Hugely important in what the company does and the value that it brings to the UK economy, exports and employment, with permission I am this morning republishing in full the extremely interesting and well written interview between Alan Tovey, Industry Editor of the Sunday Telegraph and Charles Woodburn, CEO of BAE Systems that appeared in that newspaper over the past weekend.
Well written, reminding not only of how BAE Systems has risen to the NHS challenge producing as it has, PPE and other equipment for hospitals, being member of UK Ventilator Challenge and providing other much needed support through the COVID-19 pandemic, shown itself to be a company that can always be relied on to support national requirements in a crisis, the Tovey interview with Charles Woodburn also shows BAE Systems as being a company now very much focussed on getting its people back to work safely. Importantly, the interview also demonstrates to me that this is a major company CEO who really cares about his people, one who rightly praises them for how they have approached this unprecedented situation and also, the huge effort that has gone on to keep essential defence support programmes moving.
Emphasising too the importance of the MOD recognising the importance of the UK defence industrial base to national security and of how BAE Systems is a serious player it also shows very clearly that Charles Woodburn is a serious leader in serious times.
Defence has and will remain a crucially important issue for the nation and BAE Systems remains a vital and very flexible asset in our ability to produce the defence equipment that we need. As we move toward commemorating the 75th anniversary of ‘Victory in Europe Day’ this Friday allow me to share some extremely relevant comments made by Lord Hague in his Daily Telegraph article this morning – this applauding the military for the skill and determination they have shown. I know that many of you who read this will share the sentiment:
Like the vast majority of British people alive today, I have never served in our armed forces. However, I was privileged to get to know them at close quarters when I was foreign secretary, whether visiting bases in Helmand or being airlifted at high speed into the middle of Baghdad. After a few years of that, they became the arm of the British state that I admired the most. Yet as our forces have become numerically smaller, fewer people than ever are familiar with what they do. In the years to come, a safe, cohesive and well-protected country is going to need to put that right. VE Day is not a bad time to start, as we live through another dark period in which we cannot do without the military skills and dedication so often taken for granted.”
William Hague, Daily Telegraph
BAE chief on defence spending post-pandemic: ‘We’ve got to demonstrate what we do is good for the economy’
(BAE pioneered safe working practices but being essential to national security posed challenges)
Alan Tovey, Industry Editor – Sunday Telegraph 3rd May 2020
“The enemy doesn’t sleep or stop for these things so it’s critical we keep going, too,” says Charles Woodburn, chief executive BAE Systems.
While other businesses were downing tools as coronavirus hit and the lockdown was imposed, the defence giant had to find ways to continue essential programmes, such as maintaining the RAF’s Typhoon fighters on quick reaction duty.
While most of the company’s 34,000 employees were sent home, some had to remain at their posts. “We provide capabilities which have to be there 24-7, every day,” says Woodburn. “But people were genuinely scared and, frankly, I don’t blame them.”
BAE had to find ways key staff could work safely while avoiding the risk of infection, while the rest of the country was just getting to grips with coronavirus and how to adapt to it.
“Getting people to keep on working required careful thought,” adds Woodburn, speaking from his home office in Surrey. “It was a hearts and minds effort to demonstrate we could reconfigure the workspaces to create social distancing.”
Hearts and minds seem to have been won over. About a quarter of staff – mostly in manufacturing roles – are back on site, a figure set to rise to 10,000 in the coming weeks.
Woodburn says he’s “not surprised” by employees’ ability to adapt to working from home using secure IT systems. However, UK national security means some things just can’t be done from kitchen tables. “There’s a level of security that we can do working from home,” Woodburn says. “The very classified work by its nature can’t. That’s put restrictions on us.”
Very few people having access to the most secret projects is a help, as social distancing is easier with fewer key staff who must be in the office.
Woodburn’s “sleepless enemies” see opportunity in the dispersed working, though. The defence boss won’t be drawn on details, but concedes BAE has seen a spike in attempted cyber intrusions since the pandemic hit.
But at its core BAE is a manufacturer and “you can’t build a submarine or ship from home”, notes Woodburn. The company followed government advice to “work from home if you can”, but had to quickly get staff back to its Barrow and Glasgow shipyards, with the Ministry of Defence (MOD) identifying construction of nuclear submarines and frigates as essential to national security.
BAE pioneered safe working practices and has helped the Business Department share these with industry. Woodburn describes a “layered approach” ranging from social distancing, “diluting the workforce” by spreading out work, careful planning of who works on what and when, and temperature checks.
“It’s not perfect though, and you can’t social distance in the tight compartments of a submarine,” he says. “You might be able to spread out work but you cannot guarantee people will be two metres apart.”
Such work requires personal protective equipment (PPE), “while recognising the huge shortages and the NHS is a priority”, adds Woodburn. He concedes productivity will “inevitably take a hit” as workers don masks, gloves and shrouds. BAE has “enough, but not significant stocks” of PPE.
Like other companies, it has adapted manufacturing to crank out protective gear to donate to the NHS, and is supporting work to increase supplies of ventilators for Covid-19 patients. But Woodburn says he’s been clear to the Government that if the firm is to continue to work in such conditions, BAE’s needs must be part of “the country’s PPE requirement”.
BAE’s relations with government during the crisis “can’t be faulted”, the chief executive says, with ministers “very receptive”. But when government is your single biggest customer, any form of criticism is unlikely to be voiced publicly.
No BAE employees have been furloughed. Doing so would be “double-dipping”, says Woodburn: “You cannot expect the Government to fund programmes while you are furloughing staff.”
The company seems to have a similar approach to COVID Corporate Financing (CCF) aid. BAE’s investment grade rating means the business is eligible but Woodburn won’t comment, citing commercial confidentiality. However, it’s thought BAE doesn’t need to tap CCF. It has £2bn of liquidity and a £45bn order backlog, almost entirely long-term projects for government customers unlikely to welch on paying.
While BAE isn’t facing a cash squeeze, Woodburn says the company has a responsibility to get government payments into its supply chain of 6,000 companies – many of them SMEs. “We can’t sit on cash,” he adds.
So far, BAE has pumped in £1m of advance funding to half a dozen suppliers who faced collapse because of the lockdown. “The worst is yet to come,” Woodburn says. “In coming weeks, those numbers will go up.”
Other state aid schemes are vital, he believes, warning of the “trap of long-term damage to defence infrastructure” if companies fail. “MOD is very aware of that risk.”
But there are likely to be casualties across defence and aviation. Perennial speculation that BAE and Rolls-Royce could be forced into a merger has been ramped up by the latter firms’ troubles, including its dependence on civil aviation, which has collapsed.
Rolls’ shares have more than halved to about 300p, valuing the famed engineer at £6bn, while BAE’s are roughly where they were a year ago, at 500p, giving it a market value of £16bn.
Both businesses are structurally important to Britain and critical to the country’s defence, with Rolls supplying nuclear reactor and engine technology that powers much of the UK’s military equipment. As a result, the Government holds a “golden share” in each that gives it ultimate power to decide their fates.
Woodburn refuses to speak about the possibility of a combination. “Like any other chief executive, I scope all available options,” is all he will give up. However, the fact remains a deal would protect UK know-how and jobs while seeing BAE pick up Rolls’ handsome defence arm in the US for a bargain. Less attractive is Rolls’ civil aviation operation, though.
Looking beyond the current crisis, Woodburn talks up his industry, describing higher military spending as a way of stimulating the economy. “Economies are going to be significantly hurt by the pandemic. What does that mean for defence spending? Well, the threat has not gone away. We’ve got to demonstrate what we do is good for the economy.”
Saudi Arabia, one of BAE’s biggest customers, is being hammered by the low oil price, but again Woodburn plays down the prospect of deals – including one £5bn sale of 72 Typhoons – being cancelled as a result. “In the list of priorities in the Middle East in other crises and cycles of low oil prices, defence was prioritised,” he says. “The evidence we see is that continues.”
If the axe does fall on defence – something Woodburn says “we are not sitting waiting for” – the most likely outcome is ongoing programmes being delayed rather than abandoned. In the meantime, the company is getting on with its work. Despite the lockdown, BAE delivered an Astute-class nuclear submarine and an offshore patrol vessel to the Navy.
Woodburn is frustrated at being cooped up. He believes his globetrotting life means he “probably had mild coronavirus” after catching it on a New York business trip, but realised it was Covid-19 only in retrospect. “I wasn’t tested, so I can’t be certain,” he says. “It just underlines how vital it is to protect yourself and others.”
Perhaps there is one bonus to the lockdown, though. BAE’s annual meeting is scheduled for May 7. It’s normally a testing time for the board, with proceedings routinely disrupted by anti-arms activists who gate-crash and angrily question BAE’s trade in weapons.
Will Woodburn miss it? “Our AGMs are sometimes rowdy,” he says. “But they are still important events where we get to talk to our smaller shareholders. I will miss that.”
Given the choice, Woodburn will take a protest over a pandemic, any day. (Alan Tovey)
CHW (London – 5th May 2020)
Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
M: +44 7710 779785