By Helen Massy-Beresford in London
 |
The former British Aerospace is about to become even less “British”. As negotiations to agree a price for its 20% share in Airbus with fellow shareholder EADS near conclusion, BAE Systems has given further details of its long-term strategy to wind down its UK aircraft manufacturing base.
Under a newly announced rationalisation plan for its Air Systems business unit, the company is likely to begin the closure of two of its four UK aircraft sites from 2010. Timescales, and whether the closures themselves do go ahead, will be determined by export sales of the Hawk trainer and the Eurofighter Typhoon.
BAE recently rationalised its shipbuilding business, and to many, a similar treatment for the Air Systems unit is long overdue. But others argue the move is evidence of a further step along the road towards BAE abandoning the UK as its home base for good.
Under the rationalisation plan, details of which Nigel Whitehead, group managing director Air Systems, revealed last month, the factories most likely to shut are Brough, where the Hawk advanced trainer is built, and Woodford, home to the Nimrod MRA4 maritime patrol aircraft remanufacturing line and part of BAE’s civil aircraft business.
Samlesbury, where Eurofighter Typhoon and F-35 Joint Strike Fighter subassemblies are built, and Warton, where the Eurofighter Typhoon final assembly line is based, will remain open. The company’s four factories employ a workforce of over 10,000, but “no significant losses” of jobs are expected in the short term, Whitehead says. The timescale would also be affected by the success of export campaigns for the Hawk and other aircraft.
However, even if the company’s UK-based aircraft manufacturing business gets a short-term shot in the arm from further orders, as BAE’s overall military aircraft backlog dwindles over the coming years the company will have to turn increasingly towards developing systems upgrades for its legacy aircraft to keep them in service longer.
Ross Bradley, chief executive of the Farnborough Aerospace Consortium, describes the news that two sites are likely to close eventually as “an inevitable consolidation to improve our national competitiveness in this globalised industry”. But even before this development, BAE had made it clear, most significantly with the purchase last year of US-based United Defense Industries (UDI) and the sale of its European defence electronics interests to Finmeccanica, which parts of this globalised industry it wishes to target and which it intends to let fade into the background.
In the USA, the company will be able to pursue its strategy of partnering with primes, adding its systems expertise to their offerings for Department of Defense (DoD) programmes or acting as a prime itself for the kind of multi-billion dollar contracts up for grabs across the Atlantic. When the UK government published its Defence Industrial Strategy (DIS) in December, BAE was vociferous in its support for the document, but chief executive Mike Turner revealed that the company had considered leaving the UK entirely, if the DIS had not gone its way.
Even if that seemed unlikely, since the publication of the DIS the company has made no secret of its ambition to establish itself as a serious player in the US market. And its acquisition of UDI cemented this part of its strategy. The company is widely expected to use the proceeds of the sale of its Airbus stake – estimates for which range from $3.5 billion to $4.5 billion – to scoop up another US-based business that would fit in with its portfolio. L-3 is thought to be a candidate by many industry experts, and DRS Technologies, Alliant Techsystems or EDO could also be possible targets for BAE.
However, BAE may face problems in the USA. According to Jason Steen, director of mergers and acquisition advisory firm Steen Associates, the company faces a mismatch between its status as a Tier 1 player supplying to the primes in the USA, and as a prime itself in the UK and Europe. “This creates a potential conflict of interest. What BAE wants is to be a prime in both areas and its acquisition of UDI goes some way to addressing that. However the bulk of the US business is as a subsystems provider and the challenge is to find suitable acquisitions in that area.”
Steen adds that “the arguments in favour of a US listing of this and other UK-headquartered businesses will continue to be made by institutions, customers and suppliers alike”.
Whether the company is able to overcome the hurdles to get the foothold it seeks in the USA remains to be seen, but one thing is clear from the fact that last month it upped the pressure on EADS to seal a deal on Airbus. Keen to get the ball rolling, BAE exercised its put option. The announcement of a deal is expected as early as the Farnborough air show in July.
Source: Flight International
