BAE Systems

Last edited by Phil Mattera on March 27, 2010 - 2:49pm

Company Snapshot:

Formerly known as British Aerospace, BAE Systems has grown into one of the world’s largest aviation and weapons companies, with major operations not only in the United Kingdom but also in Australia, South Africa, Sweden, Saudi Arabia and the United States, where it is now one of the Pentagon’s largest contractors. BAE is one of the top producers of armored combat vehicles such as the Bradley Fighting Vehicle (widely used by the U.S. military in Iraq), but the company also produces fighter planes, missiles, nuclear submarines, military electronics and other tools of war. For the past few years, the company has been embroiled in a controversy over allegations that it paid bribes to officials in countries ranging from Saudi Arabia to the Czech Republic.

Profile editor:

Phil Mattera

Number of employees worldwide:

97,500

Chief executive officer:

Ian King

Website:

www.baesystems.com

Global Fortune 500 rank:

279

Tel:

+ 44 (0)1252 37 3232

Net Income:

$1.8 billion

Total revenue:

$28.6 billion

Corporate accountability

Accountability overview:

For more than five years BAE has been confronted with allegations that the company engaged in widespread bribery in its dealings with foreign governments. The charges began to receive significant attention in June 2003, when The Guardian reported that the U.S. government had privately accused BAE of offering bribes to officials in the Czech Republic. The Guardian went on to report that BAE was facing bribery allegations in three additional countries: India, South Africa and Qatar. Among the charges was that BAE had paid millions of pounds in secret commissions to obtain a huge deal, backed by the British government, to sell Hawk jets to South Africa. There were subsequent allegations that the company had formed a £20 million slush fund (later said to be £60 million) for paying bribes to officials in Saudi Arabia in the 1980s.

Despite denials by the company, Britain’s Serious Fraud Office (SFO) launched a criminal investigation of the bribery charges, focusing on the allegations regarding Saudi Arabia. BAE and the Saudi embassy reportedly lobbied intensively to have the probe terminated, and in December 2006 their effort paid off. The British government called a halt to the case because of national security concerns. (In April 2008 Britain’s High Court ruled that the termination of the investigation was unlawful, but in July 2008 the House of Lords overruled the court.)

The SFO did, however, continue to investigate BAE’s questionable behavior in six other countries. The company was also being investigated by Swiss officials for possible money laundering violations.

Unable to escape these allegations, BAE announced in June 2007 that it would commission its own purportedly independent examination of the issues led by Lord Woolf, former lord chief justice of England and Wales. The Woolf Committee’s 150-page report, released in May 2008, stated that BAE’s top executives “acknowledged that the Company did not in the past pay sufficient attention to ethical standards and avoid activities that had the potential to give rise to reputational damage.” However, the report seems to have bowed to the wishes of the company that the focus be placed on the future rather than the past. The report provided what it called “a route map for the Company to establish a global reputation for ethical business conduct.” Among its 23 recommendations is that BAE “continue to forbid facilitation payments as a matter of global policy.” Given the less than draconian nature of the recommendations, it is no surprise that BAE agreed to adopt all of them.

A new front in BAE’s problems with questionable payments opened in late July 2008, when the Financial Times reported that it had seen documents suggesting that the company had paid at least £20 million to a company linked to a Zimbabwean arms trade close to controversial President Robert Mugabe.

In February 2010 BAE reached settlements with the U.S. Justice Department and the U.K. Serious Fraud Office concerning the longstanding bribery charges. The company agreed to pay $400 million in the U.S. and the equivalent of about $47 million in Britain to resolve the cases.

Environment and product safety:

BAE received praise as well as some ridicule when it announced in 2006 that it was working on “green” munitions, including lead-free bullets, rockets with fewer toxic components and quieter warheads to reduce noise pollution. The bizarre notion of protecting the planet in the course of killing people was captured by the headline of an article about the project in the Times of London: “Watch Out, Sarge! It’s Environmentally Friendly Fire.”

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History

In an effort to improve the UK’s competitive position in the international aerospace market, the British government in 1960 arranged for the merger of Vickers-Armstrong, English Electric and Bristol Aeroplane to form the British Aircraft Corp. (BAC), which soon took over other aviation interests in the country. BAC formed a joint venture with France’s Aerospatiale to develop the Concorde supersonic passenger jet. In the late 1960s BAC declined to participate in creation of the European Airbus consortium for commercial jets, but it did join with companies such as Germany’s MBB and Italy’s Aeritalia to work on combat planes.

In 1976 the British government, worried about the future of BAC in light of the financial problems of the Concorde, nationalized the company as well as Hawker-Siddeley Aviation, producer of the Harrier vertical takeoff and landing craft. The following year they and Scottish Aviation were combined to form British Aerospace (BAe). Within a few years, the British government privatized about half of the company and later the rest. During this period BAe joined the Airbus consortium. In the late 1990s BAe purchased a minority stake in Swedish military jet maker Saab AB

In 2000 BAe spent some $13 billion to acquire Marconi Electric Systems, the military portion of Britain’s General Electric Co., thereby propelling itself to the top ranks of the world’s aerospace/military companies. In the wake of that move, the company changed its name to BAE Systems. The next year it merged its missile operations with those of EADS and Finmeccanica to form the joint venture MBDA. In 2000 BAE purchased the Sanders military electronics unit of Lockheed Martin.

In 2005 BAE sold its UK-based avionics unit to Finmeccanica. That same year it completed the largest foreign acquisition of a U.S. defense company when it paid $4 billion to purchase U.S. armored-vehicle producer United Defense Industries, maker of the Bradley Fighting Vehicle (BAE had acquired a similar UK company called Alvis in 2004). The following year, BAE sold its interest in Airbus to EADS. In 2007 BAE increased its U.S. presence by agreeing to acquire Armor Holdings Inc. for about $4 billion.

Financial information

Stock ticker symbol:

BA (London Stock Exchange)

Fiscal year:

2007

Fiscal year:

2007

Major lines of business/segments:

BAE’s website describes its lines of business as follows:

BAE Systems Australia – Created through the 2008 purchase of Tenix Defence, this segment provides a variety of weapons and military systems, including armored vehicles and air and naval systems.

BAE Systems Products Group – This segment provides products and services for law enforcement, security and corrections customers.

CS&S International – This segment “is responsible for the development of new market opportunities and the sustainment of business in the Middle East region including our long-term presence in Saudi Arabia.”

Customer Solutions – This segment is described as “a benchmark provider of integrated information technology, and technical and professional service solutions for the U.S. national security and Federal civilian markets, with capabilities that include a full set of tailored solutions and services, including ship repair, to support our customers' needs.”

Electronics & Integrated Solutions - E&IS “designs, develops, and manufactures a wide range of electronic systems and subsystems for military and commercial applications. E&IS offers products and integration services including: electronic warfare and self-protection systems; surveillance and intelligence systems; platform systems; sensor and precision targeting systems; communication, navigation, identification, and reconnaissance systems; large-scale enterprise solutions and information management systems in support of the defense and intelligence communities; mission-specific software and geospatial exploitation products; advanced information technology; and rapid C4ISR prototyping.”

Integrated System Technologies – This segment “is fully equipped to meet the demands of the rapidly evolving modern and future markets in defence, homeland security and complex, mission critical solutions.”

Land & Armaments - This segment “is a global leader in the design, development, production, and service support of armoured combat vehicles, major and minor calibre naval guns and missile launchers, canisters, artillery systems, and intelligent munitions.” Its best-known product is the Bradley Fighting Vehicle.

Military Air Solutions – This segment “provides advanced military air capability by successful delivery of design, development, manufacture and support contracts with the UK and overseas customers.” Its products include the Harrier vertical-takeoff combat aircraft, the Hawk Advanced Jet Trainer, the Nimrod maritime patrol aircraft, the Tornado fighter plane, the Typhoon combat aircraft, and the VC10 transport plane.

Regional Aircraft – These include the Avro RJ, the BAe 748, and Jetstream turboprops.

Submarine Solutions – This segment is responsible for the Upholder Class conventional submarine and the Astute Class nuclear submarine.

Specialized Information

Links to federal contract rankings in U.S.:

No.12 on Washington Technology 2008 list of top prime contractors

No.10 on Government Executive list of top federal contractors