BAE due to axe twice as many jobs as expected
THE new boss of Britain’s biggest defence contractor BAE Systems has wasted no time in wielding the axe with plans for more than 1,900 redundancies, double what had been anticipated.
Charles Woodburn, who took the helm as chief executive three months ago, told
The Daily Telegraph it was “the nature of exports” to have to deal with volatile orders, leading to cuts across the company’s air, sea and cyber defence divisions.
The job losses will be phased over the next three years and equate to almost 6pc of BAE’s 34,600-strong UK workforce.
The largest cuts are planned in BAE’s factories in Lancashire – where up to 750 jobs will go – due to a slowdown in Typhoon fighter jet orders.
The company had been hoping for a large Typhoon deal with Saudi Arabia – which ordered 72 of the aircraft 10 years ago – but this has so far failed to materialise, and smaller existing contracts with other Gulf nations are not enough to keep up full production.
It is understood conversations between BAE and Saudi Arabia over a possible further order are still ongoing, despite the British firm agreeing a statement of intent with the Kingdom’s arch rival Qatar for an order of 24 of the aircraft last month, sparking concerns this could jeopardise talks with the Saudis. BAE’s Typhoon factories in Warton and Samlesbury in Lancashire will be slowed down while they fulfil smaller orders for Oman and Kuwait.
Mr Woodburn said he was “confident that there will be orders but the timing is uncertain”. An accompanying BAE trading statement gave a bullish outlook for its US business.
Just two months ago new BAE boss Charles Woodburn promised that his stewardship of Britain’s defence giant would mean “more evolution, rather than revolution”. It seems that the 1,400 British workers now facing the axe are being schooled in a brutal lesson of survival of the fittest. BAE’s decision to cull 1,400 jobs across its six manufacturing bases and a further 300 in its cyber security base comes as the defence giant realises that its once superior command of the skies is on the wane.
A dwindling number of orders for its Eurofighter Typhoon jet has been largely to blame for the cuts, and 750 jobs will go at aerospace bases in Lancashire. It’s surprising that BAE has had to make the brutal decision despite sealing an agreement with Qatar for 24 aircraft less than a month ago.
Woodburn said that Qatar’s statement of interest was “helpful”, but given that BAE has still not made any progress in tying the Saudi government down on its order of 48 Typhoons a year on, he’s not betting the house on it.
Former oil veteran Woodburn said that the “lumpy” nature of defence exports and the unpredictability of timing were partly to blame. Despite the BAE boss insisting that he was confident in securing future orders, the Typhoon has recently attracted fewer orders than the less costly rival Rafale jet, which is built by France’s Dassault. For example, earlier this year Austria announced it would phase out its fleet of Typhoon jets and would seek cheaper alternatives. Woodburn said that the decision to cull jobs was essential to ensure that the business can compete efficiently.
That may well be the case. BAE not only has a pension deficit of almost £6bn, it has sizeable dividend commitments and it also has to fulfil its research and development spending obligations to ensure it doesn’t fall behind the pack.
The Government is insisting that it’s not to blame for the slew of job cuts, but its recent miscalculations of Trident and F35 spending, its decision to take the RAF Tornado out of service in 2019, and its decision to cut costs by moving warship frigate work have all added pressure. Woodburn, unsurprisingly given BAE’s reliance on Ministry of Defence spending, refused to speak ill of the Government yesterday and said that the £4bn worth of contracts last year reflected the importance of the relationship. But after the present orders of Typhoons are fulfilled, there will be no British fighter programme unless something radical changes to the budget.
In three years’ time a quarter of British defence spending will benefit US businesses, such as Boeing and Lockheed Martin, according to Unite. That’s around double today’s proportion. Britain will increasingly have to rely on exports to boost the economy after Brexit and BAE will also have to become even more willing to respond to president Trump’s commitment to ramp up military spending. But the bigger picture remains that BAE’s reduction in skilled British manufacturing workers will mean that the company and the country will become even more reliant on foreign business.
Co-op right to be eyeing Nisa deal
Is a return to deal-making the ultimate sign that the Co-op has turned a corner from its darkest days? Yesterday the food-to-funerals provider announced it had gained a highly anticipated recommendation for a £143m takeover of convenience chain Nisa. It has taken almost four months of negotiations and a false start with Sainsbury’s for Nisa talks to reach this stage.
Arguably, the Co-op stands a much better chance than Sainsbury’s did to see its deal through to the end. Whereas Sainsbury’s swoop caused Nisa’s band of noisy shopkeepers to fear a loss of their independence if they did a deal with a former “big four” enemy, the Co-op has taken great strides to make the most of its mutual credentials. The Co-op’s management team has been wearing away the shoe leather, visiting Nisa stores as it realises the difficulties of doing a deal that relies on 1,200 member votes. Sainsbury’s, by contrast, reckoned that Nisa was just desperate to do a deal. Now it’s left questioning its own acquisition strategy.
Nisa has attempted to distance itself from its struggling peers by pointing to its recent sales recovery. But its growth is being outstripped by bigger food retail rivals who have piled into the convenience sector and raised competition for the local corner shop. Nisa’s wafer thin margins will be under even further pressure should Tesco successfully seal its £3.7bn takeover of wholesaler Booker.
While Nisa might have wanted to do a deal from a defensive standpoint, the Co-op has been explicit in making food retail the cornerstone of its turnaround. After shrinking its store estate by getting rid of the large, struggling former Somerfield shops to focus on its convenience stores, the Co-op now has to do some deals to grow again. New boss Steve Murrells has realised that more scale and a beefed-up wholesale business is one way to keep top-line numbers growing. Having more stores and more demand from shops stocking its own-label fresh food also means more volumes going through its manufacturing sites, which should cushion it from rising cost pressures.
If Co-op pulls off the Nisa deal it could then go even further by adding rival convenience chain Costcutter. The Costcutter owner Sir Michael Bibby recently announced that there could be a deal shortly. Since then it has been all quiet as speculation grows that it might have just been a flag-raising exercise. After pouring millions of pounds into Costcutter, and with an even tougher outlook, Bibby will be much more desperate than Nisa’s board ever was to do a deal.
‘The 1,400 workers facing the axe are being schooled in a brutal lesson of survival’