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03 May 04. The FT reported that BAE Systems denied press reports
that it faced a £700m funding gap as a result of spiraling costs on its Eurofighter project.

Reports suggested that BAE was trying to persuade the government to let it roll the extra costs from the first tranche of Typhoon
production into the budget for the second tranche. If the
Ministry of Defence refused, they said, BAE would face a £700m bill. A company representative said the stories were not true. “BAE Systems confirms that it is not required to make any provision against the Eurofighter Typhoon programme.”As well as being embroiled in talks with the MoD on the Eurofighter project, BAE is in dispute with the government over the Royal Navy’s stalled aircraft carrier programme. BAE is unhappy about the MoD’s decision to end its prime contracting role on the carriers and has raised the prospect of selling its shipbuilding business. BAE would not comment yesterday on whether it was to sell its shipyards, other than it was “considering its options”.

On Wednesday offered to apologise to Geoff Hoon, over an outburst last week by Mike Turner, its chief executive, that has reopened a rift between the Ministry of Defence and its largest supplier.

Sir Richard Evans, BAE’s chairman, told a committee of MPs: “Where people feel in some way offended then I will put it right. If Geoff [Hoon] feels that is the case then I will be the first person to go to see him and eat humble pie.”

Sir Richard admitted that relations with defence procurement officials had become “pretty fractious” after fundamental disagreements about how the MoD was handling its defence industrial policy and disputes over two defence programmes. He promised the committee that he would do everything he could before he steps down in July to repair the damage. “There is a pretty big tension in the relationship … which we need to put behind us. My position, and [that of] Dick Olver, who is taking over from me in July, is to have a good relationship with our single most important customer.” He warned that the relationship could get worse. “In light of the issues under discussion it is perfectly understandable that [relations] did get like this and will get quite a bit to uglier than they have to date,” he said.

Earlier, at the company’s shareholders’ meeting, Sir Richard had assured investors there was no need to take a large writedown on the Typhoon programme. Sir Richard’s comments followed a heated meeting between Mr Hoon and Mr Turner, at which Mr Turner accused the MoD of mishandling the procurement of the aircraft carriers.

The outburst came after Mr Hoon had rejected renewed attempts by BAE to obtain automatic prime contractor status on all big UK defence programmes.

In another development BAE Systems has denied allegations of bribery and corruption in securing lucrative defence contracts with Saudi Arabia. Europe’s largest defence contractor was forced to issue the denial after fresh claims of alleged illegal payments appeared in a national newspaper. “As we have said on several previous occasions, BAE Systems rigorously complies with the laws of the UK and of the other countries in which it operates. BAE denies any allegations of wrongdoing,” the company said in a statement.

Comment: As Hugh Colver, BAE PR supremo settles down to the greatest challenge of his life, as a father of a young child, he must wish that he had left the Genie in the bottle when John Weston left. This latest round of ‘good cop, bad cop’ with the ‘Dick and Mike show’ is beginning to wear thin on the MoD, shareholders and employees alike. BAE has the right to be worried over the lack of payments over Eurofighter. The MoD is believed to be finding as many excuses as possible for not paying as it has simply run out of money for the project. In addition the MoD and other European partners

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