BAE due to axe twice as many jobs as ex­pected

The Daily Telegraph - Business - - Front Page - By Iain Withers and Ash­ley Arm­strong

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’

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