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By Howard Wheeldon, Senior Strategist at BGC Partners

26 Sep 11. On the back of large scale defence cuts announced by the UK government last year together with weaker than hoped UK export related growth few who follow BAE Systems will be surprised that the company might soon need to cut large numbers of jobs right across the three principal the UK military aerospace sites. While there has as yet been no formal announcement word on the street is that plants at Brough, Samlesbury and Warton will all be affected along with some head office jobs.

Reasoned by a combination of factors including the UK government having taken the knife to the number of Typhoon aircraft that the Royal Air Force will take, completion of deliveries to the RAF of the advanced Hawk T2, various other program cuts such as Nimrod, Harrier plus fleet size cuts to numbers of RAF Panavia Tornado aircraft and with no new Typhoon or Hawk export orders confirmed for some time BAE now has little option but to cut back on the military aircraft capacity.

Coming just a week before the Conservative Party Conference as speculation about massive job cuts in the military aerospace arena has will not have gone down well in Whitehall. But it has for some time in my view been inevitable that BAE would need to take such a course. And while the loss of a suggested 3,000 workers mainly in Lancashire and West Yorkshire – most of whom will be skilled – will be a serious blow to hopes of rebuilding the manufacturing skills base as a public company BAE must in terms of employment cut its coat according to the cloth available. Given that the government has since DSEi was first unveiled in October last year gone somewhat out of its way to push the idea of buying more of what it need in terms of defence equipment off the shelf’ the message to UK defence equipment suppliers has hardly been one of motivation!

We may also assume that in part the slow path to full scale production and entry to service of the F-35 Joint Strike Fighter in which BAE Systems is a full partner in a US based program controlled by Lockheed Martin may also have impacted on the number of jobs to be lost. The importance of the F-35 in terms of long term production benefit for BAE cannot be understated and BAE manufactures a variety of component parts here in the UK. Progress to full scale production and entry to service of the aircraft has though been slower than originally thought meaning that program deliveries have needed to be rethought.

In addition we would suggest that BAE Systems may, should the weekend speculation prove to be correct, take advantage of readjusting production amongst the three plants in the North West. While the company continues large scale involvement in the two separate Hawk T2 orders from India in which final assembly is achieved in-country now that full scale Hawk production for the UK has run its course it is clear that adjustments may need to be made at Brough. That is not to suggest that the Hawk program itself may be drawing to a close – far from it as potential for the aircraft remains very good and there are several campaigns currently running including in the US. It is also possible that both India and Saudi Arabia could yet acquire further Hawk aircraft in due course. The same is true for Typhoon which is currently battling it out against the French Dassault built Rafael aircraft for a very large order in India. In addition the Typhoon campaign continues to run in Japan and Oman and we continue to anticipate further orders for the aircraft from Saudi Arabia.

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