BAE Systems
Encyclopedia
BAE Systems plc is a British multinational
defence, security
and aerospace
company headquartered in London
, United Kingdom, that has global interests, particularly in North America through its subsidiary BAE Systems Inc. BAE is among the world's largest military contractors
; in 2009 it was the second-largest based on revenues. It was formed on 30 November 1999 by the £7.7 billion merger of two British companies, Marconi Electronic Systems
(MES), the defence electronics and naval shipbuilding subsidiary of the General Electric Company plc (GEC), and aircraft, munitions and naval systems manufacturer British Aerospace
(BAe).
BAE Systems is the successor to various aircraft and defence electronics companies, including The Marconi Company
, the first commercial company devoted to the development and use of radio; A.V. Roe and Company
, one of the world's first aircraft companies; de Havilland
, manufacturer of the world's first commercial jet airliner
; British Aircraft Corporation
, co-manufacturer of the Concorde
supersonic transport; and Supermarine
, manufacturer of the Spitfire
. Since its formation it has sold its shares in Airbus
, Astrium, AMS
and Atlas Elektronik
, and made a number of acquisitions, most notably United Defense
and Armor Holdings of the United States.
BAE Systems is involved in several major defence projects, including the F-35 Lightning II
, the Eurofighter Typhoon
, the and the s. The company has been the subject of criticism, in terms of general opposition to the arms trade and particularly specific allegations of unethical and corrupt practices, including Saudi Arabia
n Al Yamamah contracts with BAE and its predecessor. In 2010, BAE Systems agreed to pay £286 million in criminal fines to the Serious Fraud Office and the US Department of Justice.
BAE Systems is listed on the London Stock Exchange
and is a constituent of the FTSE 100 Index
.
, the world's first commercial jet airliner; the Harrier "jump jet", the world's first operational Vertical/Short Take-Off and Landing
(VTOL) aircraft; the "groundbreaking" Blue Vixen radar carried by Sea Harrier FA2s and which formed the basis of the Eurofighter's CAPTOR
radar; and co-produced the iconic Concorde
supersonic airliner with Aérospatiale
.
British Aerospace was a civil and military aircraft
manufacturer, as well as a provider of military land systems. The company had emerged from the massive consolidation of UK aircraft manufacturers since World War II. British Aerospace was formed on 29 April 1977 by the nationalisation and merger of The British Aircraft Corporation
(BAC), the Hawker Siddeley Group and Scottish Aviation
. Both BAC and Hawker Siddeley were themselves the result of various mergers and acquisitions.
Marconi Electronic Systems was the defence subsidiary of British engineering firm The General Electric Company (GEC), dealing largely in military systems integration
, as well as naval and land systems. Marconi's heritage dates back to Guglielmo Marconi
's Wireless Telegraph & Signal Company, founded in 1897. GEC purchased English Electric
(which included Marconi) in 1968 and thereafter used the Marconi brand for its defence businesses (as GEC-Marconi and later Marconi Electronic Systems). GEC's own defence heritage dates back to World War I, when its contribution to the war effort included radios and bulbs. World War II consolidated this position, as the company was involved in important technological advances, notably the cavity magnetron
for radar
. Between 1945 and 1999, GEC-Marconi/Marconi Electronic Systems became one of the world's most important defence contractors. GEC's major defence related acquisitions included Associated Electrical Industries
in 1967, Yarrow Shipbuilders in 1985, Plessey
companies in 1989, parts of Ferranti
's defence business in 1990, Vickers Shipbuilding and Engineering in 1995 and Kværner Govan
in 1999. In June 1998, MES acquired Tracor
, a major American defence contractor, for £830 million (approx. US$1.4 billion c. 1998).
and McDonnell Douglas
, which followed the forming of Lockheed Martin
, the world's largest defence contractor in 1995, increased the pressure on European defence companies to consolidate. In June 1997 British Aerospace Defence Managing Director John Weston
commented "Europe... is supporting three times the number of contractors on less than half the budget of the U.S.". European governments wished to see the merger of their defence manufacturers into a single entity, a European Aerospace and Defence Company.
As early as 1995 British Aerospace and the German aerospace and defence company DaimlerChrysler Aerospace (DASA) were said to be keen to create a transnational aerospace and defence company. The two companies envisaged including Aérospatiale, the other major European aerospace company, but only after its privatisation. The first stage of this integration was seen as the transformation of Airbus from a consortium of British Aerospace, DASA, Aérospatiale and Construcciones Aeronáuticas SA
into an integrated company; in this aim British Aerospace and DASA were united against the various objections of Aérospatiale. As well as Airbus, British Aerospace and DASA were partners in the Panavia Tornado
and Eurofighter Typhoon aircraft projects. Merger discussions began between British Aerospace and DASA in July 1998, just as French participation became more likely with the announcement that Aérospatiale was to merge with Matra
and emerge with a diluted French government shareholding. A merger was agreed between British Aerospace Chairman Richard Evans
and DASA CEO Jürgen Schrempp
in December 1998.
Meanwhile GEC was also under pressure to participate in defence industry consolidation. Reporting the appointment of George Simpson as GEC managing director in 1996, The Independent had said "some analysts believe that Mr Simpson's inside knowledge of BAe, a long-rumoured GEC bid target, was a key to his appointment. GEC favours forging a national 'champion' defence group with BAe to compete with the giant US organisations." When GEC put MES up for sale on 22 December 1998, British Aerospace abandoned the DASA merger in favour of purchasing its British rival. The merger of British Aerospace and MES was announced on 19 January 1999. Evans stated that in 2004 that his fear was that an American defence contractor would acquire MES and challenge both British Aerospace and DASA. The merger created a vertically integrated company which The Scotsman described as "[a combination of British Aerospace's] contracting and platform-building skills with Marconi's coveted electronics systems capability", for example combining the manufacturer of the Eurofighter with the company that provided many of the aircraft's electronic systems; British Aerospace was MES' largest customer. In contrast, DASA's response to the breakdown of the merger discussion was to merge with Aérospatiale
to create the European Aeronautic Defence and Space Company (EADS
), a horizontal integration
. EADS has since considered a merger with Thales
to create a "fully rounded" company.
Seventeen undertakings were given by BAE to the Department of Trade and Industry which prevented a reference of the merger to the Monopolies and Mergers Commission. These were largely to ensure that the integrated company would tender sub-contracts to external companies on an equal basis with its subsidiaries. Another condition was the "firewalling
" of former British Aerospace and MES teams on defence projects such as the Joint Strike Fighter
(JSF). In 2007 the government, on advice from the Office of Fair Trading
, announced it had agreed to release BAE from ten of the undertakings due to "a change in circumstances".
BAE inherited the "special" shareholding that was established when British Aerospace was privatised. This special share, with a nominal value of £1, is held on behalf of the Secretary of State for Trade and Industry
. This shareholding prevents amendments of certain parts of the company's Articles of Association
without the permission of the Secretary of State. These Articles require that no foreign person or persons acting together may hold more than 15% of the company's shares or control the majority of the board and that the CEO and the Chairman of BAE Systems must be British nationals.
Initially the head office was in the Warwick House in the Farnborough Aerospace Centre in Farnborough
, Hampshire
, and the company had a London office in the City of Westminster
.
was appointed Chairman in July 2004 he ordered a review of the company's businesses which ruled out further European acquisitions or joint ventures and confirmed a "strategic bias" for expansion and investment in the US. The review also confirmed the attractiveness of the land systems sector and, with two acquisitions in 2004 and 2005, BAE moved from a limited land systems supplier to the second largest such company in the world. This shift in strategy was described as "remarkable" by the Financial Times. Between 2008 and early 2011 BAE acquired five cyber security companies in a shift in strategy to take account of reduced spending by governments on "traditional defence items such as warships and tanks".
In 2000 Matra Marconi Space
, a joint BAE/Matra company, was merged with the space division of DASA to form Astrium. On 16 June 2003 BAE sold its 25% share to EADS for £84 million, however due to the lossmaking status of the company BAE invested an equal amount for "restructuring". In January 2001 Airbus Industrie was transformed from an inherently inefficient consortium structure to a formal joint stock company. BAE sold its 54% majority share of BAE Systems Canada, an electronics company, in April for $CAD310 (approx. £197 million as of December 2010). In November 2001, BAE announced the closure of the Avro Regional Jet (Avro RJ
) production line at Woodford and the cancellation of the Avro RJX, an advanced series of the aircraft family, as the business was "no longer viable". The final Avro RJ to be completed became the last British civil airliner. In November 2001 BAE sold its 49.9% share of Thomson Marconi Sonar
to Thales for £85 million. A further step of European defence consolidation was the merger of BAE's share of Matra BAe Dynamics
and the missile division of Alenia Marconi Systems (AMS) into MBDA
in December. MBDA thus became the world's second largest missile manufacturer. Although EADS has been reported to be interested in acquiring full control of MBDA, BAE has said that, unlike Airbus, MBDA is a "core business".
In June 2002, BAE confirmed it was in takeover discussions with TRW
, an American aerospace, automotive and defence business. This was prompted by Northrop Grumman
's £4.1 billion (approx. US$6 billion c. 2002) hostile bid for TRW in February 2002. A bidding war between BAE, Northrop and General Dynamics
ended on 1 June when Northrop's increased bid of £5.1 billion was accepted. On 11 December 2002, BAE issued a shock profit warning due to cost overruns of the Nimrod MRA4
maritime reconnaissance/attack aircraft and the projects. On 19 February 2003 BAE took a charge of £750 million against these projects and the Ministry of Defence
(MOD) agreed to pay a further £700 million of the cost. In 2000 the company had taken a £300 million "loss charge" on the Nimrod contract which was expected to cover "all the costs of completion of the current contract".
The UK government, following a cabinet row described as "one of the most bitter Cabinet disputes over defence contracts since the Westland helicopter affair
in 1985", ordered 20 BAE Hawk
trainer aircraft with 24 options in July 2003 in a deal worth £800 million. The deal was significant because it was a factor in India's decision to finalise a £1 billion order for 66 Hawks in March 2004. Also in July 2003 BAE Systems and Finmeccanica
announced their intention to set up three joint venture companies, to be collectively known as Eurosystems. These companies would have pooled the avionics, C4ISTAR
and communications businesses of the two companies. However the difficulties of integrating the companies in this way led to a re-evaluation of the proposal; BAE's 2004 Annual Report states that "recognising the complexity of the earlier proposed Eurosystems transaction with Finmeccanica we have moved to a simpler model". The main part of this deal was the dissolution of AMS and the establishment of SELEX Sensors and Airborne Systems
; BAE sold its 25% share of the latter to Finmeccanica for €400 million (approx. £270 million c. 2007) in March 2007.
In May 2004, it was reported that BAE was considering selling its shipbuilding divisions, BAE Systems Naval Ships
and BAE Systems Submarines
. It was understood that General Dynamics wished to acquire the submarine building facilities at Barrow-in-Furness
, while VT Group
was said to be interested in the remaining yards on the Clyde
. However in 2008 BAE Systems merged its Surface Fleet arm with the shipbuilding operations of VT Group to form BVT Surface Fleet
, an aim central to the British Government's Defence Industrial Strategy
.
On 4 June 2004, BAE Systems outbid General Dynamics for Alvis Vickers, the UK's main manufacturer of armoured vehicles. Alvis Vickers was merged with BAE's RO Defence unit to form BAE Systems Land Systems. Recognising the lack of scale of this business compared to General Dynamics, BAE executives soon identified the US defence company United Defense Industries
(UDI), a major competitor to General Dynamics, as a main acquisition target. On 7 March 2005 BAE announced the £2.25 billion (approx. US$4.2 billion c. 2005) acquisition of UDI. UDI, now BAE Systems Land and Armaments
, manufactures combat vehicles, artillery systems, naval guns, missile launchers and precision guided munitions.
In December 2005, BAE announced the sale of its German naval systems subsidiary, Atlas Elektronik, to ThyssenKrupp
and EADS. The sale was complicated by the requirement of the German government to approve any sale. The Financial Times described the sale as "cut price" because French company Thales bid €300 million, but was blocked from purchasing Atlas on national security grounds. On 31 January 2006 BAE announced the sale of BAE Systems Aerostructures to Spirit AeroSystems, Inc. BAE said as early as 2002 that it wished to dispose of what it did not regard as a "core business".
On 18 August 2006 Saudi Arabia signed a contract worth £6 billion to £10 billion for 72 Eurofighter Typhoons, to be delivered by BAE. On 10 September 2006 BAE was awarded a £2.5 billion contract for the upgrade of 80 Royal Saudi Air Force
Tornado IDSs. One of BAE's major aims, as highlighted in the 2005 Annual Report, was the granting of increased technology transfer between the UK and the US. The F-35 (JSF) programme became the focus of this effort, with British government ministers such as Lord Drayson
, Minister for Defence Procurement
, suggesting the UK would withdraw from the project without the transfer of technology that would allow the UK to operate and maintain F-35s independently. However, on 12 December 2006, Lord Drayson signed an agreement which allows "an unbroken British chain of command" for operation of the aircraft. On 22 December 2006 BAE received a £947 million contract to provide guaranteed availability of Royal Air Force
(RAF) Tornados.
On 7 May 2007 BAE announced its subsidiary BAE Systems Inc. was to purchase Armor Holdings for £2.3 billion (approx. US$4.5 billion c. 2007) and completed the deal on 31 July 2007. The company is a manufacturer of tactical wheeled vehicles and a provider of vehicle and individual armour systems and survivability technologies. BAE (and British Aerospace previously) was a technology partner to the McLaren Formula One team from 1996 to December 2007. The partnership originally focused on McLaren's F1 car's aerodynamics, eventually moving on to carbon fibre techniques, wireless systems and fuel management. BAE's main interest in the partnership was to learn about the high speed build and operations processes of McLaren.
BAE announced the acquisition of Tenix Defence
, a major Australian defence contractor on 18 January 2008. The purchase was completed on 27 June for AU$775 million (£373 million) making BAE Systems Australia
that country's largest defence contractor. The UK Ministry of Defence awarded BAE a 15 year munitions contract in August 2008 worth up to £3 billion. The contract guarantees supply of 80% of the UK Armed Forces' ammunition and required BAE to modernise its munitions manufacturing facilities. BAE expanded its intelligence and security business with the £531 million purchase of Detica Group
in July 2008. It continued this strategy with purchases of Danish cyber and intelligence company ETI for approximately $210 million in December 2010, and Norkom Group PLC
the following month for €217 million. The latter provides counter fraud and anti-money laundering solutions to the global financial services industry where its software assists institutions to comply with regulations on financial intelligence and monitoring.
In February 2010 BAE announced a £592 million writedown of the former Armor Holdings business following the loss of the Family of Medium Tactical Vehicles contract in 2009. BAE was outbid by Oshkosh Corporation for the £2.3 billion ($3.7 billion) contract. Land and Armaments had been the "star performer" of BAE's subsidiaries, growing from sales of £482 million in 2004 to £6.7 billion in 2009.
BAE inherited British Aerospace's 35% share of SAAB AB
, with which it produced and marketed the Gripen
fighter aircraft. In 2005 it reduced this share to 20.5% and in March 2010 announced its intention to sell the remainder. The Times stated that the decision brought "to an end its controversial relationship with the Gripen fighter aircraft". Several of the export campaigns for the aircraft were subject to allegations of bribery and corruption. Meanwhile the company was increasing its presence in India with the formation of Defence Land Systems India in April, a joint venture with Mahindra & Mahindra Limited
. BAE holds just 26% of the equity due to Indian foreign direct investment regulations.
BAE continued its move into support services in May 2010 with the purchase of the marine support company Atlantic Marine for $352 million. In September 2010 BAE announced plans to sell the Platform Solutions division of BAE Systems Inc., which the Financial Times said could yield as much as £1.3 billion. However, despite "considerable expressions of interest", the sale was abandoned in January 2011. On 19 October 2010 the British government cancelled the Nimrod project as part of its Strategic Defence and Security Review
. The purchases of , the Astute class submarines, and the Type 26 frigates were all confirmed. A new generation of nuclear missile submarines will be built, however the final decision will be delayed until after the next election.
In September 2011, BAE Systems began consultation with unions and workers over plans to cut nearly 3,000 jobs, mostly in the company's military aircraft division.
and Filton
. These facilities manufactured wings for the Airbus family of aircraft. In 2001 Airbus was incorporated as Airbus SAS, a joint stock company
. In return for a 20% share in the new company BAE transferred ownership of its Airbus plants (known as Airbus UK
) to the new company.
Despite repeated suggestions as early as 2000 that BAE wished to sell its 20% share of Airbus, the possibility was consistently denied by the company. However on 6 April 2006 BBC News reported that it was indeed to sell its stake, then "conservatively valued" at £2.4 billion. Due to the slow pace of informal negotiations, BAE exercised its put option
which saw investment bank Rothschild
appointed to give an independent valuation. Six days after this process began, Airbus announced delays to the A380
with significant effects on the value of Airbus shares. On 2 June 2006 Rothschild valued BAE's share at £1.87 billion, well below BAE's, analysts' and even EADS' expectations. The BAE board recommended that the company proceed with the sale. On 4 October 2006 shareholders voted in favour and the sale was completed on 13 October. BAE's sale of its Airbus share saw the end of UK owned involvement in civil airliner production. Airbus UK continues to be the Airbus "Centre of Excellence" for wing production, employing approximately 140,000 directly and indirectly, but is entirely owned by EADS.
BAE plays important roles in military aircraft production. The company's Typhoon
fighter and Tornado
fighter-bomber are both front line aircraft of the RAF. BAE is a major partner in the F-35 Lightning II programme. Its Hawk
advanced jet trainer aircraft has been widely exported. In July 2006, the British government declassified the HERTI
(High Endurance Rapid Technology Insertion), an Unmanned Aerial Vehicle
(UAV) which can navigate autonomously.
BAE Systems' interests in commercial aviation are vested in BAE Systems Regional Aircraft. This unit no longer produces aircraft, however it continues to lease and support its products, the BAe 146
/Avro RJ family, BAe ATP, Jetstream
and BAe 748.
BAE Systems Land and Armaments
manufactures the M2/M3 Bradley
fighting vehicle family, the US Navy Advanced Gun System
(AGS), the M113 armoured personnel carrier (APC), the M109 Paladin
, the British Army's Challenger II
, Warrior Tracked Armoured Vehicle
, M777 howitzer
and the Panther Command and Liaison Vehicle
Major naval projects include the Astute-class nuclear submarine, Type 45
air defence destroyer and Queen Elizabeth class aircraft carrier.
& its subsidiaries with a revenue of £1.1 billion from the MOD. Oxford Economic Forecasting states that in 2002 BAE's UK businesses employed 111,578 people, achieved export sales of £3 billion and paid £2.6 billion in taxes. These figures exclude the contribution of Airbus UK.
Since its creation BAE had a difficult relationship with the MOD. This was attributed to deficient project management by the company, but also in part to the deficiencies in the terms of "fixed price contracts". BAE CEO Mike Turner
said in 2006 "We had entered into contracts under the old competition rules that frankly we shouldn't have taken". These competition rules were introduced by Lord Levene
during the 1980s to shift the burden of risk to the contractor and were in contrast to "cost plus contracts" where a contractor was paid for the value of its product plus an agreed profit.
BAE was operating in "the only truly open defence market", which meant that it was competing with US and European companies for British defence projects, while they were protected in their home markets. The US defence market is competitive, however largely between American firms, while foreign companies are excluded. In December 2005 the MOD published the Defence Industrial Strategy (DIS) which has been widely acknowledged to recognise BAE as the UK's "national champion". The DIS identifies key industrial capabilities which must be maintained within the UK through long-term government commitments to support research spending and procurement. Of these capabilities, several are dominated by BAE, including naval vessels and submarines, combat vehicles, fixed-wing aircraft, general munitions (with the exception of certain "niche capabilities abroad") and Network Enabled Capability
(defined as C4ISTAR in the DIS). The company maintains an interest in future UAV technologies through its collaborative FLAVIIR research programme with EPSRC
.
After the publication of the DIS BAE Systems CEO Mike Turner said "If we didn't have the DIS and our profitability and the terms of trade had stayed as they were... then there had to be a question mark about our future in the UK". Lord Levene said in the balance between value for money or maintaining a viable industrial base the DIS "tries as well as it can to steer a middle course and to achieve as much as it can in both directions. ...We will never have a perfect solution."
BAE now sells more to the US Department of Defense (DOD) than the UK MOD. The company has been allowed to buy important defence contractors in the US, however its status as a UK company requires that its US subsidiaries are governed by American executives under Special Security Arrangements. BAE faces fewer impediments in this sense than its European counterparts, as there is a high degree of integration between the US and UK defence establishments. BAE's purchase of Lockheed Martin Aerospace Electronic Systems in November 2000 was described by John Hamre
, CEO of the Center for Strategic and International Studies
and former Deputy Secretary of Defense
, as "precedent setting" given the advanced and classified nature of many of that company's products.
The possibility of a merger between BAE and major North American defence contractors has long been reported, including Boeing, General Dynamics, Lockheed Martin, and Raytheon.
is the largest defence contractor in Australia, having more than doubled in size with the acquisition of Tenix Defence. The Al Yamamah agreements between the UK and Saudi Arabia require "the provision of a complete defence package for the Kingdom of Saudi Arabia"; BAE employs 4,600 people in the kingdom. BAE Systems Land Systems South Africa
, 75% owned by BAE, is the largest military vehicle manufacturer in South Africa, and is currently taking part in the US MRAP
programme. BAE's interests in Sweden are a result of the purchases of Alvis Vickers
and UDI, which owned Hägglunds and Bofors
respectively; The companies are now part of BAE Systems AB and have a combined workforce of approximately 1,750.
Also, BAE Systems owns 49% of Air Astana, Kazakhstan.
(9.02%), Barclays plc
(3.98%), Franklin Resources, Inc.
and affiliates (4.92%), Legal & General Group plc (4.07%), and BlackRock
(4.96%).
BAE has its head office and its registered office
in City of Westminster
, London
. In addition to its central London offices, it has an office in Farnborough
, Hampshire
that houses functional specialists and support functions.
BAE Systems divides its business into five business groups: Electronics, Intelligence & Support, Land & Armaments, Programmes & Support, International Businesses, and HQ & Other Businesses.
Electronics, Intelligence & Support
This division provides analytic services
, system integration
, information technology, radar and naval systems and is the world's largest explosives manufacturer. Electronics & Integrated Solutions
manufactures a wide range of electronic systems and subsystems for both military and commercial applications.
Land and Armaments
BAE Systems Land and Armaments was formed in 2005 by the merger of the newly acquired UDI with BAE Systems Land Systems. The group expanded with the acquisition of Armor Holdings in 2007. BAE Systems Products Group manufactures security products such as body armour, forensic kits, handcuffs and holsters for law enforcement agencies, militaries and security professionals.
Programmes & Support
The Programmes & Support business group includes BAE Systems Military Air & Information, BAE Systems Surface Ships, BAE Systems Submarine Solutions, and BAE Systems Insyte
. Military Air & Information is responsible for the design, development and production of BAE's major military aircraft programmes; Typhoon, F-35 Lightning II, Hawk and UAV projects such as Taranis
. BAE's 33% share of Eurofighter Jagdflugzeug GmbH
(33%) represents its involvement in the Eurofighter Typhoon project. BAE Systems Submarine Solutions is the company's submarine division. Insyte is a major supplier of defence electronics, integrated command & control (C²) systems, radars, simulators, meteorological systems, data links and C4ISR
battle management systems, and now incorporates BAE Systems Underwater Systems which manufactures underwater warfare products such as torpedoes and minesweeping systems.
International Businesses
BAE Systems Australia provides aircraft support, training and simulation, communication and command systems and is the principal subcontractor to Boeing in the 737 Airborne Early Warning & Control programme. BAE Systems Customer Solutions & Support International is centred on provision of services to Saudi Arabia as part of the Al Yamamah project and subsequent Saudi Typhoon contract. Other shareholdings include 37.5% of MBDA
HQ & Other
BAE Systems Regional Aircraft
leases aircraft and provides support, spares and training for its products, the Avro RJ/BAE 146 family, BAe ATP and Jetstream.
, and George Rose
. The non-executive directors are Harriet Green, Michael Hartnall
, Sir Peter Mason
, Carl Symon, Roberto Quarta
, Paul Anderson and Nick Rose.
The company's first CEO, John Weston, was forced to resign in 2002 in a boardroom "coup" and was replaced by Mike Turner. The Business reported that Weston was ousted when non-executive directors informed the Chairman that they had lost confidence in him. Further, it was suggested that at least one non-executive director was encouraged to make such a move by the MOD due to the increasingly fractious relationship between BAE and the government. As well as the terms of the Nimrod contract, Weston had fought against the MOD's insistence that one of the first three Type 45 destroyers should be built by VT Group. The Business said he considered this "competition-policy gone mad".
It is understood that Turner had a poor working relationship with senior MOD officials, (for example with former Defence Secretary Geoff Hoon
) Significantly the first meeting between Olver and Hoon was said to have gone well, a MOD official commented "He is a man we can do business with. We think it is good to be taking a fresh look at things." It has been suggested that relations between Turner and Olver were tense. On 16 October 2007 BAE announced that Mike Turner would retire in August 2008. The Times called his departure plans "abrupt" and a "shock", given previous statements that he wished to retire in 2013 at the age of 65. Despite suggestions that BAE would prefer an American CEO due to the increasing importance of the United States defence market to the company and the opportunity to make a clean break from corruption allegations and investigations related to the Al Yamamah
contracts BAE announced on 27 June 2008 that it had selected the company's Chief operating officer Ian King to succeed Turner with effect from 1 September 2008; The Financial Times noted that King's career at Marconi distances him from the British Aerospace-led Al Yamamah project.
[a]: Restated to exclude Airbus contributions. Included for comparison.
[b]: Data prepared using UK GAAP
guidelines. Recent data prepared using International Financial Reporting Standards
.
[c]: Reflects £750 million charges for problems with Nimrod MRA4 (£500 million) and Astute class submarine (£250 million) programmes.
to help sell arms to Chile, Czech Republic, Romania, Saudi Arabia, South Africa, Tanzania and Qatar. In response, BAE Systems' 2006 Corporate Responsibility Report states "We continue to reject these allegations...We take our obligations under the law extremely seriously and will continue to comply with all legal requirements around the world. In June 2007 Lord Woolf was selected to lead what the BBC described as an "independent review.... [an] ethics committee to look into how the defence giant conducts its arms deals." The report, Ethical business conduct in BAE Systems plc – the way forward, made 23 recommendations, measures which BAE has committed to implement. The finding stated that "in the past BAE did not pay sufficient attention to ethical standards in the way it conducted business," and was described by the BBC as "an embarrassing admission."
In September 2009, the Serious Fraud Office announced that it intended to prosecute BAE Systems for offences relating to overseas corruption. The Guardian
claimed that a penalty "possibly of more than £500m" might be an acceptable settlement package. On 5 February 2010, BAE Systems agreed to pay £257m criminal fines to the US and £30m to the UK. The UK already massively benefited from £43 billion contract in tax receipts and jobs in the UK, and had dropped an anti-corruption investigation into the Al Yamamah
contracts later taken up by US authorities. Crucially, under a plea bargain with the US Department of Justice BAE was convicted of felony conspiracy to defraud the United States government and sentenced in March 2010 by U.S. District Court Judge John D. Bates to pay a $400 million fine, one of the largest fines in the history of the DOJ. U.S. District Judge John Bates said the company's conduct involved "deception, duplicity and knowing violations of law, I think it's fair to say, on an enormous scale". BAE did not directly admit to bribery, and is thus not internationally blacklisted from future contracts. Some of the £30m penalty BAE will pay in fines to the UK will be paid ex gratia for the benefit of the people of Tanzania. On 2 March 2010 Campaign Against Arms Trade and The Corner House were successful in gaining a High Court injunction on the Serious Fraud Office's settlement with BAE. The High Court may order a full review of the settlement.
BAE (and British Aerospace previously) has long been the subject of allegations of bribery in relation to its business in Saudi Arabia. The UK National Audit Office
(NAO) investigated the Al Yamamah contracts and has so far not published its conclusions, the only NAO report ever to be withheld. The MOD has stated "The report remains sensitive. Disclosure would harm both international relations and the UK's commercial interests." The company has been accused of maintaining a £60 million Saudi slush fund
and was the subject of an investigation by the Serious Fraud Office (SFO). However, on 14 December 2006 it was announced that the SFO was "discontinuing" its investigation into BAE. It stated that representations to its Director and the Attorney General
Lord Goldsmith
had led to the conclusion that the wider public interest "to safeguard national and international security" outweighed any potential benefits of further investigation. The termination of the investigation has been controversial. In June 2007, the BBC's Panorama
alleged BAE "paid hundreds of millions of pounds to the ex-Saudi ambassador to the US, Prince Bandar bin Sultan" in return for his role in the Al Yamamah deals. In late June 2007 the United States Department of Justice
(DOJ) began a formal investigation into BAE's compliance with anti-corruption laws. On 19 May 2008 BAE confirmed that its CEO Mike Turner and non-executive director Nigel Rudd
had been detained "for about 20 minutes" at two US airports the previous week and that the DOJ had issued "a number of additional subpoenas in the US to employees of BAE Systems plc and BAE Systems Inc as part of its ongoing investigation". The Times suggested that such "humiliating behaviour by the DOJ" is unusual toward a company that is co-operating fully.
A judicial review of the decision by the SFO to drop the investigation was granted on 9 November 2007. On 10 April 2008 the High Court ruled that the SFO "acted unlawfully" by dropping its investigation. The Times described the ruling as "one of the most strongly worded judicial attacks on government action" which condemned how "ministers 'buckled' to 'blatant threats' that Saudi cooperation in the fight against terror would end unless the ...investigation was dropped." On 24 April the SFO was granted leave to appeal to the House of Lords against the ruling. There was a two-day hearing before the Lords on 7 and 8 July 2008. On 30 July the House of Lords unanimously overturned the High Court ruling, stating that the decision to discontinue the investigation was lawful.
, the former Chilean dictator. The Guardian has also reported that "clandestine arms deals" have been under investigation in Chile and the UK since 2003 and that British Aerospace and BAE made a number of payments to Pinochet advisers. In 2003, HMS Sheffield
was sold to the Chilean Navy for £27 million, however the government's profit from the sale was £3 million, after contracts worth £24 million were placed with BAE for upgrade and refurbishment of the ship.
BAE is alleged to have paid "secret offshore commissions" of over £7 million to secure the sale of HMS London
and HMS Coventry
to the Romanian Navy. BAE received a £116 million contract for the refurbishment of the ships prior to delivery; however the British taxpayer only received the scrap value of £100,000 each from the sale.
BAE ran into controversy in 2002 over the abnormally high cost of a radar system sold to Tanzania
. The sale was criticised by several opposition MPs and the World Bank
; Secretary of State for International Development
Clare Short
declared that BAE had "ripped off" developing nations. In December 2010, leaked US diplomatic communications revealed that Edward Hoseah, the Tanzanian prosecutor investigating misconduct by BAE, had confided in US diplomats that "his life may be in danger" and was being routinely threatened.
In January 2007, details of an investigation by the Serious Fraud Office into BAE's sales tactics in regard to South Africa were reported, highlighting the £2.3 billion deal to supply Hawk trainers and Gripen fighters as suspect. In May 2011, as allegations of bribery behind South Africa's Gripen procurement continued, BAE partner Saab
issued strong denials of any illicit payments being made; however in June 2011 Saab announced that BAE had made unaccounted payments of roughly $3.5 million to a consultant, this revelation prompted South African Opposition parties to call for a renewed inquiry. The Gripen's procurement by the Czech Republic was also under investigation by the Serious Fraud Office in 2006 over allegations of bribery.
In September 2003 The Sunday Times reported that BAE had hired a private security contractor to collate information about individuals working at the Campaign Against Arms Trade
and their activities. In February 2007, it again obtained private confidential information from CAAT.
Human rights records
Like many arms manufacturers, BAE has received criticism from various human rights and anti-arms trade organisations due to the human rights records of governments to which it has sold equipment. These include Indonesia
, Saudi Arabia
, and Zimbabwe
. BAE's US subsidiary makes several subsystems for F-16s
, which have been supplied to the Israel Defense Forces
.
Nuclear weapons
In 2006, BAE was excluded from the portfolio
of the government pension fund of Norway
"because they develop and/or produce central components for nuclear weapons". "According to the ethical guidelines for the Government Pension Fund – Global, companies that produce weapons that through normal use may violate fundamental humanitarian principles
shall be excluded from the fund." BAE is indirectly engaged in production of nuclear weapons – through its 37.5% share of MBDA
it is involved with the production and support of the ASMP
missile, an air launched nuclear missile which forms part of the French nuclear deterrent
. BAE is also the UK's only nuclear submarine
manufacturer and thus produces a key element of the UK's nuclear weapons capability.
Cluster bombs
BAE has in recent times been criticised for its role in the production of cluster bombs, due to the long term death/injury risks they cause to civilians (they behave similarly to land mine
s). However, after pressure campaigns from various human rights groups, BAE recently stated it no longer produces land mines or cluster bombs.
Multinational corporation
A multi national corporation or enterprise , is a corporation or an enterprise that manages production or delivers services in more than one country. It can also be referred to as an international corporation...
defence, security
Information security
Information security means protecting information and information systems from unauthorized access, use, disclosure, disruption, modification, perusal, inspection, recording or destruction....
and aerospace
Aerospace
Aerospace comprises the atmosphere of Earth and surrounding space. Typically the term is used to refer to the industry that researches, designs, manufactures, operates, and maintains vehicles moving through air and space...
company headquartered in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
, United Kingdom, that has global interests, particularly in North America through its subsidiary BAE Systems Inc. BAE is among the world's largest military contractors
Defense contractor
A defense contractor is a business organization or individual that provides products or services to a military department of a government. Products typically include military aircraft, ships, vehicles, weaponry, and electronic systems...
; in 2009 it was the second-largest based on revenues. It was formed on 30 November 1999 by the £7.7 billion merger of two British companies, Marconi Electronic Systems
Marconi Electronic Systems
Marconi Electronic Systems , or GEC-Marconi as it was until 1998, was the defence arm of The General Electric Company . It was demerged from GEC and acquired by British Aerospace on November 30, 1999 to form BAE Systems...
(MES), the defence electronics and naval shipbuilding subsidiary of the General Electric Company plc (GEC), and aircraft, munitions and naval systems manufacturer British Aerospace
British Aerospace
British Aerospace plc was a UK aircraft, munitions and defence-systems manufacturer. Its head office was in the Warwick House in the Farnborough Aerospace Centre in Farnborough, Hampshire...
(BAe).
BAE Systems is the successor to various aircraft and defence electronics companies, including The Marconi Company
Marconi Company
The Marconi Company Ltd. was founded by Guglielmo Marconi in 1897 as The Wireless Telegraph & Signal Company...
, the first commercial company devoted to the development and use of radio; A.V. Roe and Company
Avro
Avro was a British aircraft manufacturer, with numerous landmark designs such as the Avro 504 trainer in the First World War, the Avro Lancaster, one of the pre-eminent bombers of the Second World War, and the delta wing Avro Vulcan, a stalwart of the Cold War.-Early history:One of the world's...
, one of the world's first aircraft companies; de Havilland
De Havilland
The de Havilland Aircraft Company was a British aviation manufacturer founded in 1920 when Airco, of which Geoffrey de Havilland had been chief designer, was sold to BSA by the owner George Holt Thomas. De Havilland then set up a company under his name in September of that year at Stag Lane...
, manufacturer of the world's first commercial jet airliner
De Havilland Comet
The de Havilland DH 106 Comet was the world's first commercial jet airliner to reach production. Developed and manufactured by de Havilland at the Hatfield, Hertfordshire, United Kingdom headquarters, it first flew in 1949 and was a landmark in aeronautical design...
; British Aircraft Corporation
British Aircraft Corporation
The British Aircraft Corporation was a British aircraft manufacturer formed from the government-pressured merger of English Electric Aviation Ltd., Vickers-Armstrongs , the Bristol Aeroplane Company and Hunting Aircraft in 1960. Bristol, English Electric and Vickers became "parents" of BAC with...
, co-manufacturer of the Concorde
Concorde
Aérospatiale-BAC Concorde was a turbojet-powered supersonic passenger airliner, a supersonic transport . It was a product of an Anglo-French government treaty, combining the manufacturing efforts of Aérospatiale and the British Aircraft Corporation...
supersonic transport; and Supermarine
Supermarine
Supermarine was a British aircraft manufacturer that became famous for producing a range of sea planes and the Supermarine Spitfire fighter. The name now belongs to an English motorboat manufacturer.-History:...
, manufacturer of the Spitfire
Supermarine Spitfire
The Supermarine Spitfire is a British single-seat fighter aircraft that was used by the Royal Air Force and many other Allied countries throughout the Second World War. The Spitfire continued to be used as a front line fighter and in secondary roles into the 1950s...
. Since its formation it has sold its shares in Airbus
Airbus
Airbus SAS is an aircraft manufacturing subsidiary of EADS, a European aerospace company. Based in Blagnac, France, surburb of Toulouse, and with significant activity across Europe, the company produces around half of the world's jet airliners....
, Astrium, AMS
Alenia Marconi Systems
Alenia Marconi Systems was a major European integrated defence electronics company and an equal shares joint venture between BAE Systems and Finmeccanica until its dissolution on May 3, 2005....
and Atlas Elektronik
Atlas Elektronik
Atlas Elektronik GmbH is a naval/marine electronics and systems business based in Bremen, Germany. It is involved in the development of integrated sonar systems for submarines and heavyweight torpedoes....
, and made a number of acquisitions, most notably United Defense
United Defense
United Defense Industries was a United States defense contractor which is now part of BAE Systems Land and Armaments. This company produces combat vehicles, artillery, naval guns, missile launchers and precision munitions.-History:...
and Armor Holdings of the United States.
BAE Systems is involved in several major defence projects, including the F-35 Lightning II
F-35 Lightning II
The Lockheed Martin F-35 Lightning II is a family of single-seat, single-engine, fifth generation multirole fighters under development to perform ground attack, reconnaissance, and air defense missions with stealth capability...
, the Eurofighter Typhoon
Eurofighter Typhoon
The Eurofighter Typhoon is a twin-engine, canard-delta wing, multirole combat aircraft, designed and built by a consortium of three companies: EADS, Alenia Aeronautica and BAE Systems; working through a holding company, Eurofighter GmbH, which was formed in 1986...
, the and the s. The company has been the subject of criticism, in terms of general opposition to the arms trade and particularly specific allegations of unethical and corrupt practices, including Saudi Arabia
Saudi Arabia
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...
n Al Yamamah contracts with BAE and its predecessor. In 2010, BAE Systems agreed to pay £286 million in criminal fines to the Serious Fraud Office and the US Department of Justice.
BAE Systems is listed on the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
and is a constituent of the FTSE 100 Index
FTSE 100 Index
The FTSE 100 Index, also called FTSE 100, FTSE, or, informally, the footsie , is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange....
.
Heritage
BAE Systems was formed on 30 November 1999 by the £7.7 billion merger of British Aerospace (BAe) and Marconi Electronic Systems (MES). As a result, BAE Systems is the successor to many of the most famous British aircraft, defence electronics and warship manufacturers. Predecessor companies built the CometDe Havilland Comet
The de Havilland DH 106 Comet was the world's first commercial jet airliner to reach production. Developed and manufactured by de Havilland at the Hatfield, Hertfordshire, United Kingdom headquarters, it first flew in 1949 and was a landmark in aeronautical design...
, the world's first commercial jet airliner; the Harrier "jump jet", the world's first operational Vertical/Short Take-Off and Landing
V/STOL
Vertical and/or short take-off and landing is a term used to describe aircraft that are able to take-off or land vertically or on short runways. Vertical takeoff and landing describes craft which do not require runways at all...
(VTOL) aircraft; the "groundbreaking" Blue Vixen radar carried by Sea Harrier FA2s and which formed the basis of the Eurofighter's CAPTOR
Euroradar CAPTOR
The Euroradar CAPTOR is a next generation mechanical multi-mode pulse doppler radar designed for the Eurofighter Typhoon.The radar is produced by the Euroradar consortium and is a development of the BAE Systems Blue Vixen radar which had been developed for the BAE Sea Harrier...
radar; and co-produced the iconic Concorde
Concorde
Aérospatiale-BAC Concorde was a turbojet-powered supersonic passenger airliner, a supersonic transport . It was a product of an Anglo-French government treaty, combining the manufacturing efforts of Aérospatiale and the British Aircraft Corporation...
supersonic airliner with Aérospatiale
Aérospatiale
Aérospatiale was a French aerospace manufacturer that built both civilian and military aircraft, rockets and satellites. It was originally known as Société Nationale Industrielle Aérospatiale...
.
British Aerospace was a civil and military aircraft
Military aircraft
A military aircraft is any fixed-wing or rotary-wing aircraft that is operated by a legal or insurrectionary armed service of any type. Military aircraft can be either combat or non-combat:...
manufacturer, as well as a provider of military land systems. The company had emerged from the massive consolidation of UK aircraft manufacturers since World War II. British Aerospace was formed on 29 April 1977 by the nationalisation and merger of The British Aircraft Corporation
British Aircraft Corporation
The British Aircraft Corporation was a British aircraft manufacturer formed from the government-pressured merger of English Electric Aviation Ltd., Vickers-Armstrongs , the Bristol Aeroplane Company and Hunting Aircraft in 1960. Bristol, English Electric and Vickers became "parents" of BAC with...
(BAC), the Hawker Siddeley Group and Scottish Aviation
Scottish Aviation
Scottish Aviation Limited was a Scottish aircraft manufacturer, based at Prestwick in South Ayrshire.-History:Originally a flying school operator the company took on maintenance work in 1938....
. Both BAC and Hawker Siddeley were themselves the result of various mergers and acquisitions.
Marconi Electronic Systems was the defence subsidiary of British engineering firm The General Electric Company (GEC), dealing largely in military systems integration
System integrator
A systems integrator is a person or company that specializes in bringing together component subsystems into a whole and ensuring that those subsystems function together, a practice known as System Integration...
, as well as naval and land systems. Marconi's heritage dates back to Guglielmo Marconi
Guglielmo Marconi
Guglielmo Marconi was an Italian inventor, known as the father of long distance radio transmission and for his development of Marconi's law and a radio telegraph system. Marconi is often credited as the inventor of radio, and indeed he shared the 1909 Nobel Prize in Physics with Karl Ferdinand...
's Wireless Telegraph & Signal Company, founded in 1897. GEC purchased English Electric
English Electric
English Electric was a British industrial manufacturer. Founded in 1918, it initially specialised in industrial electric motors and transformers...
(which included Marconi) in 1968 and thereafter used the Marconi brand for its defence businesses (as GEC-Marconi and later Marconi Electronic Systems). GEC's own defence heritage dates back to World War I, when its contribution to the war effort included radios and bulbs. World War II consolidated this position, as the company was involved in important technological advances, notably the cavity magnetron
Cavity magnetron
The cavity magnetron is a high-powered vacuum tube that generates microwaves using the interaction of a stream of electrons with a magnetic field. The 'resonant' cavity magnetron variant of the earlier magnetron tube was invented by John Randall and Harry Boot in 1940 at the University of...
for radar
Radar
Radar is an object-detection system which uses radio waves to determine the range, altitude, direction, or speed of objects. It can be used to detect aircraft, ships, spacecraft, guided missiles, motor vehicles, weather formations, and terrain. The radar dish or antenna transmits pulses of radio...
. Between 1945 and 1999, GEC-Marconi/Marconi Electronic Systems became one of the world's most important defence contractors. GEC's major defence related acquisitions included Associated Electrical Industries
Associated Electrical Industries
Associated Electrical Industries was a British holding company formed in 1928 through the merger of the British Thomson-Houston Company and Metropolitan-Vickers electrical engineering companies...
in 1967, Yarrow Shipbuilders in 1985, Plessey
Plessey
The Plessey Company plc was a British-based international electronics, defence and telecommunications company. It originated in 1917, growing and diversifying into electronics. It expanded after the second world war by acquisition of companies and formed overseas companies...
companies in 1989, parts of Ferranti
Ferranti
Ferranti or Ferranti International plc was a UK electrical engineering and equipment firm that operated for over a century from 1885 until it went bankrupt in 1993. Known primarily for defence electronics, the Company was once a constituent of the FTSE 100 Index but ceased trading in 1993.The...
's defence business in 1990, Vickers Shipbuilding and Engineering in 1995 and Kværner Govan
Kvaerner Govan
Kvaerner Govan Ltd, located at Govan in Glasgow on the River Clyde, was a shipyard subsidiary formed in 1988 when the Norwegian group Kvaerner Industrier purchased the Govan Shipbuilders division of the nationalised British Shipbuilders corporation...
in 1999. In June 1998, MES acquired Tracor
Tracor
Tracor was a major North American defense electronics contractor which was acquired by Marconi Electronic Systems , a subsidiary of General Electric Company plc, in 1998. Following the purchase of MES by British Aerospace in November 1999 to form BAE Systems, Tracor became BAE Systems Integrated...
, a major American defence contractor, for £830 million (approx. US$1.4 billion c. 1998).
Formation
The 1997 merger of American corporations BoeingBoeing
The Boeing Company is an American multinational aerospace and defense corporation, founded in 1916 by William E. Boeing in Seattle, Washington. Boeing has expanded over the years, merging with McDonnell Douglas in 1997. Boeing Corporate headquarters has been in Chicago, Illinois since 2001...
and McDonnell Douglas
McDonnell Douglas
McDonnell Douglas was a major American aerospace manufacturer and defense contractor, producing a number of famous commercial and military aircraft. It formed from a merger of McDonnell Aircraft and Douglas Aircraft in 1967. McDonnell Douglas was based at Lambert-St. Louis International Airport...
, which followed the forming of Lockheed Martin
Lockheed Martin
Lockheed Martin is an American global aerospace, defense, security, and advanced technology company with worldwide interests. It was formed by the merger of Lockheed Corporation with Martin Marietta in March 1995. It is headquartered in Bethesda, Maryland, in the Washington Metropolitan Area....
, the world's largest defence contractor in 1995, increased the pressure on European defence companies to consolidate. In June 1997 British Aerospace Defence Managing Director John Weston
John Weston (businessman)
John Weston is a British businessman.Weston was employed by BAE Systems and its predecessors from when he left university until he was ousted as CEO in 2002. In 2004 the Financial Times described Weston as one of a "core group" who turned British Aerospace around , along with Evans, Richard...
commented "Europe... is supporting three times the number of contractors on less than half the budget of the U.S.". European governments wished to see the merger of their defence manufacturers into a single entity, a European Aerospace and Defence Company.
As early as 1995 British Aerospace and the German aerospace and defence company DaimlerChrysler Aerospace (DASA) were said to be keen to create a transnational aerospace and defence company. The two companies envisaged including Aérospatiale, the other major European aerospace company, but only after its privatisation. The first stage of this integration was seen as the transformation of Airbus from a consortium of British Aerospace, DASA, Aérospatiale and Construcciones Aeronáuticas SA
Construcciones Aeronáuticas
EADS CASA was a Spanish aircraft manufacturer, previously Construcciones Aeronáuticas SA . It became the Spanish branch of EADS in 1999, and was absorbed by Airbus Military in 2009.-History:...
into an integrated company; in this aim British Aerospace and DASA were united against the various objections of Aérospatiale. As well as Airbus, British Aerospace and DASA were partners in the Panavia Tornado
Panavia Tornado
The Panavia Tornado is a family of twin-engine, variable-sweep wing combat aircraft, which was jointly developed and manufactured by the United Kingdom, West Germany and Italy...
and Eurofighter Typhoon aircraft projects. Merger discussions began between British Aerospace and DASA in July 1998, just as French participation became more likely with the announcement that Aérospatiale was to merge with Matra
Matra
Mécanique Aviation Traction or Matra was a French company covering a wide range of activities mainly related to automobile, bicycles, aeronautics and weaponry. In 1994, it became a subsidiary of the Lagardère Group and now operates under that name.Matra was owned by the Floirat family...
and emerge with a diluted French government shareholding. A merger was agreed between British Aerospace Chairman Richard Evans
Richard Evans (businessman)
Sir Richard Harry Evans, CBE, Hon FRAeS less formally known as Dick Evans, was formerly chairman of BAE Systems.In 2001 he became Chancellor of the University of Central Lancashire...
and DASA CEO Jürgen Schrempp
Jürgen E. Schrempp
Jürgen Erich Schrempp was until December 31, 2005, the CEO of DaimlerChrysler, a German-American car and truck manufacturer. Following a decision of the board taken on July 28, 2005, he was succeeded on January 1, 2006, by Chrysler frontman Dieter Zetsche...
in December 1998.
Meanwhile GEC was also under pressure to participate in defence industry consolidation. Reporting the appointment of George Simpson as GEC managing director in 1996, The Independent had said "some analysts believe that Mr Simpson's inside knowledge of BAe, a long-rumoured GEC bid target, was a key to his appointment. GEC favours forging a national 'champion' defence group with BAe to compete with the giant US organisations." When GEC put MES up for sale on 22 December 1998, British Aerospace abandoned the DASA merger in favour of purchasing its British rival. The merger of British Aerospace and MES was announced on 19 January 1999. Evans stated that in 2004 that his fear was that an American defence contractor would acquire MES and challenge both British Aerospace and DASA. The merger created a vertically integrated company which The Scotsman described as "[a combination of British Aerospace's] contracting and platform-building skills with Marconi's coveted electronics systems capability", for example combining the manufacturer of the Eurofighter with the company that provided many of the aircraft's electronic systems; British Aerospace was MES' largest customer. In contrast, DASA's response to the breakdown of the merger discussion was to merge with Aérospatiale
Aérospatiale
Aérospatiale was a French aerospace manufacturer that built both civilian and military aircraft, rockets and satellites. It was originally known as Société Nationale Industrielle Aérospatiale...
to create the European Aeronautic Defence and Space Company (EADS
EADS
The European Aeronautic Defence and Space Company N.V. is a global pan-European aerospace and defence corporation and a leading defence and military contractor worldwide...
), a horizontal integration
Horizontal integration
In microeconomics and strategic management, the term horizontal integration describes a type of ownership and control. It is a strategy used by a business or corporation that seeks to sell a type of product in numerous markets...
. EADS has since considered a merger with Thales
Thales Group
The Thales Group is a French electronics company delivering information systems and services for the aerospace, defense, transportation and security markets...
to create a "fully rounded" company.
Seventeen undertakings were given by BAE to the Department of Trade and Industry which prevented a reference of the merger to the Monopolies and Mergers Commission. These were largely to ensure that the integrated company would tender sub-contracts to external companies on an equal basis with its subsidiaries. Another condition was the "firewalling
Chinese wall
In business, a Chinese wall or firewall is an information barrier implemented within a firm to separate and isolate persons who make investment decisions from persons who are privy to undisclosed material information which may influence those decisions...
" of former British Aerospace and MES teams on defence projects such as the Joint Strike Fighter
Joint Strike Fighter Program
Joint Strike Fighter is a development and acquisition program intended to replace a wide range of existing fighter, strike, and ground attack aircraft for the United States, the United Kingdom, Canada, and their allies. After a competition between the Boeing X-32 and the Lockheed Martin X-35, a...
(JSF). In 2007 the government, on advice from the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
, announced it had agreed to release BAE from ten of the undertakings due to "a change in circumstances".
BAE inherited the "special" shareholding that was established when British Aerospace was privatised. This special share, with a nominal value of £1, is held on behalf of the Secretary of State for Trade and Industry
Secretary of State for Trade and Industry
The Secretary of State for Business, Innovation and Skills is a cabinet position in the United Kingdom government. Its secondary title is the President of the Board of Trade...
. This shareholding prevents amendments of certain parts of the company's Articles of Association
Articles of Association (law)
The term articles of association of a company, or articles of incorporation, of an American or Canadian Company, are often simply referred to as articles . The Articles are a requirement for the establishment of a company under the law of India, the United Kingdom and many other countries...
without the permission of the Secretary of State. These Articles require that no foreign person or persons acting together may hold more than 15% of the company's shares or control the majority of the board and that the CEO and the Chairman of BAE Systems must be British nationals.
Initially the head office was in the Warwick House in the Farnborough Aerospace Centre in Farnborough
Farnborough
Farnborough may refer to:* Farnborough, Berkshire, a small village and civil parish in the English county of Berkshire* Farnborough, Hampshire, a town in the Rushmoor district of Hampshire, England...
, Hampshire
Hampshire
Hampshire is a county on the southern coast of England in the United Kingdom. The county town of Hampshire is Winchester, a historic cathedral city that was once the capital of England. Hampshire is notable for housing the original birthplaces of the Royal Navy, British Army, and Royal Air Force...
, and the company had a London office in the City of Westminster
City of Westminster
The City of Westminster is a London borough occupying much of the central area of London, England, including most of the West End. It is located to the west of and adjoining the ancient City of London, directly to the east of the Royal Borough of Kensington and Chelsea, and its southern boundary...
.
Expansion and restructuring
BAE Systems' first annual report identified Airbus, support services to militaries and integrated systems for air, land and naval applications as key areas of growth. It also stated the company's desire to both expand in the US and participate in further consolidation in Europe. BAE described 2001 as an "important year" for its European joint ventures, which were reorganised considerably. BAE has described the rationale for expansion in the US; "[it] is by far the largest defence market with spend running close to twice that of the Western European nations combined. Importantly, US investment in research and development is significantly higher than in Western Europe." When Dick OlverDick Olver
Richard Lake Olver is Chairman of BAE Systems, the world's largest defence contractor.-Career:Following his studies at City University where he gained a degree in civil engineering, he joined BP in 1973...
was appointed Chairman in July 2004 he ordered a review of the company's businesses which ruled out further European acquisitions or joint ventures and confirmed a "strategic bias" for expansion and investment in the US. The review also confirmed the attractiveness of the land systems sector and, with two acquisitions in 2004 and 2005, BAE moved from a limited land systems supplier to the second largest such company in the world. This shift in strategy was described as "remarkable" by the Financial Times. Between 2008 and early 2011 BAE acquired five cyber security companies in a shift in strategy to take account of reduced spending by governments on "traditional defence items such as warships and tanks".
In 2000 Matra Marconi Space
Matra Marconi Space
Matra Marconi Space was a Franco-British aerospace company.-History:Matra Marconi Space was established in 1990 as a joint venture between the space and telecommunication divisions of the Lagardère Group and the GEC group .The merged company was announced in December 1989 and was owned 51% by...
, a joint BAE/Matra company, was merged with the space division of DASA to form Astrium. On 16 June 2003 BAE sold its 25% share to EADS for £84 million, however due to the lossmaking status of the company BAE invested an equal amount for "restructuring". In January 2001 Airbus Industrie was transformed from an inherently inefficient consortium structure to a formal joint stock company. BAE sold its 54% majority share of BAE Systems Canada, an electronics company, in April for $CAD310 (approx. £197 million as of December 2010). In November 2001, BAE announced the closure of the Avro Regional Jet (Avro RJ
BAe 146
The British Aerospace 146 is a medium-sized commercial airliner formerly manufactured in the United Kingdom by British Aerospace, later part of BAE Systems. Production ran from 1983 until 2002. Manufacture of an improved version known as the Avro RJ began in 1992...
) production line at Woodford and the cancellation of the Avro RJX, an advanced series of the aircraft family, as the business was "no longer viable". The final Avro RJ to be completed became the last British civil airliner. In November 2001 BAE sold its 49.9% share of Thomson Marconi Sonar
Thomson Marconi Sonar
Thomson Marconi Sonar was formed as Ferranti Thomson Sonar Systems in 1990 by the merger of the sonar systems businesses of Thomson-CSF and Ferranti...
to Thales for £85 million. A further step of European defence consolidation was the merger of BAE's share of Matra BAe Dynamics
Matra BAe Dynamics
Matra BAe Dynamics was formed in August 1996 by merger of half the missile business of Matra Defense of France and BAe Dynamics of the UK and was Europe's largest manufacturer of missiles and UAVs....
and the missile division of Alenia Marconi Systems (AMS) into MBDA
MBDA
MBDA is a missile developer and manufacturer with operations in France, Britain, Germany, Italy, and the United States. It was formed by a merger of Aérospatiale-Matra Missiles , Finmeccanica and Matra BAe Dynamics in December 2001. In 2003 the company had 10,000 employees...
in December. MBDA thus became the world's second largest missile manufacturer. Although EADS has been reported to be interested in acquiring full control of MBDA, BAE has said that, unlike Airbus, MBDA is a "core business".
TRW
TRW Inc. was an American corporation involved in a variety of businesses, mainly aerospace, automotive, and credit reporting. It was a pioneer in multiple fields including electronic components, integrated circuits, computers, software and systems engineering. TRW built many spacecraft,...
, an American aerospace, automotive and defence business. This was prompted by Northrop Grumman
Northrop Grumman
Northrop Grumman Corporation is an American global aerospace and defense technology company formed by the 1994 purchase of Grumman by Northrop. The company was the fourth-largest defense contractor in the world as of 2010, and the largest builder of naval vessels. Northrop Grumman employs over...
's £4.1 billion (approx. US$6 billion c. 2002) hostile bid for TRW in February 2002. A bidding war between BAE, Northrop and General Dynamics
General Dynamics
General Dynamics Corporation is a U.S. defense conglomerate formed by mergers and divestitures, and as of 2008 it is the fifth largest defense contractor in the world. Its headquarters are in West Falls Church , unincorporated Fairfax County, Virginia, in the Falls Church area.The company has...
ended on 1 June when Northrop's increased bid of £5.1 billion was accepted. On 11 December 2002, BAE issued a shock profit warning due to cost overruns of the Nimrod MRA4
BAE Systems Nimrod MRA4
The BAE Systems Nimrod MRA4 was a maritime patrol and attack aircraft intended to replace the Hawker Siddeley Nimrod MR2. The rebuilt aircraft would have extended the operating life of the Nimrod fleet by several decades and have significantly improved the aircraft by almost doubling the flight...
maritime reconnaissance/attack aircraft and the projects. On 19 February 2003 BAE took a charge of £750 million against these projects and the Ministry of Defence
Ministry of Defence (United Kingdom)
The Ministry of Defence is the United Kingdom government department responsible for implementation of government defence policy and is the headquarters of the British Armed Forces....
(MOD) agreed to pay a further £700 million of the cost. In 2000 the company had taken a £300 million "loss charge" on the Nimrod contract which was expected to cover "all the costs of completion of the current contract".
The UK government, following a cabinet row described as "one of the most bitter Cabinet disputes over defence contracts since the Westland helicopter affair
Westland affair
The Westland affair was a political scandal for the British Conservative government of Margaret Thatcher in 1986. The argument was a result of differences of opinion within the government as to the future of the United Kingdom helicopter industry. The struggling Westland company, Britain's last...
in 1985", ordered 20 BAE Hawk
BAE Hawk
The BAE Systems Hawk is a British single-engine, advanced jet trainer aircraft. It first flew in 1974 as the Hawker Siddeley Hawk. The Hawk is used by the Royal Air Force, and other air forces, as either a trainer or a low-cost combat aircraft...
trainer aircraft with 24 options in July 2003 in a deal worth £800 million. The deal was significant because it was a factor in India's decision to finalise a £1 billion order for 66 Hawks in March 2004. Also in July 2003 BAE Systems and Finmeccanica
Finmeccanica
Finmeccanica S.p.A. is an Italian conglomerate. Finmeccanica is the second largest industrial group and the largest of the hi-tech industrial groups based in Italy. It works in the fields of defence, aerospace, security, automation, transport and energy...
announced their intention to set up three joint venture companies, to be collectively known as Eurosystems. These companies would have pooled the avionics, C4ISTAR
C4ISTAR
In military usage, a number of abbreviations in the format C followed by additional letters are used, based on expanded versions of the abbreviation C2 - command and control.C2I stands for command, control, and intelligence....
and communications businesses of the two companies. However the difficulties of integrating the companies in this way led to a re-evaluation of the proposal; BAE's 2004 Annual Report states that "recognising the complexity of the earlier proposed Eurosystems transaction with Finmeccanica we have moved to a simpler model". The main part of this deal was the dissolution of AMS and the establishment of SELEX Sensors and Airborne Systems
SELEX Sensors and Airborne Systems
SELEX Galileo is a major defence electronics company that specialises in surveillance, protection, tracking, targeting, navigation and control, and imaging systems. It is owned by the Italian company Finmeccanica....
; BAE sold its 25% share of the latter to Finmeccanica for €400 million (approx. £270 million c. 2007) in March 2007.
In May 2004, it was reported that BAE was considering selling its shipbuilding divisions, BAE Systems Naval Ships
BAE Systems Naval Ships
BAE Systems Surface Fleet Solutions was a wholly owned subsidiary of BAE Systems, based at two shipyards on the River Clyde in Glasgow and BAE Systems' Filton offices...
and BAE Systems Submarines
BAE Systems Submarines
BAE Systems Submarine Solutions is a wholly owned subsidiary of BAE Systems, based in Barrow-in-Furness, Cumbria, and is responsible for the development and production of submarines....
. It was understood that General Dynamics wished to acquire the submarine building facilities at Barrow-in-Furness
Barrow-in-Furness
Barrow-in-Furness is an industrial town and seaport which forms about half the territory of the wider Borough of Barrow-in-Furness in the county of Cumbria, England. It lies north of Liverpool, northwest of Manchester and southwest from the county town of Carlisle...
, while VT Group
VT Group
VT Group plc was a British defence and services company, formerly known as Vosper Thornycroft. The Company had diversified from shipbuilding into various engineering and support services, becoming involved in many areas of provision through five main operating groups: VT Communications, VT...
was said to be interested in the remaining yards on the Clyde
River Clyde
The River Clyde is a major river in Scotland. It is the ninth longest river in the United Kingdom, and the third longest in Scotland. Flowing through the major city of Glasgow, it was an important river for shipbuilding and trade in the British Empire....
. However in 2008 BAE Systems merged its Surface Fleet arm with the shipbuilding operations of VT Group to form BVT Surface Fleet
BVT Surface Fleet
BAE Systems Surface Ships is a wholly owned subsidiary company of BAE Systems, specialising in naval surface shipbuilding, systems integration and through-life support...
, an aim central to the British Government's Defence Industrial Strategy
Defence Industrial Strategy
The Defence Industrial Strategy is a United Kingdom government policy which was published as a white paper on 15 December 2005. The purpose of the DIS is stated to be to ensure that the UK armed forces are provided with the equipment they require, on time, and at best value for money. This is...
.
United Defense
United Defense Industries was a United States defense contractor which is now part of BAE Systems Land and Armaments. This company produces combat vehicles, artillery, naval guns, missile launchers and precision munitions.-History:...
(UDI), a major competitor to General Dynamics, as a main acquisition target. On 7 March 2005 BAE announced the £2.25 billion (approx. US$4.2 billion c. 2005) acquisition of UDI. UDI, now BAE Systems Land and Armaments
BAE Systems Land and Armaments
BAE Systems Land & Armaments is a subsidiary of BAE Systems Inc. and is responsible for the design, development and production of combat vehicles, ammunition, artillery systems, naval guns and missile launchers. It is the largest such company in the world...
, manufactures combat vehicles, artillery systems, naval guns, missile launchers and precision guided munitions.
In December 2005, BAE announced the sale of its German naval systems subsidiary, Atlas Elektronik, to ThyssenKrupp
ThyssenKrupp
ThyssenKrupp AG is a German multinational conglomerate corporation headquartered in Duisburg Essen, Germany. The corporation consists of 670 companies worldwide. While ThyssenKrupp is one of the world's largest steel producers, the company also provides components and systems for the automotive...
and EADS. The sale was complicated by the requirement of the German government to approve any sale. The Financial Times described the sale as "cut price" because French company Thales bid €300 million, but was blocked from purchasing Atlas on national security grounds. On 31 January 2006 BAE announced the sale of BAE Systems Aerostructures to Spirit AeroSystems, Inc. BAE said as early as 2002 that it wished to dispose of what it did not regard as a "core business".
On 18 August 2006 Saudi Arabia signed a contract worth £6 billion to £10 billion for 72 Eurofighter Typhoons, to be delivered by BAE. On 10 September 2006 BAE was awarded a £2.5 billion contract for the upgrade of 80 Royal Saudi Air Force
Royal Saudi Air Force
The Royal Saudi Air Force , is the aviation branch of the Saudi Arabian armed forces. The RSAF has developed from a largely defensive military force into one with an advanced offensive capability...
Tornado IDSs. One of BAE's major aims, as highlighted in the 2005 Annual Report, was the granting of increased technology transfer between the UK and the US. The F-35 (JSF) programme became the focus of this effort, with British government ministers such as Lord Drayson
Paul Drayson, Baron Drayson
Paul Rudd Drayson, Baron Drayson PC is a British businessman, amateur racing driver and politician. He was Minister of Science in the Department for Business, Innovation and Skills until May 2010, where he replaced Ian Pearson. In June 2009 he was additionally appointed as Minister of State for...
, Minister for Defence Procurement
Defence Procurement Agency
The Defence Procurement Agency , was an Executive Agency of the United Kingdom Ministry of Defence responsible for the acquisition of materiel, equipment and services, for the British armed forces....
, suggesting the UK would withdraw from the project without the transfer of technology that would allow the UK to operate and maintain F-35s independently. However, on 12 December 2006, Lord Drayson signed an agreement which allows "an unbroken British chain of command" for operation of the aircraft. On 22 December 2006 BAE received a £947 million contract to provide guaranteed availability of Royal Air Force
Royal Air Force
The Royal Air Force is the aerial warfare service branch of the British Armed Forces. Formed on 1 April 1918, it is the oldest independent air force in the world...
(RAF) Tornados.
On 7 May 2007 BAE announced its subsidiary BAE Systems Inc. was to purchase Armor Holdings for £2.3 billion (approx. US$4.5 billion c. 2007) and completed the deal on 31 July 2007. The company is a manufacturer of tactical wheeled vehicles and a provider of vehicle and individual armour systems and survivability technologies. BAE (and British Aerospace previously) was a technology partner to the McLaren Formula One team from 1996 to December 2007. The partnership originally focused on McLaren's F1 car's aerodynamics, eventually moving on to carbon fibre techniques, wireless systems and fuel management. BAE's main interest in the partnership was to learn about the high speed build and operations processes of McLaren.
BAE announced the acquisition of Tenix Defence
Tenix Defence
Tenix Defence was Australia's largest defence contractor with core capabilities in Aerospace, Land, Marine and Electronic Systems applications. BAE Systems announced its intention to acquire the company from Tenix in January 2008 and the acquisition was completed in June 2008 for A$775 million...
, a major Australian defence contractor on 18 January 2008. The purchase was completed on 27 June for AU$775 million (£373 million) making BAE Systems Australia
BAE Systems Australia
BAE Systems Australia, a subsidiary of BAE Systems plc, is the largest defence contractor in Australia. It was formed by the merger of British Aerospace Australia and GEC-Marconi Systems and expanded by the acquisitions of Armor Holdings in 2007 and Tenix Defence in June 2008.-History:BAE Systems'...
that country's largest defence contractor. The UK Ministry of Defence awarded BAE a 15 year munitions contract in August 2008 worth up to £3 billion. The contract guarantees supply of 80% of the UK Armed Forces' ammunition and required BAE to modernise its munitions manufacturing facilities. BAE expanded its intelligence and security business with the £531 million purchase of Detica Group
Detica
Detica is an international business and technology consulting firm owned by BAE Systems. It specialises in collecting, managing and exploiting information to reveal actionable intelligence...
in July 2008. It continued this strategy with purchases of Danish cyber and intelligence company ETI for approximately $210 million in December 2010, and Norkom Group PLC
Norkom
Norkom Technologies provides financial crime and compliance software to the global financial services industry. Founded in 1998.A selection of Norkom clients include HSBC, Crédit Agricole, Standard Chartered Bank, AXA, Banco Santander, ANZ, and Bank of Montreal.Norkom is headquartered in Dublin,...
the following month for €217 million. The latter provides counter fraud and anti-money laundering solutions to the global financial services industry where its software assists institutions to comply with regulations on financial intelligence and monitoring.
In February 2010 BAE announced a £592 million writedown of the former Armor Holdings business following the loss of the Family of Medium Tactical Vehicles contract in 2009. BAE was outbid by Oshkosh Corporation for the £2.3 billion ($3.7 billion) contract. Land and Armaments had been the "star performer" of BAE's subsidiaries, growing from sales of £482 million in 2004 to £6.7 billion in 2009.
BAE inherited British Aerospace's 35% share of SAAB AB
Saab
Saab AB is a Swedish aerospace and defence company, founded in 1937. From 1947 to 1990 it was the parent company of automobile manufacturer Saab Automobile, and between 1968 and 1995 the company was in a merger with commercial vehicle manufacturer Scania, known as Saab-Scania.-History:"Svenska...
, with which it produced and marketed the Gripen
JAS 39 Gripen
The Saab JAS 39 Gripen is a lightweight single-engine multirole fighter manufactured by the Swedish aerospace company Saab. It was designed to replace the Saab 35 Draken and 37 Viggen in the Swedish Air Force...
fighter aircraft. In 2005 it reduced this share to 20.5% and in March 2010 announced its intention to sell the remainder. The Times stated that the decision brought "to an end its controversial relationship with the Gripen fighter aircraft". Several of the export campaigns for the aircraft were subject to allegations of bribery and corruption. Meanwhile the company was increasing its presence in India with the formation of Defence Land Systems India in April, a joint venture with Mahindra & Mahindra Limited
Mahindra & Mahindra Limited
Mahindra & Mahindra Limited is the flagship company of the Mahindra Group, a multinational conglomerate based in Mumbai, India. The company was set up in 1945 in Ludhiana as Mahindra & Mohammed by brothers K.C. Mahindra and J.C. Mahindra and Malik Ghulam Mohammed...
. BAE holds just 26% of the equity due to Indian foreign direct investment regulations.
BAE continued its move into support services in May 2010 with the purchase of the marine support company Atlantic Marine for $352 million. In September 2010 BAE announced plans to sell the Platform Solutions division of BAE Systems Inc., which the Financial Times said could yield as much as £1.3 billion. However, despite "considerable expressions of interest", the sale was abandoned in January 2011. On 19 October 2010 the British government cancelled the Nimrod project as part of its Strategic Defence and Security Review
Strategic Defence and Security Review
The Strategic Defence and Security Review was announced by the newly formed Conservative-Liberal Democrat coalition government of the United Kingdom in May 2010, and published on 19 October 2010...
. The purchases of , the Astute class submarines, and the Type 26 frigates were all confirmed. A new generation of nuclear missile submarines will be built, however the final decision will be delayed until after the next election.
In September 2011, BAE Systems began consultation with unions and workers over plans to cut nearly 3,000 jobs, mostly in the company's military aircraft division.
Airbus shareholding
BAE Systems inherited British Aerospace's share of Airbus Industrie, which consisted of two factories at BroughtonBroughton, Flintshire
Broughton is a small district in Flintshire, Wales, close to the Wales–England border and located to the west of the City of Chester, England. Along with the nearby village of Bretton, the total population was 5,791 at the 2001 Census....
and Filton
Filton
Filton is a town in South Gloucestershire, England, situated on the northern outskirts of the city of Bristol, about from the city centre. Filton lies in Bristol postcode areas BS7 and BS34. The town centres upon Filton Church, which dates back to the 12th century and is a grade II listed building...
. These facilities manufactured wings for the Airbus family of aircraft. In 2001 Airbus was incorporated as Airbus SAS, a joint stock company
Société par actions simplifiée
Société par actions simplifiée is the first hybrid law enacted under French law and based on common law principles rather than civil. It is similar to a limited liability company under United States law, as the Delaware limited liability company was the model used by the French Government...
. In return for a 20% share in the new company BAE transferred ownership of its Airbus plants (known as Airbus UK
Airbus UK
Airbus UK is a wholly owned subsidiary of Airbus SAS which produces wings for the Airbus aircraft family. When Airbus was incorporated as a joint stock company in 2001 BAE transferred its UK Airbus facilities in return for a 20% share of the new company. These facilities became Airbus UK...
) to the new company.
Despite repeated suggestions as early as 2000 that BAE wished to sell its 20% share of Airbus, the possibility was consistently denied by the company. However on 6 April 2006 BBC News reported that it was indeed to sell its stake, then "conservatively valued" at £2.4 billion. Due to the slow pace of informal negotiations, BAE exercised its put option
Put option
A put or put option is a contract between two parties to exchange an asset, the underlying, at a specified price, the strike, by a predetermined date, the expiry or maturity...
which saw investment bank Rothschild
N M Rothschild & Sons
N M Rothschild & Sons is a private investment banking company, belonging to the Rothschild family...
appointed to give an independent valuation. Six days after this process began, Airbus announced delays to the A380
Airbus A380
The Airbus A380 is a double-deck, wide-body, four-engine jet airliner manufactured by the European corporation Airbus, a subsidiary of EADS. It is the largest passenger airliner in the world. Due to its size, many airports had to modify and improve facilities to accommodate it...
with significant effects on the value of Airbus shares. On 2 June 2006 Rothschild valued BAE's share at £1.87 billion, well below BAE's, analysts' and even EADS' expectations. The BAE board recommended that the company proceed with the sale. On 4 October 2006 shareholders voted in favour and the sale was completed on 13 October. BAE's sale of its Airbus share saw the end of UK owned involvement in civil airliner production. Airbus UK continues to be the Airbus "Centre of Excellence" for wing production, employing approximately 140,000 directly and indirectly, but is entirely owned by EADS.
Products
BAE plays a significant role in the production of military equipment, in 2008 95% of BAE Systems’ total sales were military related.BAE plays important roles in military aircraft production. The company's Typhoon
Eurofighter Typhoon
The Eurofighter Typhoon is a twin-engine, canard-delta wing, multirole combat aircraft, designed and built by a consortium of three companies: EADS, Alenia Aeronautica and BAE Systems; working through a holding company, Eurofighter GmbH, which was formed in 1986...
fighter and Tornado
Panavia Tornado
The Panavia Tornado is a family of twin-engine, variable-sweep wing combat aircraft, which was jointly developed and manufactured by the United Kingdom, West Germany and Italy...
fighter-bomber are both front line aircraft of the RAF. BAE is a major partner in the F-35 Lightning II programme. Its Hawk
BAE Hawk
The BAE Systems Hawk is a British single-engine, advanced jet trainer aircraft. It first flew in 1974 as the Hawker Siddeley Hawk. The Hawk is used by the Royal Air Force, and other air forces, as either a trainer or a low-cost combat aircraft...
advanced jet trainer aircraft has been widely exported. In July 2006, the British government declassified the HERTI
BAE HERTI
The BAE Systems HERTI is an unmanned aerial vehicle developed by the British company BAE Systems. HERTI stands for "High Endurance Rapid Technology Insertion" and was developed in Warton, United Kingdom. The HERTI airframe is based on a motor glider designed by Jaroslaw Janowski of J&AS Aero...
(High Endurance Rapid Technology Insertion), an Unmanned Aerial Vehicle
Unmanned aerial vehicle
An unmanned aerial vehicle , also known as a unmanned aircraft system , remotely piloted aircraft or unmanned aircraft, is a machine which functions either by the remote control of a navigator or pilot or autonomously, that is, as a self-directing entity...
(UAV) which can navigate autonomously.
BAE Systems' interests in commercial aviation are vested in BAE Systems Regional Aircraft. This unit no longer produces aircraft, however it continues to lease and support its products, the BAe 146
BAe 146
The British Aerospace 146 is a medium-sized commercial airliner formerly manufactured in the United Kingdom by British Aerospace, later part of BAE Systems. Production ran from 1983 until 2002. Manufacture of an improved version known as the Avro RJ began in 1992...
/Avro RJ family, BAe ATP, Jetstream
British Aerospace Jetstream
The British Aerospace Jetstream is a small twin-turboprop airliner, with a pressurised fuselage, developed as the Jetstream 31 from the earlier Handley Page Jetstream-Development:...
and BAe 748.
BAE Systems Land and Armaments
BAE Systems Land and Armaments
BAE Systems Land & Armaments is a subsidiary of BAE Systems Inc. and is responsible for the design, development and production of combat vehicles, ammunition, artillery systems, naval guns and missile launchers. It is the largest such company in the world...
manufactures the M2/M3 Bradley
M2 Bradley
The Bradley Fighting Vehicle is an American fighting vehicle platform manufactured by BAE Systems Land and Armaments, formerly United Defense.As with other infantry fighting vehicles, the Bradley is designed to transport infantry with armor protection while providing covering fire to suppress enemy...
fighting vehicle family, the US Navy Advanced Gun System
Advanced Gun System
The Advanced Gun System is a naval gun system under development by BAE Systems Armaments Systems for the Zumwalt class destroyer of the United States Navy. Production has started; the first magazine was delivered to the U.S...
(AGS), the M113 armoured personnel carrier (APC), the M109 Paladin
M109 howitzer
The M109 is an American-made self-propelled 155 mm howitzer, first introduced in the early 1960s. It was upgraded a number of times to today's M109A6 Paladin...
, the British Army's Challenger II
Challenger 2 tank
FV4034 Challenger 2 is a British main battle tank currently in service with the armies of the United Kingdom and Oman. It was designed and built by the British company Vickers Defence Systems . The manufacturer advertises it as the world's most reliable main battle tank...
, Warrior Tracked Armoured Vehicle
Warrior Tracked Armoured Vehicle
The Warrior tracked vehicle family is a series of British armoured vehicles, originally developed to replace the older FV430 series of armoured vehicles. The Warrior started life as the MCV-80 project that was first broached in the 1970s, GKN Sankey/Defence winning the production contract in 1980....
, M777 howitzer
M777 howitzer
The M777 howitzer is a towed 155 mm artillery piece, successor to the M198 howitzer in the United States Marine Corps and United States Army. The M777 is also used by the Canadian Army, and has been in action in Afghanistan since February 2006 along with the associated GPS-guided Excalibur...
and the Panther Command and Liaison Vehicle
Major naval projects include the Astute-class nuclear submarine, Type 45
Type 45 destroyer
The United Kingdom's Type 45 destroyer is an air defence destroyer programme of the Royal Navy which will replace its Type 42 destroyers. The first ship in the class, HMS Daring, was launched on 1 February 2006 and commissioned on 23 July 2009. The ships are now built by BAE Systems Surface Ships...
air defence destroyer and Queen Elizabeth class aircraft carrier.
Areas of business
BAE Systems defines its "home markets" to be Australia, India, Saudi Arabia, the UK and the US.UK
BAE Systems is the predominant supplier to the UK Ministry of Defence; in 2009/2010 BAE Systems companies in the list of Top 100 suppliers to the MOD received contracts totalling £3.98 billion, with total revenue being higher when other subsidiary income is included. In comparison the second largest supplier is Babcock International GroupBabcock International Group
Babcock International Group plc is a British-based support services company specialising in managing complex assets and infrastructure in safety-critical and mission-critical environments. Although the company has civil contracts, its main business is with public bodies, particularly the UK...
& its subsidiaries with a revenue of £1.1 billion from the MOD. Oxford Economic Forecasting states that in 2002 BAE's UK businesses employed 111,578 people, achieved export sales of £3 billion and paid £2.6 billion in taxes. These figures exclude the contribution of Airbus UK.
Since its creation BAE had a difficult relationship with the MOD. This was attributed to deficient project management by the company, but also in part to the deficiencies in the terms of "fixed price contracts". BAE CEO Mike Turner
Michael Turner (businessman)
Michael John Turner CBE is the former Chief Executive Officer of the aerospace and defence company BAE Systems.-Early life:He attended Didsbury Technical High School on School Lane in Didsbury...
said in 2006 "We had entered into contracts under the old competition rules that frankly we shouldn't have taken". These competition rules were introduced by Lord Levene
Peter Levene, Baron Levene of Portsoken
Peter Keith Levene, Baron Levene of Portsoken KBE is chairman of NBNK Investments plc and was Lord Mayor of London 1998 to 1999.-Life:Lord Levene has enjoyed a long and varied career in business, government and banking...
during the 1980s to shift the burden of risk to the contractor and were in contrast to "cost plus contracts" where a contractor was paid for the value of its product plus an agreed profit.
BAE was operating in "the only truly open defence market", which meant that it was competing with US and European companies for British defence projects, while they were protected in their home markets. The US defence market is competitive, however largely between American firms, while foreign companies are excluded. In December 2005 the MOD published the Defence Industrial Strategy (DIS) which has been widely acknowledged to recognise BAE as the UK's "national champion". The DIS identifies key industrial capabilities which must be maintained within the UK through long-term government commitments to support research spending and procurement. Of these capabilities, several are dominated by BAE, including naval vessels and submarines, combat vehicles, fixed-wing aircraft, general munitions (with the exception of certain "niche capabilities abroad") and Network Enabled Capability
Network Enabled Capability
Network-enabled capability, or NEC, is the name given to the United Kingdom Ministry of Defence intent to achieve enhanced military effect through the better use of information systems towards the goal of "right information, right place, right time – and not too much".NEC is envisaged as the...
(defined as C4ISTAR in the DIS). The company maintains an interest in future UAV technologies through its collaborative FLAVIIR research programme with EPSRC
Engineering and Physical Sciences Research Council
The Engineering and Physical Sciences Research Council is a British Research Council that provides government funding for grants to undertake research and postgraduate degrees in engineering and the physical sciences , mainly to universities in the United Kingdom...
.
After the publication of the DIS BAE Systems CEO Mike Turner said "If we didn't have the DIS and our profitability and the terms of trade had stayed as they were... then there had to be a question mark about our future in the UK". Lord Levene said in the balance between value for money or maintaining a viable industrial base the DIS "tries as well as it can to steer a middle course and to achieve as much as it can in both directions. ...We will never have a perfect solution."
United States
The attraction of MES to British Aerospace was largely its ownership of Tracor, a major American defence contractor. Since its creation the company has steadily increased its investment in and revenues from the US.BAE now sells more to the US Department of Defense (DOD) than the UK MOD. The company has been allowed to buy important defence contractors in the US, however its status as a UK company requires that its US subsidiaries are governed by American executives under Special Security Arrangements. BAE faces fewer impediments in this sense than its European counterparts, as there is a high degree of integration between the US and UK defence establishments. BAE's purchase of Lockheed Martin Aerospace Electronic Systems in November 2000 was described by John Hamre
John Hamre
John J. Hamre is a specialist in international studies, a former Washington bureaucrat and the current president and CEO of the Center for Strategic and International Studies, a position he has held with that think tank since April 2000.-Education:Hamre is the son of Melvin Sanders and Ruth Lucile...
, CEO of the Center for Strategic and International Studies
Center for Strategic and International Studies
The Center for Strategic and International Studies is a bipartisan Washington, D.C., foreign policy think tank. The center was founded in 1962 by Admiral Arleigh Burke and Ambassador David Manker Abshire, originally as part of Georgetown University...
and former Deputy Secretary of Defense
United States Deputy Secretary of Defense
The Deputy Secretary of Defense is the second-highest ranking official in the Department of Defense of the United States of America. The Deputy Secretary of Defense is appointed by the President, with the advice and consent of the Senate...
, as "precedent setting" given the advanced and classified nature of many of that company's products.
The possibility of a merger between BAE and major North American defence contractors has long been reported, including Boeing, General Dynamics, Lockheed Martin, and Raytheon.
Rest of world
BAE Systems AustraliaBAE Systems Australia
BAE Systems Australia, a subsidiary of BAE Systems plc, is the largest defence contractor in Australia. It was formed by the merger of British Aerospace Australia and GEC-Marconi Systems and expanded by the acquisitions of Armor Holdings in 2007 and Tenix Defence in June 2008.-History:BAE Systems'...
is the largest defence contractor in Australia, having more than doubled in size with the acquisition of Tenix Defence. The Al Yamamah agreements between the UK and Saudi Arabia require "the provision of a complete defence package for the Kingdom of Saudi Arabia"; BAE employs 4,600 people in the kingdom. BAE Systems Land Systems South Africa
BAE Systems Land Systems South Africa
BAE Systems Land Systems South Africa is a South African defence company and a subsidiary of BAE Systems Land Systems, itself part of BAE Systems Land and Armaments...
, 75% owned by BAE, is the largest military vehicle manufacturer in South Africa, and is currently taking part in the US MRAP
MRAP
MRAP stands for Mouvement contre le racisme et pour l'amitié entre les peuples , and is an anti-racist French NGO, created in 1949...
programme. BAE's interests in Sweden are a result of the purchases of Alvis Vickers
Alvis plc
Alvis Ltd. was created when United Scientific Holdings plc acquired the Alvis division of the nationalised vehicle manufacturer British Leyland in 1981. United Scientific maintained its own name until 1992 when the group was renamed Alvis plc. Alvis acquired Swedish armoured vehicle manufacturer...
and UDI, which owned Hägglunds and Bofors
Bofors
The name Bofors has been associated with the iron industry for more than 350 years.Located in Karlskoga, Sweden, the company originates from the hammer mill "Boofors" founded 1646. The modern corporate structure was created in 1873 with the foundation of Aktiebolaget Bofors-Gullspång...
respectively; The companies are now part of BAE Systems AB and have a combined workforce of approximately 1,750.
Also, BAE Systems owns 49% of Air Astana, Kazakhstan.
Shareholders
As of 18 February 2009 BAE listed the following as "significant" shareholders: AXAAXA
AXA S.A. is a French global insurance group headquartered in the 8th arrondissement of Paris. AXA is a conglomerate of independently run businesses, operated according to the laws and regulations of many different countries. The AXA group of companies engage in life, health and other forms of...
(9.02%), Barclays plc
Barclays plc
Barclays PLC is a global banking and financial services company headquartered in London, United Kingdom. As of 2010 it was the world's 10th-largest banking and financial services group and 21st-largest company according to a composite measure by Forbes magazine...
(3.98%), Franklin Resources, Inc.
Franklin Templeton Investments
Franklin Resources Inc. is a holding company which, together with its subsidiaries, is referred to as Franklin Templeton Investments; it is an investment firm originally founded in New York in 1947 as Franklin Distributors, Inc. It is listed on the NYSE under the ticker BEN, in honor of Benjamin...
and affiliates (4.92%), Legal & General Group plc (4.07%), and BlackRock
BlackRock
BlackRock, Inc. is an American multinational investment management corporation and the world's largest asset manager. BlackRock is headquartered in Manhattan, New York City, New York, United States and is the leading provider of investment, advisory, and risk management solutions...
(4.96%).
Organisation
Registered office
Registered office is a term used to describe the address which is registered with the government registrar as the official address of a company, an association or any other legal entity. Generally it will form part of the public record...
in City of Westminster
City of Westminster
The City of Westminster is a London borough occupying much of the central area of London, England, including most of the West End. It is located to the west of and adjoining the ancient City of London, directly to the east of the Royal Borough of Kensington and Chelsea, and its southern boundary...
, London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
. In addition to its central London offices, it has an office in Farnborough
Farnborough
Farnborough may refer to:* Farnborough, Berkshire, a small village and civil parish in the English county of Berkshire* Farnborough, Hampshire, a town in the Rushmoor district of Hampshire, England...
, Hampshire
Hampshire
Hampshire is a county on the southern coast of England in the United Kingdom. The county town of Hampshire is Winchester, a historic cathedral city that was once the capital of England. Hampshire is notable for housing the original birthplaces of the Royal Navy, British Army, and Royal Air Force...
that houses functional specialists and support functions.
BAE Systems divides its business into five business groups: Electronics, Intelligence & Support, Land & Armaments, Programmes & Support, International Businesses, and HQ & Other Businesses.
Electronics, Intelligence & Support
This division provides analytic services
Business analytics
Business analytics refers to the skills, technologies, applications and practices for continuous iterative exploration and investigation of past business performance to gain insight and drive business planning. Business analytics focuses on developing new insights and understanding of business...
, system integration
System integration
In engineering, system integration is the bringing together of the component subsystems into one system and ensuring that the subsystems function together as a system...
, information technology, radar and naval systems and is the world's largest explosives manufacturer. Electronics & Integrated Solutions
BAE Systems Electronics and Integrated Solutions
BAE Systems Electronics, Intelligence & Support is one of two operating groups of BAE Systems Inc., the North American subsidiary of UK-based BAE Systems.-History:...
manufactures a wide range of electronic systems and subsystems for both military and commercial applications.
Land and Armaments
BAE Systems Land and Armaments was formed in 2005 by the merger of the newly acquired UDI with BAE Systems Land Systems. The group expanded with the acquisition of Armor Holdings in 2007. BAE Systems Products Group manufactures security products such as body armour, forensic kits, handcuffs and holsters for law enforcement agencies, militaries and security professionals.
Programmes & Support
The Programmes & Support business group includes BAE Systems Military Air & Information, BAE Systems Surface Ships, BAE Systems Submarine Solutions, and BAE Systems Insyte
BAE Systems Integrated System Technologies
BAE Systems Integrated System Technologies was formed on May 3, 2005, by bringing together BAE Systems' interests in C4ISR and the UK operations of AMS following the Eurosystems Transaction....
. Military Air & Information is responsible for the design, development and production of BAE's major military aircraft programmes; Typhoon, F-35 Lightning II, Hawk and UAV projects such as Taranis
BAE Taranis
The BAE Systems Taranis is a British demonstrator program for Unmanned Combat Air Vehicle technology. A semi-autonomous unmanned warplane, it is designed to fly intercontinental missions, and will carry a variety of weapons, enabling it to attack both aerial and ground targets...
. BAE's 33% share of Eurofighter Jagdflugzeug GmbH
Eurofighter GmbH
Eurofighter Jagdflugzeug GmbH is a multinational company that co-ordinates the design, production and upgrade of the Eurofighter Typhoon, this includes incorporating the jet engines designed and manufactured by EuroJet Turbo GmbH.Founded in 1986, it has its head office in Hallbergmoos, Bavaria,...
(33%) represents its involvement in the Eurofighter Typhoon project. BAE Systems Submarine Solutions is the company's submarine division. Insyte is a major supplier of defence electronics, integrated command & control (C²) systems, radars, simulators, meteorological systems, data links and C4ISR
C4ISTAR
In military usage, a number of abbreviations in the format C followed by additional letters are used, based on expanded versions of the abbreviation C2 - command and control.C2I stands for command, control, and intelligence....
battle management systems, and now incorporates BAE Systems Underwater Systems which manufactures underwater warfare products such as torpedoes and minesweeping systems.
International Businesses
BAE Systems Australia provides aircraft support, training and simulation, communication and command systems and is the principal subcontractor to Boeing in the 737 Airborne Early Warning & Control programme. BAE Systems Customer Solutions & Support International is centred on provision of services to Saudi Arabia as part of the Al Yamamah project and subsequent Saudi Typhoon contract. Other shareholdings include 37.5% of MBDA
HQ & Other
BAE Systems Regional Aircraft
BAE Systems Regional Aircraft
thumb|300px|An Avro RJ85. BAE Systems Regional Aircraft still leases a large number of these jets.BAE Systems Regional Aircraft produced the last fully UK-built airliner in November 2001, the Avro RJX...
leases aircraft and provides support, spares and training for its products, the Avro RJ/BAE 146 family, BAe ATP and Jetstream.
Corporate governance
BAE Systems' chairman is Dick Olver. The executive directors are Ian King (CEO), Linda HudsonLinda Hudson
Linda Hudson is President and CEO of BAE Systems Inc. and Chief Operating Officer, BAE Systems plc.-References:...
, and George Rose
George Rose (businessman)
George Rose is a British businessman.He joined British Aerospace in 1992 and continues to serve on the board of its successor, BAE Systems, as finance director...
. The non-executive directors are Harriet Green, Michael Hartnall
Michael Hartnall
Michael Hartnall is a non-executive director of BAE Systems plc and chairman of that company's audit committee.Prior to joining BAE, Hartnall was a board member of Rexam for 14 years, latterly as Finance Director ....
, Sir Peter Mason
Peter Mason
Captain Peter Mason is a former member of the post-war SAS Baker Team who were issued a licence to kill by the British government.Mason was involved in the mission to seek out and 'remove' Nazi Special Forces who had followed out orders to execute captured British forces during the Second World...
, Carl Symon, Roberto Quarta
Roberto Quarta
Robert Quarta is an Italian-born American businessman. He graduated from the College of the Holy Cross in 1971 and currently serves on the College's Board of Trustees....
, Paul Anderson and Nick Rose.
The company's first CEO, John Weston, was forced to resign in 2002 in a boardroom "coup" and was replaced by Mike Turner. The Business reported that Weston was ousted when non-executive directors informed the Chairman that they had lost confidence in him. Further, it was suggested that at least one non-executive director was encouraged to make such a move by the MOD due to the increasingly fractious relationship between BAE and the government. As well as the terms of the Nimrod contract, Weston had fought against the MOD's insistence that one of the first three Type 45 destroyers should be built by VT Group. The Business said he considered this "competition-policy gone mad".
It is understood that Turner had a poor working relationship with senior MOD officials, (for example with former Defence Secretary Geoff Hoon
Geoff Hoon
Geoffrey "Geoff" William Hoon is a British politician who served as the Member of Parliament for Ashfield from 1992 to 2010...
) Significantly the first meeting between Olver and Hoon was said to have gone well, a MOD official commented "He is a man we can do business with. We think it is good to be taking a fresh look at things." It has been suggested that relations between Turner and Olver were tense. On 16 October 2007 BAE announced that Mike Turner would retire in August 2008. The Times called his departure plans "abrupt" and a "shock", given previous statements that he wished to retire in 2013 at the age of 65. Despite suggestions that BAE would prefer an American CEO due to the increasing importance of the United States defence market to the company and the opportunity to make a clean break from corruption allegations and investigations related to the Al Yamamah
Al Yamamah
Al Yamamah is the name of a series of a record arms sales by the United Kingdom to Saudi Arabia, which have been paid for by the delivery of up to of crude oil per day to the UK government. The prime contractor has been BAE Systems and its predecessor British Aerospace...
contracts BAE announced on 27 June 2008 that it had selected the company's Chief operating officer Ian King to succeed Turner with effect from 1 September 2008; The Financial Times noted that King's career at Marconi distances him from the British Aerospace-led Al Yamamah project.
Financial information
Financial information for the Company is as follows:| Turnover (£ million) | Profit/(loss) before tax (£m) | Net profit/(loss) (£m) | Earnings per share Earnings per share Earnings per share is the amount of earnings per each outstanding share of a company's stock.In the United States, the Financial Accounting Standards Board requires companies' income statements to report EPS for each of the major categories of the income statement: continuing operations,... (p) |
|
|---|---|---|---|---|
| 2010-12-31 | 22,392 | 1,444 | 1,081 | 30.5 |
| 2009-12-31 | 22,415 | 282 | (45) | (1.9) |
| 2008-12-31 | 18,543 | 2,371 | 1,768 | 49.6 |
| 2007-12-31 | 15,710 | 1,477 | 1,177 | 26.0 |
| 2006-12-31 | 13,765 | 1,207 | 1,054 | 19.9 |
| 2005-12-31[a] | 12,581 | 909 | 761 | 13.9 |
| 2005-12-31 | 15,411 | 845 | 555 | 22.5 |
| 2004-12-31 | 13,222 | 730 | 3 | 17.4 |
| 2003-12-31[b] | 15,572 | 233 | 8 | 16.6 |
| 2002-12-31[b] | 12,145 | (616) | (686)[c] | 17.3 |
| 2001-12-31[b] | 13,138 | 70 | (128) | 23.4 |
| 2000-12-31[b] | 12,185 | 179 | (19) | 18.8 |
| 1999-12-31[b] | 8,929 | 459 | 328 | 29.4 |
[a]: Restated to exclude Airbus contributions. Included for comparison.
[b]: Data prepared using UK GAAP
Generally Accepted Accounting Principles
Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards...
guidelines. Recent data prepared using International Financial Reporting Standards
International Financial Reporting Standards
International Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
.
[c]: Reflects £750 million charges for problems with Nimrod MRA4 (£500 million) and Astute class submarine (£250 million) programmes.
Serious Fraud Office
BAE Systems has been under investigation by the Serious Fraud Office, into the use of political corruptionPolitical corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
to help sell arms to Chile, Czech Republic, Romania, Saudi Arabia, South Africa, Tanzania and Qatar. In response, BAE Systems' 2006 Corporate Responsibility Report states "We continue to reject these allegations...We take our obligations under the law extremely seriously and will continue to comply with all legal requirements around the world. In June 2007 Lord Woolf was selected to lead what the BBC described as an "independent review.... [an] ethics committee to look into how the defence giant conducts its arms deals." The report, Ethical business conduct in BAE Systems plc – the way forward, made 23 recommendations, measures which BAE has committed to implement. The finding stated that "in the past BAE did not pay sufficient attention to ethical standards in the way it conducted business," and was described by the BBC as "an embarrassing admission."
In September 2009, the Serious Fraud Office announced that it intended to prosecute BAE Systems for offences relating to overseas corruption. The Guardian
The Guardian
The Guardian, formerly known as The Manchester Guardian , is a British national daily newspaper in the Berliner format...
claimed that a penalty "possibly of more than £500m" might be an acceptable settlement package. On 5 February 2010, BAE Systems agreed to pay £257m criminal fines to the US and £30m to the UK. The UK already massively benefited from £43 billion contract in tax receipts and jobs in the UK, and had dropped an anti-corruption investigation into the Al Yamamah
Al Yamamah
Al Yamamah is the name of a series of a record arms sales by the United Kingdom to Saudi Arabia, which have been paid for by the delivery of up to of crude oil per day to the UK government. The prime contractor has been BAE Systems and its predecessor British Aerospace...
contracts later taken up by US authorities. Crucially, under a plea bargain with the US Department of Justice BAE was convicted of felony conspiracy to defraud the United States government and sentenced in March 2010 by U.S. District Court Judge John D. Bates to pay a $400 million fine, one of the largest fines in the history of the DOJ. U.S. District Judge John Bates said the company's conduct involved "deception, duplicity and knowing violations of law, I think it's fair to say, on an enormous scale". BAE did not directly admit to bribery, and is thus not internationally blacklisted from future contracts. Some of the £30m penalty BAE will pay in fines to the UK will be paid ex gratia for the benefit of the people of Tanzania. On 2 March 2010 Campaign Against Arms Trade and The Corner House were successful in gaining a High Court injunction on the Serious Fraud Office's settlement with BAE. The High Court may order a full review of the settlement.
Saudi Arabia
National Audit Office (United Kingdom)
The National Audit Office is an independent Parliamentary body in the United Kingdom which is responsible for auditing central government departments, government agencies and non-departmental public bodies...
(NAO) investigated the Al Yamamah contracts and has so far not published its conclusions, the only NAO report ever to be withheld. The MOD has stated "The report remains sensitive. Disclosure would harm both international relations and the UK's commercial interests." The company has been accused of maintaining a £60 million Saudi slush fund
Slush fund
A slush fund, colloquially, is an auxiliary monetary account or a reserve fund. However, in the context of corrupt dealings, such as those by governments or large corporations, a slush fund can have particular connotations of illegality, illegitimacy, or secrecy in regard to the use of this money...
and was the subject of an investigation by the Serious Fraud Office (SFO). However, on 14 December 2006 it was announced that the SFO was "discontinuing" its investigation into BAE. It stated that representations to its Director and the Attorney General
Attorney General for England and Wales
Her Majesty's Attorney General for England and Wales, usually known simply as the Attorney General, is one of the Law Officers of the Crown. Along with the subordinate Solicitor General for England and Wales, the Attorney General serves as the chief legal adviser of the Crown and its government in...
Lord Goldsmith
Peter Goldsmith, Baron Goldsmith
Peter Henry Goldsmith, Baron Goldsmith, PC, QC , is a former Attorney General for England and Wales and Northern Ireland. On 22 June 2007, Goldsmith announced his resignation which took effect on 27 June 2007, the same day that prime minister, Tony Blair, stepped down. Goldsmith was the longest...
had led to the conclusion that the wider public interest "to safeguard national and international security" outweighed any potential benefits of further investigation. The termination of the investigation has been controversial. In June 2007, the BBC's Panorama
Panorama (TV series)
Panorama is a BBC Television current affairs documentary programme, which was first broadcast in 1953, and is the longest-running public affairs television programme in the world. Panorama has been presented by many well known BBC presenters, including Richard Dimbleby, Robin Day, David Dimbleby...
alleged BAE "paid hundreds of millions of pounds to the ex-Saudi ambassador to the US, Prince Bandar bin Sultan" in return for his role in the Al Yamamah deals. In late June 2007 the United States Department of Justice
United States Department of Justice
The United States Department of Justice , is the United States federal executive department responsible for the enforcement of the law and administration of justice, equivalent to the justice or interior ministries of other countries.The Department is led by the Attorney General, who is nominated...
(DOJ) began a formal investigation into BAE's compliance with anti-corruption laws. On 19 May 2008 BAE confirmed that its CEO Mike Turner and non-executive director Nigel Rudd
Nigel Rudd
Sir Nigel Rudd is a Fellow of the Institute of Chartered Accountants. In 1982, he founded Williams Holdings, a company which went on to become one of the largest industrial holding companies in the United Kingdom until its demerger in November 2000, creating Chubb plc and Kidde plc...
had been detained "for about 20 minutes" at two US airports the previous week and that the DOJ had issued "a number of additional subpoenas in the US to employees of BAE Systems plc and BAE Systems Inc as part of its ongoing investigation". The Times suggested that such "humiliating behaviour by the DOJ" is unusual toward a company that is co-operating fully.
A judicial review of the decision by the SFO to drop the investigation was granted on 9 November 2007. On 10 April 2008 the High Court ruled that the SFO "acted unlawfully" by dropping its investigation. The Times described the ruling as "one of the most strongly worded judicial attacks on government action" which condemned how "ministers 'buckled' to 'blatant threats' that Saudi cooperation in the fight against terror would end unless the ...investigation was dropped." On 24 April the SFO was granted leave to appeal to the House of Lords against the ruling. There was a two-day hearing before the Lords on 7 and 8 July 2008. On 30 July the House of Lords unanimously overturned the High Court ruling, stating that the decision to discontinue the investigation was lawful.
Others
In September 2005 The Guardian reported that banking records showed that BAE paid £1 million to Augusto PinochetAugusto Pinochet
Augusto José Ramón Pinochet Ugarte, more commonly known as Augusto Pinochet , was a Chilean army general and dictator who assumed power in a coup d'état on 11 September 1973...
, the former Chilean dictator. The Guardian has also reported that "clandestine arms deals" have been under investigation in Chile and the UK since 2003 and that British Aerospace and BAE made a number of payments to Pinochet advisers. In 2003, HMS Sheffield
HMS Sheffield (F96)
HMS Sheffield was a Type 22 frigate of the Royal Navy of the United Kingdom. She was originally intended to be named Bruiser but was named Sheffield in honour of the previous , a Type 42 destroyer sunk in the Falklands War.-History:...
was sold to the Chilean Navy for £27 million, however the government's profit from the sale was £3 million, after contracts worth £24 million were placed with BAE for upgrade and refurbishment of the ship.
HMS London (F95)
HMS London was a Type 22 frigate of the Royal Navy, originally named Bloodhound but renamed London at the request of the Lord Mayor of London.She was flagship of the Royal Navy task force during the First Gulf War in 1991....
and HMS Coventry
HMS Coventry (F98)
HMS Coventry was a Type 22 frigate of the Royal Navy. She was originally intended to be named Boadicea but was named Coventry in honour of the previous Coventry , a Type 42 destroyer sunk in the Falklands War....
to the Romanian Navy. BAE received a £116 million contract for the refurbishment of the ships prior to delivery; however the British taxpayer only received the scrap value of £100,000 each from the sale.
BAE ran into controversy in 2002 over the abnormally high cost of a radar system sold to Tanzania
Tanzania
The United Republic of Tanzania is a country in East Africa bordered by Kenya and Uganda to the north, Rwanda, Burundi, and the Democratic Republic of the Congo to the west, and Zambia, Malawi, and Mozambique to the south. The country's eastern borders lie on the Indian Ocean.Tanzania is a state...
. The sale was criticised by several opposition MPs and the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
; Secretary of State for International Development
Secretary of State for International Development
In the United Kingdom, the Secretary of State for International Development is a Cabinet minister responsible for the Department for International Development and for promoting development overseas, particularly in the third world...
Clare Short
Clare Short
Clare Short is a British politician, and a member of the Labour Party. She was the Member of Parliament for Birmingham Ladywood from 1983 to 2010; for most of this period she was a Labour Party MP, but she resigned the party whip in 2006 and served the remainder of her term as an Independent. She...
declared that BAE had "ripped off" developing nations. In December 2010, leaked US diplomatic communications revealed that Edward Hoseah, the Tanzanian prosecutor investigating misconduct by BAE, had confided in US diplomats that "his life may be in danger" and was being routinely threatened.
In January 2007, details of an investigation by the Serious Fraud Office into BAE's sales tactics in regard to South Africa were reported, highlighting the £2.3 billion deal to supply Hawk trainers and Gripen fighters as suspect. In May 2011, as allegations of bribery behind South Africa's Gripen procurement continued, BAE partner Saab
Saab
Saab AB is a Swedish aerospace and defence company, founded in 1937. From 1947 to 1990 it was the parent company of automobile manufacturer Saab Automobile, and between 1968 and 1995 the company was in a merger with commercial vehicle manufacturer Scania, known as Saab-Scania.-History:"Svenska...
issued strong denials of any illicit payments being made; however in June 2011 Saab announced that BAE had made unaccounted payments of roughly $3.5 million to a consultant, this revelation prompted South African Opposition parties to call for a renewed inquiry. The Gripen's procurement by the Czech Republic was also under investigation by the Serious Fraud Office in 2006 over allegations of bribery.
Criticism
EspionageIn September 2003 The Sunday Times reported that BAE had hired a private security contractor to collate information about individuals working at the Campaign Against Arms Trade
Campaign Against Arms Trade
Campaign Against Arms Trade is a UK-based NGO and campaigning organisation working towards the abolition of the international arms trade. Founded in 1974 by a broad coalition of peace groups, CAAT is united in opposition to the military industrial complex and the growth of the private military...
and their activities. In February 2007, it again obtained private confidential information from CAAT.
Human rights records
Like many arms manufacturers, BAE has received criticism from various human rights and anti-arms trade organisations due to the human rights records of governments to which it has sold equipment. These include Indonesia
Indonesia
Indonesia , officially the Republic of Indonesia , is a country in Southeast Asia and Oceania. Indonesia is an archipelago comprising approximately 13,000 islands. It has 33 provinces with over 238 million people, and is the world's fourth most populous country. Indonesia is a republic, with an...
, Saudi Arabia
Saudi Arabia
The Kingdom of Saudi Arabia , commonly known in British English as Saudi Arabia and in Arabic as as-Sa‘ūdiyyah , is the largest state in Western Asia by land area, constituting the bulk of the Arabian Peninsula, and the second-largest in the Arab World...
, and Zimbabwe
Zimbabwe
Zimbabwe is a landlocked country located in the southern part of the African continent, between the Zambezi and Limpopo rivers. It is bordered by South Africa to the south, Botswana to the southwest, Zambia and a tip of Namibia to the northwest and Mozambique to the east. Zimbabwe has three...
. BAE's US subsidiary makes several subsystems for F-16s
F-16 Fighting Falcon
The General Dynamics F-16 Fighting Falcon is a multirole jet fighter aircraft originally developed by General Dynamics for the United States Air Force . Designed as an air superiority day fighter, it evolved into a successful all-weather multirole aircraft. Over 4,400 aircraft have been built since...
, which have been supplied to the Israel Defense Forces
Israel Defense Forces
The Israel Defense Forces , commonly known in Israel by the Hebrew acronym Tzahal , are the military forces of the State of Israel. They consist of the ground forces, air force and navy. It is the sole military wing of the Israeli security forces, and has no civilian jurisdiction within Israel...
.
Nuclear weapons
In 2006, BAE was excluded from the portfolio
Portfolio (finance)
Portfolio is a financial term denoting a collection of investments held by an investment company, hedge fund, financial institution or individual.-Definition:The term portfolio refers to any collection of financial assets such as stocks, bonds and cash...
of the government pension fund of Norway
The Government Pension Fund of Norway
The Government Pension Fund of Norway comprises two entirely separate sovereign wealth funds owned by the Government of Norway:* The Government Pension Fund - Global...
"because they develop and/or produce central components for nuclear weapons". "According to the ethical guidelines for the Government Pension Fund – Global, companies that produce weapons that through normal use may violate fundamental humanitarian principles
Humanitarian principles
There are a number of meanings for the term humanitarian. Here humanitarian pertains to the practice of saving lives and alleviating suffering. It is usually related to emergency response whether in the case of a natural disaster or a man-made disaster such as war or other armed conflict...
shall be excluded from the fund." BAE is indirectly engaged in production of nuclear weapons – through its 37.5% share of MBDA
MBDA
MBDA is a missile developer and manufacturer with operations in France, Britain, Germany, Italy, and the United States. It was formed by a merger of Aérospatiale-Matra Missiles , Finmeccanica and Matra BAe Dynamics in December 2001. In 2003 the company had 10,000 employees...
it is involved with the production and support of the ASMP
Air-Sol Moyenne Portée
The Air-Sol Moyenne Portée is a French air-launched nuclear missile. Part of the Force de frappe, in French nuclear doctrine it is the last-resort "warning shot" prior to a full-scale employment of strategic nuclear weapons...
missile, an air launched nuclear missile which forms part of the French nuclear deterrent
Force de frappe
The Force de Frappe is the designation of what used to be a triad of air-, sea- and land-based nuclear weapons intended for dissuasion, and consequential deterrence...
. BAE is also the UK's only nuclear submarine
Nuclear submarine
A nuclear submarine is a submarine powered by a nuclear reactor . The performance advantages of nuclear submarines over "conventional" submarines are considerable: nuclear propulsion, being completely independent of air, frees the submarine from the need to surface frequently, as is necessary for...
manufacturer and thus produces a key element of the UK's nuclear weapons capability.
Cluster bombs
BAE has in recent times been criticised for its role in the production of cluster bombs, due to the long term death/injury risks they cause to civilians (they behave similarly to land mine
Land mine
A land mine is usually a weight-triggered explosive device which is intended to damage a target—either human or inanimate—by means of a blast and/or fragment impact....
s). However, after pressure campaigns from various human rights groups, BAE recently stated it no longer produces land mines or cluster bombs.
See also
- Aerospace industry in the United Kingdom
- European Union defence procurement
- Top 100 US Federal ContractorsTop 100 US Federal ContractorsThe Top 100 Contractors Report is a list developed annually by the U.S. General Services Administration as part of its tracking of U.S. federal government procurement....
External links
- BAE Future Concepts
- BAE Systems web site
- BAE Systems YouTube channel
- BAE Systems newsroom
- The Guardian: The BAE files
- BAE Systems profile on corporatewatch.org.uk
- Black Money PBS Frontline documentary examining BAE's alleged use of political corruptionPolitical corruptionPolitical corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
internationally, to secure arms sales - BAE Systems plc Information on againstcorruption.org