BAE Systems, Europe’s largest defense company, announced that it was selling its 20 percent shareholding in Airbus, Europe’s largest aircraft manufacturer, to EADS, the Franco-German aerospace company that already owned 80 percent of Airbus. The CEO of BAE Systems stated that Airbus had been an excellent investment but “we believe that now is the right time for us to divest our Airbus shareholding to allow us to concentrate on our core strategy.” BAE’s cost basis of its investment in Airbus was believed to be \($4.3\) billion, with a current market value of approximately \($7.8\) billion. Prior to 2001, at which time BAE and EADS purchased their shareholdings in Airbus, the passenger aircraft manufacturer had been structured as a “consortium” whose assets were held by national companies in the United Kingdom, France, Germany, and Spain. Discuss how Airbus might have been accounted for prior to 2001. Following the sale of Airbus to BAE and EADS in 2004, how would each firm’s investment in Airbus have been accounted for?

Estimate BAEB’s gain on the divestiture of its Airbus shareholding.