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BAE SYSTEMS is a multinational defence products manufacturer.
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It was formed on November 30, 1999 with the merger of British Aerospace and Marconi Electronic Systems, which was made up of several divisions of GEC-Marconi in the UK and overseas.
It was widely anticipated that British Aerospace would merge with Germany’s DASA to form a pan-European aerospace giant, however BAe chose instead to merge with Marconi’s defence electronics business. This move, to create what could be described as a British company compared to what would have been an Anglo-German firm, made the possibility of penetration of the US defence market more likely. Since the creation of BAE SYSTEMS the company has steadily increased its investment in and its revenues from the United States, while continental European company's have made limited moves into that massive market. Major European companies such as Thales and EADS are unlikely to ever be awarded, for example, a position relative to BAE's involvement in the F-35.
While the US competition authorities did not block the merger, they imposed various conditions of their approval due to the integration of BAe and Marconi in various US defence projects. These conditions were primarily in the internal organisation of the new company.
Following that decision DASA instead merged with Aerospatiale to create the European Aeronautic Defence and Space Company EADS. This group was joined by Spain’s CASA following an agreement in December 1999.
With almost total consolidation on the European continent BAe turned its attention to America, for example acquiring Lockheed Martin Control Systems, (LCMS) which produces controls for the B-2 bomber, the C-17 Globemaster strategic transport, the F/A-18, the Boeing 757 and Boeing 767 commercial jets.
Of all the company's activites the most profitable is the Al Yamamah contracts to supply and support the Royal Saudi Air Force. This deal produces nearly half of the company's profits, £411m ($700m) out of £980m in 2003.
In June 2003, rumors started to circulate about a possible merger with either Boeing (who acquired BAE SYSTEMS's partner McDonnell Douglas in 1997) or Lockheed Martin. Later that year the Boeing's Chief Executive denied any possibility of a North American merger on the grounds of "conflict of interest" pertaining to the affiliation with the Airbus consortium. However if that were the only stumbling block it seems likely that BAE would gladly sell its minority share in Airbus to gain a greater share in North American aerospace projects.
It remains to be seen how the arrival of a new Chairman will affect this position. The appeal of a link with an American company is irresistible as the U.S. defence market is by far the largest in the world. The company already has $9Bn worth of sales to the Pentagon and any further move into the American market would yield yet more. This is particularly the case if BAE can win prime-contractor status on a major project. BAE faces considerably fewer hurdles in this sense than their European counterparts, as there is a high degree of integration between the U.S. and British defence establishments.
In late March 2004, after more than 30 years with the company (and its predecessors), BAE’s longstanding Chairman Sir Richard Evans announced his successor. Dick Olver, former Deputy Chief-Executive BP succeeded Sir Richard on July 1.
This appointment comes at a significant time, stock market confidence is still recovering from a shock profit warning in December 2002. This was due to cost overruns of the Nimrod MR4 maritime reconnaissance/attack aircraft and the Astute SSN projects. BAE took a hit of $1.369Bn on these projects.
BAE SYSTEMS' CEO is Mike Turner, who replaced John Weston in 2002. Weston was forced out in what was a surprise move. It is understood that Turner, like Evans, has a poor working relationship with senior Ministry of Defence officials, including the Defence Secretary Geoff Hoon. Significantly the first meeting between Olver and Hoon is said to have gone well, a MoD official has said "He is a man we can do business with. We think it is good to be taking a fresh look at things." [1] (http://observer.guardian.co.uk/business/story/0,6903,1253225,00.html)
In May 2004 it was reported that BAE is considering selling its shipbuilding division (two Clyde shipyards and the Barrow-in-Furness yard.) The company will only say that it is reviewing its operations. If it decided to sell it is understood that General Dynamics would like to acquire the submarine building facilites at Barrow while Vosper Thornycroft is said to be interested in the remaining yards. BAE SYSTEMS without its shipbuilding assets would be a more attractive partner to an American company such as Boeing - which has stated that the shipbuilding operations are of no interest to them.
On June 4, 2004 BAE outbid General Dynamics for Alvis Vickers. What had seemed a certain win for the American company was stopped by BAE's surprise move and is seen as an attempt to keep such a strong competitor at bay in BAE's "backyard."
In July, 2004 Olver announced a review of all of BAE's activities, this review will be conducted by independent analysts lead by investment bank Morgan Stanley. This review will advise the group on what its strategy should be and hence what acquisitions or disposal it needs to make. Harry Stonecipher, CEO of Boeing, has criticised the vertical integration of BAE.
BAE Systems is in an enviable position. They either lead or have a major stake in some of the most high profile, high technology civil and military aerospace and maritime projects in the world. Some examples are;
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