BAE SYSTEMS – ALL ROUND EXCELLENCE IN BECALMED WATERS
By Howard Wheeldon, Senior Strategist at BGC Partners

17 Feb 11. Group Finance Director George Rose will leave BAE Systems next month in very rude health. Following a remarkable thirteen years in this particular role at the company and served no less than three different CEO’s during that time George Rose can certainly be very proud of what both he and the much enlarged company have achieved during that period. Suffice to say that BAE Systems has in my long experience of following this company ever been fitter, leaner or stronger than it is today. Even so, brilliant that senior management of this company are, there remains the ongoing need to face up to new and probably more difficult challenges.

It is though perhaps interesting to remind that when George Rose in 1998 presented the first of his very many authoritative full year BAE Systems results reports to analysts including yours truly he referred to sales of £7.04bn and profits before exceptional and tax of just £685m. Contrast the 1998 results with the full year 2010 figures provided by BAE Systems this morning – group sales of £22.4bn and EBITDA of £2.2bn and you may begin to see what I mean! This company is far removed from the one that we watched back in 1998. Back then BAE was as 20% partner in Airbus Industrie and responsible for making all the wings of Airbus planes. These activities are long gone and now a full part of the EADS owned Airbus subsidiary. Alongside the civil activities BAE was manufacturing the brilliantly successful Hawk trainer aircraft in reasonable quantities, was well engaged within the European partnership that had built the successful Panavia Tornado and that would soon be transformed and enlarged to build what was then still known as the European Fighter Aircraft and that would soon be known as Eurofighter Typhoon. Also BAE was still producing the RJ commercial jet that had originally been born as the BAe 146 a decade or two earlier. By that time BAA Systems had already acquired a 35% interest in the Swedish aerospace company Saab and it was also as now the principle contractor in the long running government to government partnership between the Saudi Arabia and the United Kingdom. The company was manufacturing Hawk jets for a large variety of foreign governments around the world including Canada and Australia and was still a long way from successfully completing the seventeen year struggle to win a large order for Hawks from India.

Just as it today as the company progresses big changes that are the direct result of UK and US governments attempting to tighten the belt on defence spending BAe was readying itself for change. Soon the company would attempt to rid itself of what was then after all still a loss making share on Airbus Industrie. In a few more years the company would drop out of commercial aircraft build altogether but perhaps the most important specific transaction that would be completed a year after Rose joined was the acquisition from what was then GEC of Marconi Defence. There is no doubt that the acquisition of Marconi would change the modus operandi of what by then was BAE Systems. But while Marconi Defence brought with it a beautiful set of defence electronics crown jewels it also brought in the manufacturer of Royal Navy ships and submarines.

I will of course comment specifically on the FY10 results further on in this commentary piece but on the back of how this company has developed it is worth noting that BAE Systems has never shied away from adapting to market need. It was on this basis that as the market for land systems developed through the Iraq and Afghanistan wars BAE Systems made many very useful acquisitions that created at the peak created a division with around £7bn sales. However, whilst retrenchment has been the order of the day in UK based Land Systems – a fact that might yet be the order of the day in the US at some point