Jeremy Warner's Outlook: If Rothschild is right about the value of Airbus, things must be even worse than BAE thinks

Much gnashing of teeth at BAE Systems and in the City yesterday over Rothschilds' "low ball" valuation of the company's 20 per cent stake in Airbus. One seasoned City observer found it "quite inexplicable". Others questioned Rothschilds' independence in the matter. Yet in truth all the investment bank has done is reflect BAE's own long, but privately held, view of downbeat prospects at Airbus.

This doesn't exactly write the aircraft manufacturer off as a dog, but it does put at the centre of the valuation process growing concern about the company's competitive position and its ability to meet that challenge, given its status as essentially a workshare co-operative among European nations.

Yet if the valuation is really as low as Rothschilds says - at around 6 times earnings before interest and taxation, it is little more than half that attributed to Boeing - then prospects at Airbus must be even worse than Mike Turner, the BAE chief executive, had thought.

Has Rothschilds been too harsh? Many British analysts, who had valued the BAE stake at anything up to double the £1.9bn eventually settled on, would think so. But though the BAE share price suffered in response, EADS, the Franco-German aerospace company which owns the rest of Airbus, barely moved at all.

This, I guess, might be explained by hopes that EADS could now pick up the BAE stake on the cheap. I wouldn't bank on it. Were it not for the momentum which has already built up behind this disposal, the BAE board would undoubtedly recommend against such an offer, which is much lower than the book value attributed to these assets by EADS. Even so, it may be that British expectations of the value had become unrealistically inflated. The EADS share price may already factor in less fanciful expectations.

Without knowing exactly how Rothschilds arrived at its valuation, it is hard to know how fair it might be. However, three negatives appear to have weighed heavily on the number crunchers' minds. One is the weak dollar, and the possibility that it might become weaker still. Since aircraft tend to be priced in dollars, this may already be all but wiping out Airbus's profitability on present orders. It also severely disadvantages the company against Boeing, which manufactures in dollars as well as sells in them.

The second big negative is the competitiveness of the Airbus product range. Airbus has bet the ranch on the superjumbo, but even if the programme eventually becomes profitable, the market for this aircraft is likely to remain comparatively limited. If, on the other hand, Boeing is successful with its planned "Dreamliner", for which the market may be a lot bigger, Airbus will be forced to respond.

While Airbus is doing this, Boeing could launch an updated 737, which could poleaxe the market for the A320, Airbus's big money spinner. In summary, by investing so much of its future in the superjumbo, now in any case severely delayed, Airbus may have disadvantaged itself in the bit of the market which makes all the money.

The third big negative is the related problem of Airbus's management structure, which still bears more resemblance to a political alliance than a properly commercial company. It won't be easy to radically restructure according to need as long as these political constraints remain. Airbus's management structure finds its mirror image in EADS, which likewise remains a Franco-German political fudge.

With the enforced departure of Noel Forgeard as co-chief executive over the weekend, there was an opportunity to streamline the management structure on more unified, commercial grounds. It wasn't taken.

So was the Rothschilds valuation justified? It might well have been. BAE has meanwhile said it wants out so that it can invest the money elsewhere. Would there be any point in waiting another year in the hope that the dollar strengthens or the competitive position of the company improves? Tempting though it must be for Mr Turner to tell EADS to go stick the valuation up its proverbial, not much would be gained from such posturing. BAE wants to sell because it thinks there is not much of a future for Airbus. Unfortunately for all concerned, Rothschild seems to agree.

RBS refuses to play ball on NatWest 3

Calls from the former director general of the CBI, Sir Digby Jones, for Royal Bank of Scotland to come riding to the rescue of the NatWest Three look misjudged. The idea that RBS has some kind of get out of jail card hidden up its sleeve that if produced would save the former bankers from extradition to the US is just wishful thinking.

The document cited is already largely in the public domain and certainly well known to prosecuting authorities and the courts. All it amounts to is a reaffirmation that the valuation assigned by the bankers to the NatWest interest in an Enron subsidiary was a fair one. RBS became involved because it subsequently acquired NatWest. Yet this is beside the point. Whether the price accepted by NatWest was fair or not is irrelevant to the substance of the alleged fraud, which is that Enron paid across a much larger sum which the NatWest Three and their partners pocketed in the belief that this was what had been agreed with NatWest.

The NatWest Three have become a cause célèbre because they are portrayed as victims of an iniquitously one-sided extradition treaty. This doesn't mean they are innocent, and the fact of the matter is that in the US they are subject to extremely serious criminal charges. The press has made them out to be paradigms of virtue, not fugitives from justice, but innocent victims of it. A careful reading of the indictment suggests otherwise.

What they seem to be looking for from RBS is a statement to the effect that the indictment is completely wrong. Yet even if RBS believed this to be the case, which I doubt, it would be quite wrong for the bank to kick against a judicial process which has already been made fully aware of all relevant facts and information.

In nearly all respects, the new extradition treaty with the US is rotten, not least because although legislation which makes it much easier to extradite has been enshrined in law here in the UK, it has yet to be ratified in the US. Yet Richard Lambert, the new director general of the CBI, seemed to have it about right when he said yesterday that bad law is for the Government to answer for, not RBS, whose extensive interests in the US further underscore the need to remain aloof. Extradition is for governments and the courts to decide, not companies.

Network Rail: more please

Network Rail faces quite a fight with the Rail Regulator and the Government over the costs of running, maintaining and developing the rail network in the five years that stretch from 2009. The Rail Regulator has already published an indicative range of £15.6bn to £20.3bn. Network Rail says it cannot even maintain the existing rail network for less than £20.8bn. It wants another £8bn on top for enhancements to cope with a predicted 30 per cent increase in passenger and freight traffic.

These extra monies can only come from three places - fares, the taxpayer or debt, which might as well be the taxpayer since it has to be underwritten by the Government to make it viable.

Fares may already be too high to allow for further growth in the market, while the Government, which already contributes half Network Rail's costs through subsidy, is determined not to cough up more. Since its sequestration from investors, the railway has eaten vast amounts of taxpayers' money. As with the National Health Service, it is not yet clear that we've had much value for our extra billions. To justify its demands for extra investment, Network Rail will have to do better on cutting operating costs than the £4.2bn already pencilled in.

j.warner@independent.co.uk