IN April, it all seemed so straightforward. BAE Systems would sell its 20 per cent stake in Airbus, just after the peak of the commercial aviation cycle and it would go on to recycle the proceeds in the lucrative American defence market.

That was before news of delays in Airbus’s flagship A380 Dreamliner project and the revelation that the co-chairman of EADS, Noël Forgeard, had sold his shares weeks before details of the problems involved in manufacturing this massive new aircraft were made public.

It is only three weeks since Airbus made its revelations, but for BAE Systems it must have seemed like an eternity. Now it has been presented with the stark reality of the market’s lack of confidence in Airbus.

In April, analysts could see no ceiling to the possible value of the BAE stake. Taking £2.4 billion as their starting point, they reached figures ranging from £4 billion to £6 billion. This would have given the company a huge cash pile to go shopping in America. It also made suggestions of a share buyback look plausible.

Now it seems both ambitions will be curtailed, at least in the short term. Any thought of a share buyback has been quashed. Potential acquisitions, although still affordable, will probably not happen until the Airbus issue, which is taking a huge amount of management time, is resolved.

Yesterday some of the more patient shareholders were loathe to blame BAE’s management team of Mike Turner, chief executive, and George Rose, finance director. However, short-term investors will be seeking to offload the shares. This is not the time to follow their lead. BAE Systems shares have fallen by more than 100p to 357¾p from their February peak, but the rationale for turning BAE Systems into a pure defence company has been underlined by the recent events at Airbus.

By putting its money into the US, BAE is choosing a lower risk, less cyclical, higher margin route. BAE has to step up its commitment to the US or risk becoming only a bit-part player there. To comfort nervous investors, the company has a good record on acquisitions.

Once it is free of the ball and chain that is Airbus, it can complete the transformation that should make it one of the top three defence firms in the world. The shares are far from expensive at 14 times prospective earnings. This is no time to panic and no time to sell.

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