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World ranking: 4
Total military sales: $15 billion
Military sales as % of total sales: 77%
Employees: more than 100,0001 (approx. 43,000 in the UK)2
Military products include: fighter and trainer aircraft,
warships, submarines, torpedoes, radar, tactical
communications systems and missiles.
BAE Systems (Headquarters) Farnborough, Hampshire GU14 6YU
Tel: + 44 (0) 1252 373 232
(Registered Office) 6 Carlton Gardens, London SW1Y 5AD
BAE Systems
BACKGROUND
BAE Systems is the result of the 1999 merger of British Aerospace and Marconi Electronic Systems. It has offices throughout Europe, Asia and North America, as well as in Australia and Africa. Less than 20% of its output is sold to the UK. A similar amount is sold to the Middle East but the real focus of BAE Systems' activity is North America. BAE Systems has a strong presence in the US, through BAE Systems North America, and sells more to the Pentagon than it does to the UK MoD.
Over the past couple of years the company has received a vast amount of media attention. Some has resulted from domestic practices: its poor project management relating to the Nimrod and Astute programmes; its aggressive sales posture towards the MoD; its boardroom machinations; and a dive in its share price. Other coverage has resulted from its plethora of overseas sales, many of them controversial.
Subsidiaries and joint ventures
BAE Systems' joint ventures and interests include: RO Defence (100% - see below), AMS (formerly Alenia Marconi Systems, 50%), missile-maker MBDA (37.5%), Eurofighter GmbH (33%), Aerosystems International (50%), Airbus (20%), Flagship Training (50%), Fleet Support Ltd (50%) and STN Atlas (49%) although BAE Systems has recently agreed with Rheinmetall DeTec AG of Germany to split STN Atlas into two companies, Atlas Elektronik, which will be wholly owned by BAE Systems, and Rheinmetall Defence Electronics.3 BAE Systems holds a 35% state in Sweden's SAAB which produces the Gripen fighter. In August 2003, BAE purchased GKN's 29% stake in Alvis plc for £73m.
WHAT IT MAKES
Aircraft
Well known for its seemingly ubiquitous Hawk trainer and light combat jet, BAE Systems also produces the troubled Nimrod maritime surveillance aircraft and is a partner in the Cold War legacy Eurofighter project. It has a significant stake in the US/Lockheed Martin Joint Strike Fighter programme, with work amounting to 10-15% of the total, worth £25bn.4 3,000 JSFs are due to be built for the US and UK (the UK possibly ordering 60-land and 150-carrier-based models) and the manufacturers are anticipating selling a similar number around the world.
Naval
BAE Systems produces underwater weapons, warships including frigates, destroyers, auxiliary vessels and submarines (including the over-cost Astute class nuclear submarine) and, they hope, aircraft carriers. It is the prime contractor for the UK Navy's Future Carrier project, which is due to see two new carriers enter service in the mid 2010s.
Missiles
The company owns 37.5% of MBDA, the world's second largest missile manufacturer. MBDA has 32 missile programmes underway and a further 23 in development.5 (See EADS for more information on MBDA)
Ballistic Missile Defense
BAE Systems is a member of the new UK Missile Defence Centre launched on July 18th 2003. The centre is a joint UK government and industry project that is intended to provide an interface with the US Missile Defense Agency.6 BAE Systems had already signed up with Boeing in July 2002 and Lockheed in June 2003 to work on Ballistic Missile Defense, and its North American arm is working on THAAD (a US BMD programme missile interceptor).
RO Defence
RO Defence, formally Royal Ordnance, is a wholly-owned subsidiary of BAE Systems which specialises in munitions and armaments. It currently employs 3,500 staff located in the UK, USA, Germany and the Netherlands and has an order book of nearly £1 billion.7 RO Defence's products, which are exported to almost 50 countries worldwide, include high explosives, artillery and artillery ammunition, small arms and medium calibre ammunition, mortars and multiple launch rocket systems.8 It also makes 105mm and 120mm Depleted Uranium-tipped shells.9
PLAYING THE 'JOBS' CARD
Though it studiously dropped 'British' from its name in 1999, is majority foreign-owned, and is searching for a US partner/buyer, BAE Systems still wraps itself in the Union Jack when bidding for MoD contracts. It is very willing to go to the press and play its 'Buy British' or 'jobs' card, however meaningless that is in an internationalised arms industry. And it often succeeds. In January 2003 it won the MoD's aircraft carrier competition despite not having the best design. The cost of constructing the carriers was put at £2.8bn at the time, but a few short months later BAE Systems 'told the Ministry of Defence that it would cost up to £4bn to construct the pair'.10
July 2003 provided another, even more spectacular, example of the level of BAE Systems' influence and marketing abilities. The company let it be known that it would not enter an open competition for the fighter trainer aircraft for the RAF, demanding instead that it just be given the contract. It had already persuaded the government to drop its plan for a private finance initiative contract.11 However, the Treasury was pushing hard for an open competition and estimated that this would save the tax-payer around £1 billion.12 Set against this, BAE Systems had announced that if it was not given the contract by July 31st it would make 470 workers at its Brough plant redundant.13 No one seemed to notice that £1 billion amounted to over £2 million for each of the much-discussed 470 jobs. On July 30th, the day before BAE Systems' deadline, the government gave the company a £800m contract to supply the RAF with 20 Hawk 128 trainer jets with an option for a further 24 aircraft.
The precise extent to which potential exports influenced the Hawk purchase will never be known, but there are plenty of indications that it was important. BAE Systems was reported as saying that if the government did not support the Hawk it would 'ruin the company's chances of selling the aircraft abroad',14 and Patricia Hewitt, the industry secretary, highlighted the Hawk's 'significant export potential' in her reflection on the decision.15
EXPORTS
BAE Systems has export markets across the world. Its Hawk jets alone have been sold to Brunei, Indonesia, Kenya, Kuwait, Malaysia, Oman, Saudi Arabia, South Africa, South Korea, UAE and Zimbabwe. In the past year there has been angry reaction to the use of its Hawks in Aceh, to the sale of head-up displays for US-built F16s destined for Israel, and to the marketing of arms to India in the midst of conflict over Kashmir. It has also been the subject of allegations of bribery regarding deals with the Czech Republic, India and South Africa, and of UN allegations of sanctions busting to arm Zimbabwe. BAE Systems has denied both bribery and sanctions-busting allegations.
Zimbabwe
British Aerospace supplied 12 Hawk jets to Zimbabwe in the early 1980s. In May 2000 an arms embargo was imposed on Zimbabwe by the UK in protest at the violent treatment of President Robert Mugabe's opponents.16 This was followed by an EU arms embargo in February 2002. However, it has been reported that this did not prevent Hawk spares and other military equipment getting through to Mr Mugabe's regime. A United Nations Security Council panel published a report in October 2002 that stated:
'John Bredenkamp, who has a history of clandestine military procurement, has an investment in Aviation Consultancy Services Company (ACS). The Panel has confirmed, independently of Mr Bredenkamp, that this company represents British Aerospace, Dornier of France and Agusta of Italy in Africa. Far from being a passive investor in ACS as Tremalt representatives claimed, Mr Bredenkamp actively seeks business using high-level political contacts. In discussions with senior officials he has offered to mediate sales of British Aerospace military equipment to the Democratic Republic of the Congo. Mr Bredenkamp's representatives claimed that his companies observed European Union sanctions on Zimbabwe, but British Aerospace spare parts for [Zimbabwe Defence Forces] Hawk jets were supplied early in 2002 in breach of those sanctions. Mr Bredenkamp also controls Raceview Enterprises, which supplies logistics to ZDF. The Panel has obtained copies of Raceview invoices to ZDF dated 6 July 2001 for deliveries worth $3.5 million of camouflage cloth, batteries, fuels and lubricating oil, boots and rations. It also has copies of invoices for aircraft spares for the Air Force of Zimbabwe worth another $3 million.'17
South Africa
In June 2003 the Guardian alleged that 'BAE Systems paid millions of pounds in secret commissions' to win a South African Hawk jet contract.18 Astonishingly, it reported that the UK government had confirmed the payment, but refused to reveal the amount paid. The DTI did, however, say it was 'within acceptable limits'.
Czech Republic
In December 2001, the Czech cabinet selected Gripen International's bid to supply 24 Gripen fighters in a £1bn deal after rival bidders pulled out of the process. The Guardian reported that it had seen documents that demonstrated that the 'US has accused Britain's biggest weapons company, BAE Systems, and its British government sponsor of "corrupt practice" over the deal.19 The Czech Republic withdrew funding for Gripens' purchase following the floods in summer 2002.
India
In July 2003 the Sunday Times reported details of a television interview given by Indian Defence Minister George Fernandes. He was quoted as saying, 'I am afraid that AJT [Advanced Jet Trainer] may wait for another two or five years because the Americans have said that British Aerospace... are bribing people, including the people in India.'20
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