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BAE SYSTEMS – A SKINNED CAT WITHOUT THE CREAM?

18 Dec 02. Following the profits warning debacle involving BAE SYSTEMS £1bn contract problems, those shareholders, employees and avid readers of BATTLESPACE may like to reflect on the remarks made to the Times by UK procurement supremo Sir Robert Walmsley in a Times interview in June, reported in our Farnborough issue, he remarked on his role in a statement to the Times as, “helping to transform a somewhat bloated, bureaucratic defence-aerospace sector that had grown fat on a bottomless pit of government contracts and taxpayers’ money.” Those readers and shareholders will be wondering where these fat cats reside? Certainly not within BAE SYSTEMS!

When the fixed price contracting regime was introduced it was envisaged that a number of small to medium sized businesses would go to the wall or merge and this is what happened. A number of observers stressed that rather than increasing the MoD’s choice of contractor it would be limited to a few companies of size such as BAE SYSTEMS, Thales, EDS, Raytheon, General Dynamics, Boeing and Lockheed Martin to name a few.

The hammer blow delivered to BAE SYSTEMS last week by the MoD in its refusal to fund any increase in costs to its Astute and Nimrod programme should be a warning to all the above companies in the current climate where the MoD ultimately reports to Gordon Brown, whose policy on having a long-term defence industrial base remain vague to say the least. Some observers have commented that a long term decline of the defence industry is a distinct possibility.

Patricia Hewitt’s DTI has made some headway in attempting to preserve some of the base by ensuring that all contracts are not looked at as just the best price but also on the basis of preserving some form of national technology and IPR.
Some would have expected that in the light of the disastrous trade figures that the Mod would have taken a more conciliatory view over BAE’s problems.

A further problem arose over the Eurofighter Typhoon programme on Monday where BAE attempted to renegotiate the ground attack version as a partial pay off for its other problems, this also failed. Our report that the Link 16 part of the project remains a problem appears to be the tip of the iceberg and the MoD is now demanding an open architecture software system for the fighter to prevent costly changes when new systems such as ground attack systems and Meteor are included. Where the fault lies here is still under discussion.

The British government said on Sunday it remains committed to the Eurofighter aircraft program, but speculation continues that the Ministry of Defense wants to scrap the third tranche of 88 Eurofighter planes and make the ground attack changes to the second batch of 89. The UK has signed up for 232 of the aircraft at a cost of £10bn($15.9bn). Germany has also refused to comment that it too wants to scrap tranche 3, and it may be that both countries wish to preserve their workshare on the project in the hope that a number of the tranche 3 aircraft can be leased to Greece and Singapore, the latter of which is negotiating hard for technology transfer.

The MoD said, “We continue to have full confidence in the Eurofighter Typhoon and continue to believe it’s a very good aircraft. We have every confidence in
its future and our commitment to the program remains unchanged,” he said.

The UK government also appointed UBS Warburg as its financial adviser to look into the company. Warburgs appointed Financial Dynamics, which numbers Thales in its client list as PR consultant to look into BAE’s City relation prior to the announcement.

So who is to blame? The rule is that you should negotiate from a position of strength and BAE’s senior management may not have known the true black hole in the projects until the last minute prior to meeting the government. In the furore prior to and after the announcement the sights were very much turned on Mike Turner, Dick Evans and the BAE PR machine for faili

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