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COULD U.K. CARRIER DECSION SPUR BREAK UP OF BAE SYSTEMS?

19 Jan 03. Yesterday BAE Systems Plc (London:BA.L – News) continued to
dismiss as “valueless” a newspaper report that it held merger talks last year with U.S. aerospace giant Boeing Co (NYSE:BA – News). However, as we have reported on numerous occasions in BATTLESPACE, a number of key figures in BAE SYSTEMS have made no secret of the fact that they believe that the future lies in the USA. Indeed during the 1999 Paris Air Show, the company issued a pro-European stance headed by then European supremo John Weston. Buried in the release was the admission by the company that they regarded the U.S. as the major growth area for the company. The attitude of the directors can be explained by the old adage of ‘follow the money’. Whilst it was seen as ‘politically correct’ to give the pro-European stance it has become perfectly clear from the policy of U.S. first, that this has saved the company from certain bankruptcy. However the intransigence of the U.K. MoD and the pension problems (see below) have pushed the company into a position of considering the ‘Boeing option’. Whilst the denials stem from an outright takeover of the company to form a $20bn giant, a more likely scenario would be the hiving off of the electronics and avionics businesses to Finmeccanica leaving the aircraft systems and support, land systems and possibly the naval business for Boeing. Boeing has no naval construction business and it has made no secret of its desire to move into the Land Systems business following its successful FCS and JTRS bids. Merging the airframe and system support business would suit Boeing, as this would give them the back door into the F-35 JSF programme. Already the company has joined the Meteor consortium with a view to offering this technology against Raytheon in for future requirements.

The Labour Government have no defence or industrial policy to follow and seem quite content to let the national champion disappear which would suit the Treasury which would no longer have to ‘look at the BAE offering first’. However, like cars and civil aircraft once this attitude is taken the decline of the industry its subcontractors and jobs become inevitable with the accompanying loss of influence in world affairs and arms sales. One would hope given the trade figurers and budgetary problems that this government has some kind of strategy to replace these jobs which does not involve fast foods, asylum hotels, call centres or government. BAE SYSTEMS posses huge Intellectual Property which is coveted by a number of countries including France and Germany and to let it go without a fight would be a disgrace to the nation’s assets. But BAE has themselves to blame; they chose to tell tube travellers about the company’s engineering excellence ignoring the huge opportunities offered by the Centenary of Flight Celebrations and the Duxford Museum, where the company donated £5 million and appeared to overlook telling anyone!

The statements from Geoff Hoon indicate that Thales is still ahead on CVF and as we said BATTLESPACE UPDATE Vol.4 ISSUE 48, December 2nd 2002, THALES OUTLINES ITS WINNING CASE FOR CVF), BAE SYSTEMS is more likely to win major sub-contract metal bashing work, at the expense of the highly sophisticated combat system offered by AMS. On other issues the company is rumoured to have lost out in the bid for Watchkeeper where indications state that there is a favour for the Northrop and Thales bids and in FIST where the Thales bid is favoured. BAE is likely to win out with its Boeing offer for FSTA which would bring it closer to the company.

The Ministry of Defence (MoD) last week said it had not yet made a decision on the contract and played down speculation BAE systems would fail because the government believed Thales’ bid represented better value for money and was technically superior.

The Sunday Times said senior bankers held talks on behalf of the two companies in late 2002 on a possible merger to create a £20bn ($32bn) trans-At

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