COMPANY SURVEY SERIES: I: BAE SYSTEMS PLC

Abstract

BAE Systems is the UK’s largest defence and security firm and one of the world’s major arms companies. It has changed from a state-owned aerospace firm to a privatised specialist defence company involved in a range of air, land, sea and cyber systems with a major presence in the US defence market. This article describes and assesses the history of the company, its organization, conduct and performance.

Editor’s Note: This is the first of a new series of company surveys which describe the evolution and performance of the world’s major defence companies and other important defence companies which might be less well-known. Authors are invited to submit outline proposals (one page) for company surveys to the Editors.

Keywords:

• BAE Systems
• British Aerospace
• Conduct
• Defence company
• Marconi Electronics Systems
• Mergers
• Nationalization
• Organization
• Performance
• Privatization

ACKNOWLEDGEMENTS

The author is grateful for valuable comments and suggestions from Professors Keith Hayward and Trevor Taylor, from an anonymous referee, and from Andrew Middleton and staff at BAE Systems. The usual disclaimers apply and it should be stressed that none of the comments offered represent the views of BAE Systems, nor does BAE Systems necessarily agree with the content and conclusions.

Notes

¹

²The motivation for the privatization of BAe was stated to be “...primarily political, not economic, reflecting a commitment made when the industry had been nationalised” (Parker 2009, 124)

³There were also reports that Thomson-CSF was a potential bidder for Marconi Electronics Systems.

⁴The Nimrod MRA4 aircraft never entered RAF service and was cancelled in the UK’s 2010 Strategic Defence Review. This Review also resulted in reduced military support contracts for BAES (due to the scrapping of Harrier aircraft and reductions in the numbers of Tornado squadrons).

⁵In March 2011, Northrop Grumman announced the spin-off of its shipbuilding business to its wholly-owned subsidiary Huntington Ingalls Industries (HII). The change will allow Northrop Grumman and Huntington II to focus on their respective customers. The shipbuilding business of HII will be divided into two parts, namely, Newport News and the Gulf Coast segments.

⁶Whilst Boeing is less defence-dependent than BAE, Boeing has larger defence sales to the US Department of Defense. In 2008, Boeing’s US defence sales totalled $23.3 billion compared with $16.3 billion for BAE (BAE 2009a).

⁷UK manufacturing excluded industries not specified elsewhere. There are no published data allowing estimates of BAE’s relative size in each of the UK air, land , sea systems and electronics markets. BAE Systems has a substantial business with its suppliers.

⁸Babcock International has facilities for the repair and maintenance of warships and submarines and is involved in the final assembly of the UKs two new aircraft carriers. Other UK domestic monopolies in helicopters and aero-engines are also contestable (e.g. Boeing and EADS for helicopters).

⁹Rank correlations between labour productivity and sales were 0.41 and between labour productivity and profitability were −0.62 where the negative relationship was unexpected.

¹⁰The rank correlation was 0.33.

¹¹In 2009/10, 50% by value of all UK defence contracts were competitive and 50% were non-competitive (DASA 2010).

¹²After 2008, the UK changed the official data published on its defence exports and excluded data on estimates of additional aerospace equipment and services (DASA 2008; 2010). Also, in recent years, BAE’s export data were published in two private studies (OEF 2004; OE 2008); there are no published export data in BAE’s annual reports. However, data on UK defence aerospace exports are published annually by the industry trade association. In 2009, total UK defence aerospace exports were £6.7 billions (ADS 2010).

¹³The Woodford plant is scheduled for closure in 2011. Some design work is undertaken at Farnborough and further work has been transferred to UK front-line military bases.