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STIRRING WORDS FROM BAE SYSTEMS

3 Jul 02. A report in the FT stated that BAE Systems, the dominant UK defence contractor, has launched an attack on the government’s approach to weapons procurement, arguing the company should be given responsibility for most big programmes without competition.

Mike Turner, chief executive, told the Financial Times: “I think the way the UK government goes about procurement is fundamentally wrong.”

Instead of holding contests for equipment such as the Royal Navy’s new aircraft carriers, the Ministry of Defence should involve BAE as a partner from the start and, in this way, preserve British high-technology skills, he said.

In his first interview since being appointed in March following the surprise departure of John Weston, Mr Turner gave little away about reasons for the leadership switch. “It was time for a change and John realised that,” he said. He denied it was because of poor relations with the MoD.

Mr Turner indicated he would be even more outspoken than Mr Weston in demanding a fresh approach from the MoD, one of the company’s biggest customers. He has been putting BAE’s position – certain to annoy top defence procurement officials – in meetings with cabinet ministers.

He criticised the competition the MoD is holding between BAE and Thales of France to be prime contractor for the aircraft carriers. “The French would never do it. The Americans would never do it.” Awarding important prime contracts to foreign companies would erode British wealth-creating capabilities and skills, he said. “Are we in 10 years going to look back and say ‘where did it all go?’.” Mr Turner argued for a big rise in the profit margins that the MoD allows contractors to earn, saying the Pentagon’s approach allowed higher returns and was less adversarial.

However, he admitted BAE had to perform better in supplying equipment to the UK armed forces. The chiefs of the Royal Air Force and Royal Navy had told him they needed the first Eurofighter aircraft and the first of two new amphibious assault ships to be delivered as soon as possible – both are late. Mr Turner indicated BAE would continue to seek acquisitions in the US, where it is the sixth largest defence contractor, in spite of failing to do a deal with TRW, which this week agreed to be bought by Northrop Grumman.

“I would like to see the majority of our defence business in terms of turnover in the world’s biggest market,” he said. “So our ambition is to keep growing in the US.”

Comment: This antagonism of the MoD at a time when the CVF programme is pushing forward has been seen by some observers as ‘Sledgehammer PR’ gaining little for BAE and annoying its biggest customers. Both French and US contractors quite rightly refuted these claims stating they had capabilities which BAE could not offer. It is nonsense for BAE to suggest that the company should have a winner takes all policy with no competition. The company is seen wanting in some areas of technology that only other suppliers can fulfill. Not even the mighty US Corporations would admit an ability to perform in all areas of defence technology and they are quite content to enter competitions. Some observers suggest that the real worry for BAE in the naval field is not Thales but Lockheed Martin which is on both teams. LM possesses considerable systems integration skills and possesses technology vital to the U.S. carrier programmes.

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