BAE Systems announced that they are in talks to merge their business with the European Aeronautic, Defence and Space Company (EADS). This naturally arouses some fears ranging from a personal job level up to a national security level.
In 1999 BAE Systems was formed by merging British Aerospace (BAe) with Marconi Electronic Systems (MES) who have a large US presence. At the time this was controversial as BAe had been talking to Daimler Chrysler Aerospace of Germany with a view to merging and the sudden move to merge with MES was seen by the Germans as a betrayal. The Germans then merged with French and Spanish companies to form EADS which has most of the Airbus manufacture.
Then in 2006 BAE Systems sold off their commercial aircraft Airbus activity to EADS along with several thousand UK jobs to focus on the US defence market. This broke the old rule of thumb that the cycle of defence and commercial aerospace tended to balance each other.
In 2012 that rule of thumb is working against the defence biased BAE Systems who are now looking for a partner with commercial aircraft work, worrying that western defence budgets are being slashed.
The merger is taking BAE Systems into what appears a political hotbed with the German, French and Spanish governments having shares in EADS. It might also be said that the UK government has a ‘golden’ share in BAE Systems although it is quite ‘hands-off’.
There are those who immediately get a rush of blood to the head at the mention of Europe and are making themselves heard without it being clear if their issue is political, defence or business oriented. On the other side are those who say BAE Systems would be eaten by a merger with an American company. We shouldn’t forget that BAE Systems build nearly all the main defence equipment for the UK and are the biggest and one of the most sophisticated engineering design and manufacturing companies in the UK, if not worldwide. The products include submarines, ships, aircraft, vehicles, guns and electronic equipment.
In Lancashire BAE Systems has two large factories in the Preston area at Samlesbury and Warton. The main projects are the Typhoon, F35, with R&D on UAVs as a seedcorn. Product support is a major item as well. Historically the sites have had their eye on the horizon for the next project that will bring continuity to design, development, manufacturing and support work. The Typhoon is now looking for export work and is in a late phase of its cycle, F35 is mainly manufacturing so the future hinges on either a big new project or a step up in UAV work particularly for Warton. The big new project, even if joined by the Typhoon partners looks unlikely and the UAV market is still in embryo form with new entrants, and France being looked on as a likely partner.
In theory a merger with EADS could bring in work currently outside the scope of BAE Systems if perhaps Typhoon could be re-organised. Warton has been the main beneficiary of UK aviation industry consolidation, could it benefit from European consolidation? On the other hand, sharing of knowledge with the US on the F35 might be made more difficult with a European merger. Also whether the centre of gravity and decision making in military air vehicles will move towards Europe is a worry. Overall it seems that without the big new project Warton will be looking at a gradual reduction and change of shape over time whatever happens. Samlesbury should have a future as an F35 manufacturing and a support business for quite some time. There are so many balls in the air that it’s hard to determine whether an EADS merger will change any of that. With defence there is always a national defence aspect that involves the government and so brings in politics related to national capability and jobs. It could be said the safest thing to do is to stay in your bunker and resist the merger yet there is a much bigger picture that needs to be assessed if the local ship is to remain in a healthy form of whatever type. Warton and Samlesbury have depended on huge projects and consolidation on these continues on the chessboard of the worldwide defence, technology and aviation industry.