BAe Systems

"The Systems Company Innovating for a Safer World."
—BAE Systems North American website

Industry Areas

BAE Systems plc is a global arms company, with interests also in civilian avionics and engineering. Its subsidiaries are also involved in providing intelligence, personnel and logistics support to US/UK military.

Market Share/Importance

BAE Systems aims to be "the premier global defence and aerospace company delivering a full range of products and services for air, land and naval forces". As such, the company has interests in areas spanning the range of avionics and defence systems, from hardware manufacture to personnel training. Primarily, however, BAE is an arms company, with military equipment currently accounting for around 80% of the company's total sales. In 2005 their military revenue amounted to $20,935 million (from a total revenue of $26,500 million). It is the world's fourth largest defence and aerospace firm, behind Lockheed Martin, Boeing and Northrop Grumman.

The company is a significant employer, directly employing around 88,600 people. Over a third of its workforce is outside the UK, largely in their other five home markets – the US, Saudi Arabia, Sweden, South Africa and Australia. BAE Systems is present in five continents, with "customers and partners in more than 100 countries", and its order book at the end of 2006 totalled £31.7 billion. Its biggest rivals are the US companies Lockheed Martin, Boeing and Northrop Grumman, as well as the European syndicate EADS Inc, which formed when BAE acquired GEC (see History, below). In theory, BAE Systems is financially strong enough to attempt a takeover of its rivals. However, BAE Systems' ambition to merge with Boeing or Lockheed has been ruled out by the US government. Nevertheless, its desire to break into the US market, by far the largest in the world for arms companies, continues unabated.

History and Strategy

British Aerospace (BAe) was first formed as a nationalised corporation in April 1977 by the merger of the British Aircraft Corporation, Hawker Siddeley Aviation, Hawker Siddeley Dynamics and Scottish Aviation. State control over the arms trade didn't survive for very long under the Thatcher government, however, with the UK Government selling 51.57% of its shares in BAe in February 1981, upon its formation as a public limited company (PLC). In 1985, the UK Government sold its remaining shares, keeping only a special £1 'golden' share in order to ensure that the company continued under British control.

At around the same time as it became an entirely privately-owned company, BAe became involved in one of the biggest trade scandals of the 1980s -- the Al Yamamah deals with Saudia Arabia. According to the Financial Times, the arms deal (known as Al Yamamah II) was "the biggest [UK] sale ever of anything, to anyone". The deals were condemned by Amnesty International as a clear endorsement of a country in the hands of a repressive regime who display a "persistent pattern of gross human rights violations". BAe was the prime contractor for the entire deal, which included the sale of 48 Tornado bombers, 24 Tornado fighters, 30 Hawk trainer-fighters, and a large number of Rapier missiles. It also involved millions of pounds worth of corrupt commissions paid to Arabian businessmen, which the Conservative government of the time denied (see Corporate Crimes section). Needless to say, this part of the company's history does not appear on its own corporate timeline.

Meanwhile, in 1988 BAe began to expand its holdings, starting with the acquistion of the Rover group. By 1991 Heckler & Koch GMbh, the German small arms company, had joined them, and in 1992 the company reorganised itself. The arms side of the company were amalgamated into British Aerospace Defence Limited, whereas three new companies were formed to replace British Aerospace (Commercial Aircraft) Limited. These were British Aerospace Airbus Limited, British Aerospace Regional Aircraft Limited and British Aerospace Corporate Jets Limited. As well as internal reorganisation, BAe also began to form alliances with other companies in the arms sector; in October 1993 a joint venture company was formed with GEC-Marconi to "manage and develop their involvement in the naval Principal Anti-Air Missile System (PAAMS) guided weapons project." This reflected the increasing trend for co-operation between companies in the sector.

Undeterred by the outrage and corruption which had mired its arms deals to Saudi Arabia, in November 1996 the Conservative Government handed BAe another morally dubious trade agreement. A large shipment of arms, including 16 Hawk fighter aircraft, was to be sent to the dictatorship that ruled Indonesia, despite widespread suspicion that they would inevitably be used to facilitate the repression of East Timor. As Robin Cook stated in the House of Commons in 1994, "Hawk aircraft have been observed on bombing runs in East Timor in most years since 1984." Unsurprisingly, this evidence did nothing to dissuade BAe from extracting the maximum profit available from the deal.

In the following years, BAe continued to restructure its business, concentrating more heavily on its 'core competencies' and divesting its shares in other, unrelated businesses. In March 1998, for example, it disposed of shares representing a 16.11% ownership of Orange plc, making £763.8 million. Meanwhile, it increased its interest in the civil aerospace interest of Airbus, and continued to expand into the US arms market by joining Lockheed Martin's Joint Strike Fighter project team. In September 1998 it entered into partnership agreements (along with Rolls Royce) with the Universities of Cambridge, Sheffield and Southampton in order to "research into future engineering design processes." (see BAe Systems: Corporate Crimes)

Perhaps the biggest change for company came in January 1999, when British Aerospace announced its merger with GEC's Marconi Electronic Systems business (essentially the arms dealing side of GEC-Marconi). In November 1999, the two businesses merged, creating a new corporate entity named BAE Systems, which became the largest arms dealer in the world. All was not necessarily rosy with the new company, however, with a profits warning issued on January 10, 2001, wiping away a quarter of the company's value on the stockmarket.

New developments have, however, made the company's future look bright. The British Government continues to look after its corporate friends, with the recent £28 million sale of a military air-traffic control system to debt-stricken Tanzania causing outrage among ordinary voters. As Justin Forsyth, Oxfam's head of policy, has put it: "It is outrageous that Tanzania's debt relief will go towards bolstering the profits of BAE and Barclays bank rather than helping the poor people of Tanzania". On top of this, the British government is currently mounting an intensive campaign to sell 60 Hawk jets, worth £1bn, to India. This is despite the danger of the India-Pakistan dispute over Kashmir spilling into war and destabilising the entire region. BAE Systems has already sold Jaguar combat aircraft to India in licensing deals that the Ministry of Defence (MoD) refuses to disclose (see Corporate Crimes section).

External factors have also helped to secure BAE's future - most notably the fallout from the attack on the World Trade Centre on September 11th, 2001. The "War on Terrorism" cannot fail to boost BAE's profits, and as the Board of BAE point out in their preliminary results for 2001, the loss of revenue from civilian aeronautics will be mitigated "by the overall improvement in performance in the other business groups." In other words, the fall in civilian air traffic doesn't matter to BAE Systems, because they will continue to profit from the spiral of death and destruction which constitutes the arms trade. The outlook is bright for this company only when it is bleak for the rest of the world.

Despite an increase in share prices and a generally good outlook for the company, on Tuesday March 26th, 2002, a boardroom coup shocked The City. This lead to the departure of CEO John Weston, who had been with the company for more than 30 years. It has been suggested that his style clashed with the Chairman of the Board of Directors, Sir Richard Evans, and that the Ministry of Defence (MoD) resented being "bullied" by Weston. As the Observer put it: "Weston had irritated Defence Secretary Geoff Hoon by his opposition to the Government's defence procurement process... Evans is good at relationship building; Weston has sometimes been criticised for adopting a more robust approach with officials." Whatever the reason, Mike Turner (formerly Chief Operating Officer) was quickly promoted to the vacant CEO spot, and The City expects more changes to occur soon, not least in the orientation of the company. Rather than a single focus on the United States, it is thought that Turner will concentrate on keeping the activities of BAE diversified, and on rebuilding relations with the MoD.

Intelligence support in Iraq

BAE set up Human Terrain Systems (HTS) at the beginning of the 2003 US attack on Iraq. HTS hires anthropologists and embeds them with US/UK military forces in Iraq and Afghanistan to provide culture sensitive interpretation to advice local commanders, and to gather intelligence.

Contact, References and Resources

Resources

• BAe Systems: Products/Projects
• BAe Systems: Who, Where, How much?
• BAe Systems: Influence/Lobbying
• BAe Systems: Corporate Crimes

External Links

• Campaign Against Arms Trade http://www.caat.org.uk/
• BAE Systems http://www.baesystems.com/
• Defense News http://defensenews.com/
• Amnesty International http://www.amnesty.org/
• The Corner House http://www.thecornerhouse.org.uk/
• Guardian Unlimited http://www.guardian.co.uk/