13 Jul 14. There’s going to be consolidation in defence, says BAE Systems chief. Ian King, chief executive of BAE Systems, was disappointed two years ago when the proposed £28bn merger of Britain’s largest manufacturing company with pan-European group EADS collapsed. Politics may have contrived to make untenable the deal, which would have created a world-scale rival to the likes of Boeing, but speaking to The Telegraph ahead of the Farnborough International Airshow, King envisages a new wave of mergers across Europe’s aerospace and defence sector. “There’s going to be consolidation,” says King, adding this could include cross-border deals between national defence champions. However, the 58-year-old chief executive is ruling BAE Systems out of the running for such deals, despite the company’s having to adapt its business to the changing face of the defence industry, as major military spenders in North America and Europe trim their budgets on new equipment. “We are very comfortable with our portfolio. We have a joint venture that already exists with Airbus, and we are very comfortable with that. Equally, we have a joint venture on Eurofighter, and we’re very comfortable with that, too.” To reduce its dependence on large government-funded defence programmes such as the F-35 and Eurofigher Typhoon fighter jets, King has broadened the business into areas such as commercial avionics and the technology in planes: engine controls, flight controls and cabin management, for instance. Currently, 8pc of the company’s revenue is outside defence in commercial activities, worth £600m. This is an area that King says “is growing quite quickly”.
In terms of providing an alternative to defence-related revenue for BAE Systems, King says diversifying is all about safeguarding the business, “but we do have organic reinvesting as well”. In February, BAE shocked the City when it warned that earnings would fall this year amid shrinking military budgets in developed nations. Another safeguard against cuts in defence spending in Europe and North America is a growing focus on emerging markets, where billions continues to be pumped into military budgets. Some relief in this area came with an agreement on price increases for the sale of 72 Eurofighter Typhoon jets to Saudi Arabia. The FTSE 100 defence company, which employs about 35,000 staff in the UK, signed a £4.5bn contract seven years ago to provide the supersonic fighters to the Middle East’s largest defence spender but the sale has faced hurdles over cost. Saudi Arabia is the biggest export customer for the Typhoon and ending years of uncertainty over the sale came as a welcome relief for BAE Systems and nervous investors. Last month, the defence giant announced it was reorganising its interests in Saudi Arabia into one company to enhance its relationship with its partner in the Kingdom, Riyadh Wings. King says business in the Middle East is growing “strongly” and helping to make the company the “most geographically diverse of our peers”. This diversity is highlighted by its involvement in the F-35 Joint Strike Fighter, which had been due to be a star attraction of the Farnborough event. (Source: Defense News Early Bird/Daily Telegraph)
14 Jul 14. Major UAE Merger Likely in 6 Months. A merger between United Arab Emirates defense giants Mubadala Development, Tawazun and Emirates Advanced Investments could be completed within the next six months, according to sources close to discussions. The three defense companies are likely to announce the creation of a new entity before the International Defence Exhibition in Abu Dhabi next year. In April, a memorandum of understanding expressing their intent to explore ‘the synergy opportunities that could be created by the unification of their defense services businesses’ was signed at the International Exhibition for Security and National Resilience in Abu Dhabi. According to a statement released then, the discussions were focused on the creation of a sing