BAE Systems
BAE Systems plc is a British multinational aerospace, arms and information security company, based in London. It is the largest manufacturer in Britain as of 2017. It is the largest defence contractor in Europe and the seventh largest in the world based on applicable 2021 revenues. Its largest operations are in the United Kingdom and in the United States, where its BAE Systems Inc. subsidiary is one of the six largest suppliers to the US Department of Defense. Its next biggest markets are Saudi Arabia, then Australia; other major markets include Canada, Japan, India, Turkey, Qatar, Oman and Sweden. The company was formed on 30 November 1999 by the £7.7billion purchase of and merger of Marconi Electronic Systems, the defence electronics and naval shipbuilding subsidiary of the General Electric Company plc, with British Aerospace, an aircraft, munitions and naval systems manufacturer.
BAE Systems is the successor to various aircraft, shipbuilding, armoured vehicle, armaments 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 Comet, the world's first commercial jet airliner; Hawker Siddeley, manufacturer of the Harrier, the world's first VTOL attack aircraft; British Aircraft Corporation, co-manufacturer of the Concorde supersonic transport; Supermarine, manufacturer of the Spitfire; Yarrow Shipbuilders, builder of the Royal Navy's first destroyers; Fairfield Shipbuilding and Engineering Company, builder of the world's first battlecruiser; and Vickers Shipbuilding and Engineering, builder of the Royal Navy's first submarines.
Since its 1999 formation, BAE Systems has made a number of acquisitions, most notably of Ball Aerospace, United Defense and Armor Holdings of the United States, and has sold its shares in Airbus, Astrium, AMS and Atlas Elektronik. It is involved in several major defence projects, including the Lockheed Martin F-35 Lightning II, the Eurofighter Typhoon, and the Astute, Dreadnought and SSN-AUKUS submarines. BAE is listed on the London Stock Exchange's FTSE 100 Index.
History
Predecessors
bought Marconi Electronic Systems for £7.7billion on 30 November 1999 and merged with it to form BAE Systems. The company is the successor to many of the most famous British aircraft, defence electronics and warship manufacturers. Predecessor companies built the Comet, the world's first commercial jet airliner; the Harrier "jump jet", the world's first operational vertical/short take-off and landing 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 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, 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, 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 in 1968 and thereafter used the Marconi brand for its defence businesses. 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, the rump of Ferranti when it went into receivership in 1993/1994, Vickers Shipbuilding and Engineering in 1995 and Kværner Govan in 1999. In June 1998, MES acquired Tracor, a major American defence contractor, for £830million.
Formation
The 1997 merger of American corporations Boeing and McDonnell Douglas, which followed the formation in 1995 of Lockheed Martin, the world's largest defence contractor, 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 US." 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 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; with 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.
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 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 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 " 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's biggest 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, a horizontal integration.
Seventeen undertakings were given by BAE Systems 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. In 2007 the government announced that it had agreed to release BAE Systems from ten of the undertakings due to "a change in circumstances".
BAE Systems inherited the UK government-owned "golden" share that was established when British Aerospace was privatised. This unique share 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.
2000s
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 Systems described 2001 as an "important year" for its European joint ventures, which were reorganised considerably. The company has described the rationale for expansion in the US; " 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 Olver 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 cybersecurity 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 Systems/Matra company, was merged with the space division of DASA to form Astrium. On 16 June 2003, BAE sold its 25% share of Astrium for £84million; however, due to the lossmaking status of the company, BAE Systems invested an equal amount for "restructuring". BAE Systems sold its 54% majority share of BAE Systems Canada, an electronics company, in April for CA$310. In November 2001, the company announced the closure of the Avro Regional Jet 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 £85million. 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 into MBDA in December. MBDA thus became the world's second largest missile manufacturer. Although EADS was later reported to be interested in acquiring full control of MBDA, BAE said that, unlike Airbus, MBDA is a "core business".
In June 2002, BAE Systems confirmed it was in takeover discussions with TRW, an American aerospace, automotive and defence business. This was prompted by Northrop Grumman's £4.1billion hostile bid for TRW in February 2002. A bidding war between BAE Systems, Northrop and General Dynamics ended on 1 June when Northrop's increased bid of £5.1billion was accepted. On 11 December 2002, BAE Systems 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 £750million against these projects and the Ministry of Defence agreed to pay a further £700million of the cost. In 2000, the company had taken a £300million "loss charge" on the Nimrod contract which was expected to cover "all the costs of completion of the current contract". The troubled Nimrod project would ultimately be cancelled as part of the 2010 Strategic Defence and Security Review.
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 £800million. The deal was significant because it was a factor in India's decision to finalise a £1billion 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 Systems' 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 Systems sold its 25% share of the latter to Finmeccanica for €400million in March 2007.
In May 2004, it was reported that the company 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. Instead, 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 2005 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 the company's RO Defence unit to form BAE Systems Land Systems. Recognising the lack of scale of this business compared to General Dynamics, BAE Systems executives soon identified the US defence company United Defense Industries, a major competitor to General Dynamics, as a main acquisition target. On 7 March 2005, BAE announced the £2.25billion 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 Systems announced the sale of its German naval systems subsidiary, Atlas Elektronik, to ThyssenKrupp and EADS. The Financial Times described the sale as "cut price" because French company Thales bid €300million, but was blocked from purchasing Atlas by the German government on national security grounds. On 31 January 2006 the company announced the sale of BAE Systems Aerostructures to Spirit AeroSystems, Inc., having 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 £6billion to £10billion for 72 Eurofighter Typhoons, to be delivered by BAE Systems. On 10 September 2006, the company was awarded a £2.5billion contract for the upgrade of 80 Royal Saudi Air Force Tornado IDSs. One of BAE Systems' 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 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. 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 £947million contract to provide guaranteed availability of Royal Air Force Tornados.
In May 2007, the company announced its subsidiary BAE Systems Inc. was to purchase Armor Holdings for £2.3billion and completed the deal on 31 July 2007. The company was a manufacturer of tactical wheeled vehicles and a provider of vehicle and individual armour systems and survivability technologies. BAE Systems 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 Systems' main interest in the partnership was to learn about the high speed build and operations processes of McLaren.
The company announced the acquisition of Tenix Defence, a major Australian defence contractor in January 2008. The purchase was completed on 27 June for A$775million making BAE Systems Australia that country's largest defence contractor. The MoD awarded BAE Systems a 15-year munitions contract in August 2008 worth up to £3billion, known as Munition Acquisition Supply Solution. The contract guaranteed supply of 80% of the UK Armed Forces' ammunition and required BAE to modernise its munitions manufacturing facilities. BAE Systems expanded its intelligence and security business with the £531million purchase of Detica Group in July 2008. It continued this strategy with purchases of Danish cyber and intelligence company ETI for approximately $210million in December 2010, and Norkom Group PLC the following month for €217million. 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.