributed to AIC ('BAE SYSTEMS
Airbus') on a pro forma basis reported sales of £2,265
million and a loss before interest, tax and foreign exchange
losses at the GIE level of £25 million in the year ended 31
December 1999 and, as at 31 December 1999, had net assets of
£332 million.

BAE SYSTEMS Airbus' financial result for 1999 reflect a
strong underlying operating profit performance of £217
million associated with its manufacturing business, offset
by a high level of product development activity charged to
profits, totalling £200 million including repayment of £176
million of Launch Aid to the UK Government.  In addition,
BAE SYSTEMS' share of losses at the GIE level was £42
million.

On a pro forma basis, in the year ended 31 December 1999,
AIC would have had sales of Euros 15,710 million (£10,800
million) and operating profit of Euros 1,033 million (£710
million).  On the same pro forma basis, BAE SYSTEMS Airbus
would have contributed sales of Euros 3,293 million (£2,265
million) and operating profit of Euros 137 million (£94
million).  BAE SYSTEMS will joint venture account for its 20
per cent. interest in AIC. Accordingly, on the same pro
forma basis as above, for the year ended 31 December 1999,
BAE SYSTEMS would have consolidated operating profit of
Euros 207 million (£142 million) for its 20 per cent.
interest in AIC.

As at 31 December 1999, AIC would have had pro forma net
liabilities of Euros 5,322 million (£3,326 million), with
BAE SYSTEMS Airbus contributing pro forma net liabilities of
Euros 962 million (£601 million).

The AIC pro forma financial information presented above
combines the financial statements of the businesses being
injected into AIC, using the accounting policies which EADS
is to adopt.  The principal differences from BAE SYSTEMS'
accounting policies are the treatment of foreign exchange,
the treatment of launch aid and the treatment of research,
development and tooling expenditure on new programmes.

AIC will be headquartered in Toulouse and will employ
approximately 40,000 people at locations in France, Germany,
Spain and the UK.  The employment and pension rights of BAE
SYSTEMS Airbus employees will be safeguarded under the
agreement with the other Airbus partners.

Conditions to the transaction include the
formation of EADS and regulatory
clearances.  The transaction is expected
to be completed by the end of the year.

Commenting on the agreement to form AIC,
Sir Richard Evans, Chairman of BAE
SYSTEMS, said:

'This landmark agreement is tremendous
news for the European aerospace industry
and testimony to the faith and commitment
of those who founded Airbus Industrie. BAE
SYSTEMS and EADS will now benefit from the
efficiencies and savings that a single
company will bring.'

'Airbus has grown from a standing start 30
years ago to a turnover of almost $16 billion
in 1999 and that position will be further
strengthened by the A3XX programme.  The
progressive launch of an innovative, high
technology family of aircraft has underpinned
that growth.  Airbus will now progress with
an organisational structure better able to
deliver further profitability and, with our
representation on the board of AIC, BAE
SYSTEMS intends to play an active role in
ensuring the AIC realises its full
potential.'

BAE SYSTEMS is being advised by Dresdner
Kleinwort Benson.

Issued by:
Corporate Communications
BAE SYSTEMS
Farnborough