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Interview: BAE builds on support deals

BAE Systems expects to sign a long-term partnering agreement (LTPA) with the UK Ministry of Defence later this year on the future direction of its fixed-wing aircraft activities, with the pact to enable the country's number one defence contractor to complete a transformation of its business activities, says Ian King, its chief operating officer for the UK and the rest of the world.

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The changing face of BAE's manufacturing activities will be of critical importance to the aerospace industry as a whole in the UK, and especially in north-west England, where the majority of its current work is conducted. The company is already funding an approximately £250 million ($505 million) expansion at Samlesbury in Lancashire, with the site to serve as the hub for its manufacturing activities on projects such as the Eurofighter Typhoon and Lockheed Martin F-35 Joint Strike Fighter until around 2030.

Nearby Warton is expected to continue as BAE's final assembly and flight test centre, but decisions on its Brough and Woodford sites in Yorkshire and Cheshire, where it respectively produces the Hawk advanced jet trainer and Nimrod MRA4 reconnaissance aircraft, are to be made according to future orders and the outcome of the current LTPA discussions.

Woodford is committed to the production phase of the MRA4 programme and Brough has orders in place to build Hawks until late 2009, but King says: "We need to look at the infrastructure footprint." Brough is thought unlikely to close due to housing structural test airframes for legacy aircraft, but overseas production of the Hawk has not been ruled out as a possible outcome of the company's transformation plan.

To be signed after a comprehensive spending review to be concluded by the UK government later this year, the agreement will also add more detail to BAE's development of unmanned systems, such as the company-led Taranis unmanned combat air vehicle demonstration, worth £124 million. "What we have proved over the last couple of years is that we have a decent capability in unmanned," says King. "But we don't kid ourselves that it's a replacement for Typhoon, or programmes like that."

The MoD and BAE signed a foundation contract for the fixed-wing LTPA late last year, as King says "It was recognised by both of us that we needed to get this thing up and running and people working together." BAE also earlier this year introduced a new structure intended to respond more effectively to the UK Defence Industrial Strategy, focus on its home markets, more effectively address frontline requirements such as urgent operational requirements and deliver through-life support services.

The future pact will advance the co-operation of recent years between BAE and the former Defence Logistics Organisation on Royal Air Force types including the Harrier GR7/9, Hawk T1, Nimrod MR2, Panavia Tornado GR4/F3, Typhoon and Vickers VC10. "If we are going to handle through-life capability management then we had to join up both the front-end systems and product work with the back-end support organisation," says King. "We need to get to an availability-based solution on all of the platforms, and then look at how to get more capability into place."

BAE's relationship with its domestic customer is also being used as a model in some of its five other home markets: Australia, Saudi Arabia, South Africa, Sweden and the USA. "Every country is going through this," says King. "The techniques that we've developed in the UK are BAE Systems-wide global intellectual property right, and we've already started to use the tools for US programmes."

BAE also has a continuing commitment to modernise the capabilities of the Saudi armed forces. "There is now more capability within the supply chain in Saudi Arabia, and we want to be a fundamental part of the continuation and growth of that relationship," says King. The planned sale of 72 Typhoons to Riyadh remains "a very complex deal", he says, adding: "We're making progress, but will only do it when it's the right deal to do."

Delays caused by a failed investigation by the UK Serious Fraud Office meant quotes provided by the Eurofighter programme's supply chain needed renegotiation, and "getting all of those parts aligned is the challenge," he says.

Speaking prior to the US Department of Justice's announcement that it is also to investigate BAE's compliance with anti-corruption laws linked to its business activities in Saudi Arabia, King said: "We just have to carry on and deliver on our strategy. Our shareholders are staying with us." BAE's share price last week continued to rally after an almost 10% dip prompted by the DoJ action.

King, whose portfolio excludes BAE's North American-led activities, says the company also aims to establish new home markets in nations such as India and Japan, with the latter drive to be closely linked to its offer of the Typhoon.

BAE's integrated support business model is meanwhile beginning to address a potential need to deploy company personnel to theatres of operation. "We are being encouraged to get more of our people forward doing diagnostic work and making sure nothing comes off the aeroplane before it needs to," says King. BAE currently has no personnel in Afghanistan supporting UK Harriers, but this situation could change if the service deploys the Typhoon to the country next year. "Today there is no view that our guys are going to go in harm's way," says King. "We're making sure that the terms of employment are appropriate to what we are expected to do.

"The boundaries between industry, the MoD and the RAF are going to be continually challenged, because the benefits are clear to everybody," he says. "The relationships that we've developed on Tornado, Harrier and the LTPAs will help going forward, but you can't change everything overnight."

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