Democrat September-October 2012 (Number 131)
Report by Dave Hawkins
BAe and an
industrial strategy for Britain
Barely a week after Vince Cables’ announcements of a New Industrial Strategy and a Key Strategic Partnership in aerospace, it’s National Defence Champion BAe Systems (UK ownership guaranteed` by the Government’s £1 (sic) vetoing golden share) was leaked to be in negotiations for a take-over by Franco-German rival EADS. BAe was to besold as a revival of the EU project of a military-industrial-complex to compete with the US. The merger foundered on the underlying realities of inter-US, UK, Franco German rivalry.
Cable’s subsequent silence has been deafening.
BAe - a brief history
Formed in 1977 by a merger of the British Aircraft Corporation, Hawker Siddeley and Scottish Aviation as a nationalised corporation, BAe was privatised by the Thatcher Government in 1981. Within three years its name was to be continuously linked with allegations of bribery and corruption (see BAe corruption timeline below).
In 1985 BAe recieved £44m in Government subsidies for the privatisation and takeover of Rover Group Motors. In 1987 it acquired Dutch dredging company Ballast Nedam for £47m. Both were sold during 1993/4 for £800m and £175m respectively to fund a shareholder payout. The sale of Rover to BMW marked the end of British-owned mass car manufacturing. Ballast Nedam had been extensively involved in the `Al Yamamah One` arms deal.(see BAe corruption timeline below).
During the 1990s BAe expanded into the US arms market joining Lockheed Martin’s Joint Strike Fighter project. In January 1999 it merged with GEC’s Marconi Electronic Systems to create BAe Systems the world’s largest arms dealer.
Into the US
Following 9/11 and the US declaration of the `war on terror`, the Homeland Security Programme and invasions of Afghanistan and Iraq between 2001 and 2009 US arms spending rose by 9% per annum, a total increase of $850bn .
Amid a stream of acquisitions of US defence companies, in 2003 BAE declared a `strategic bias for expansion and investment in the US`. In 2005 it formed BAe Systems Inc, a `firewalled` semi-detached business operating under a US ` Special Security arrangement` run by a board dominated by security cleared US politicians and retired Generals, its’ British board approving financial transactions but having no access to US security sensitive information. Previous board Chairman retired Gen Anthony C Zinni being recently succeeded by former US Secretary of Homeland Security Mike Chertoff.
Expansion into the US had serious strategic implications for BAe selling its 20 per cent stake in Airbus in 2006 in order to fund it - its last remaining interest in civil aviation. Unfortunately it bet wrong: the passenger business boomed while defence sales slumped.
In 2009 within two years of purchase BAe was forced to write off a quarter of the price of its biggest US acquisition Armor Holdings.
Since 1995, BAe has rolled over businesses worth £22bn, spending £18bn on acquisitions and selling companies worth £4bn - a number dwarfing its current £13bn enterprise value. But the trip did prove lucrative for its investment bankers Goldman Sachs, Morgan Stanley and UBS reaping huge fees putting together and dismantling BAe’s successive changes of direction.
With sales falling by 14% and profits down 7.5% in 2011, BAe cut 3000 UK jobs including 900 at Brough and closing the entire site. It also hired consultancy firm LEK to review the options for its British shipbuilding business, citing the possibility of closure or sale of one of its three shipyards in Scotland and southern England. BAe also carries a £5.2bn pension deficit.
An industrial strategy for Britain
But while BAe played the corporate raider, courtesy of privatisation, financial deregulation and huge arms spending, for most of UK manufacturing this recipe proved a disaster.
Accounting for almost 30% of national income in 1979 employing 6.8 million people, by 2011 this had fallen to 11.4%, employing 2.5 million. As capital fled abroad seeking the fastest returns, overseas assets of UK companies rose from 29% of GDP in 1981 to 410% in 2006, starving UK industry of investment and entrenching the power of the City.
Conversely deregulation triggered a wave of foreign (predominantly US) takeovers of UK companies. Repatriation of their profits combined with the decline in manufacturing exports resulted in the UK's current huge Balance of Payments deficit.
As long as these conditions, enforced by EU law requiring the free movement of capital, goods, services and labour, continue to shape the UK economy, all the ConDem talk of an industrial strategy will remain just that.
Britain's most urgent needs are for:
industrial renewal and a source of reliable renewable energy to power it
taking BAe and Rolls Royce back into public ownership
cancelling the Trident submarine programme and redirecting the money, skills and resources into the development of tidal and wave power
rebalancing the economy away from armaments toward low carbon industries, ultra low carbon vehicles, digital industries, life sciences and pharmaceuticals as per the TUC's 2009 resolution.
That would be an industrial strategy for Britain.
BAe - A Corruption Timeline
The first 'Al Yamamah' Saudi arms deal. BAe is accused of £multi million bribes paid to middlemen and Saudi Princes. In a deal PM Margaret Thatcher was personally involved in brokering son Mark who was accused of illegally receiving £12m for acting as a No10 go-between.
The 'Al Yamamah Two' deal triggers a second wave of allegations.
Revelations by the Guardian newspaper of a BAe £60m slush fund prompts an investigation by the Serious Fraud Office (SFO).
BAe refuses to comply with a compulsory order to disclose details of its middle east payments.
2006 Dec 14
10 days after the Telegraph reports, Saudi Arabia had threatened to cancel the deal. PM Tony Blair announces in Parliament the dropping of the investigation in the interests of national security and, to maintain Saudi co-operation in counter terrorism activities.
The SFO begins investigations into BAE illegal payments to a South African defence minister involved in a £1.5bn contract won in 1999. Also confirms probes into deals in Romania, Chile, Czech Republic , Qatar, and Tanzania.In June the US Department of Justice launches investigation into BAe's compliance with US anti-bribery laws.
BAe agrees to pay a $400m fine admitting defrauding the US over the sale of fighter planes to Saudi Arabia and Eastern Europe. £30m settlement reached with the SFO related to "breaching its duty to keep accounting records" in Tanzania. SFO drops all further prosecutions of BAe.
BAE subsiduary Armor Holdings agrees to pay $16M to resolve US criminal and civil charges of paying bribes to win contracts for UN peacekeeping missions and commissions paid to win business from foreign governments.