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BAE Systems – what’s in a brand?

September 24, 2012
Image of English Electric Lightning

“Being saddled to a sky rocket” – will a merger with EADS bring BAE systems down like a lead balloon?

The recent revelations that BAE Systems is considering a merger with Franco-German company EADS has not gone unreported in the press yet from a brand perspective it makes most interesting reading. The new super company will be 40% owner by BAE and 60% by EADS. It’s described as a merger but you can see by the figures that it’s more like a takeover. Oh dear…

BAE Systems is an accretion of practically all the UK’s leading defence manufacturers since the War: English Electric; Hawker; Bristol Aircraft Company; Avro; Vickers, Vosper Thorneycroft; the list is almost endless.

It is the guardian of significant brand assets which have become almost to epitomise the British ethos: technical skill, novel invention, elegance of design, a paradigm of British engineering excellence. Talk to anyone who knows about engineering (as opposed to those who spout nonsense) and they will say that British engineering exceeds or is equal to that of all other nations; there is no greater case made here than in the case of aircraft, ships, submarines and missiles.

But with the majority of shares of the new company in the hands of France and Germany, where do you think the best jobs, the cutting edge design and the innovation end up?

Alas, lack of governmental vision over the last 20 years, combined with an obsession with “managing” the economy rather than driving it, has led to a state of affairs now so typical of British companies. By refusing to “back winners” (a practice carried out by all the UK’s major competitors), the UK chooses instead to buy at the lowest price. A policy it calls “off the shelf“. The UK chooses to back other countries’ winners instead…

Image of Type 26 Frigate

Type 26 Frigate the shape of things to come? 20% innovation, 80% old technology good enough to drive sales in a competitive market?

Off the shelf buying effectively means helping reduce the cost of production of overseas companies by buying from their production lines rather than your own. Little wonder that the Royal Navy’s new type 26 frigate for example will include only 20% innovation and 80% re-use of old parts. Indeed, many of the innovative elements will come now from abroad (e.g. it’s 127mm naval gun – development of the UK’s new naval gun was cancelled in the so-called “strategic” defence review of 2010).

France, one of the UK’s biggest competitors in this area, chooses not to buy off the shelf. It has its foot in two camps too: a governmental shareholding of EADS and in Dassault, its own manufacturer of military aircraft.

An interesting quirk too is that EADS also has a share of Dassault – the very company which recently won a massive deal to supply fighter jets to India. Unfortunately for EADS, the only other competitor in this competition was the Eurofighter Typhoon, manufactured jointly by EADS and BAE. Make of that what you will but there’s something strangely Gallic about the outcome…

A significant consequence of this misguided approach is now evident: economies of scale of the home producer are not possible. Without economies of scale, no product can be made at a price attractive enough to permit foreign sales volume. Equally, foreign governments will not purchase equipment if it is shown not to have been purchased first by those arbiters of quality the Royal Navy, British Army and Royal Air Force.

In choosing a path to bring costs down in the defence industry, the British government has failed to learn the lessons of the past. Practically all companies in the UK exposed to laissez faire policies have either shut down or been gobbled up by predatory overseas companies. Closures are swift to follow.  Some commentators say blithely that this is a consequence of inefficiency. Curiously these commentators go awol when the latest manufacturing balance of trade figures are released.

We may ask indeed, if UK industry is in the hands of overseas companies, and if we have a national debt apparently slated as being bigger than that of Greece, what does it mean to be British? When soldiers and sailors and airmen lay down their lives for their country, what now do they die for? To pay the dividends and debt bills of other countries companies and sovereign funds? 

Government is currently “minded to accept” the proposed merger while at the same time struggling to balance the books. Yet the government itself has largely caused the situation in which BAE now finds itself.

The last Labour government placed orders which it couldn’t afford and then successively reduced the size of these orders to such an extent that the unit costs of the products became unsustainable: an order for 21 Nimrod aircraft became 18, then 12, then just 9. An order for 12 Type 45 destroyers became 8 and then just 6.

The current government chooses to play political football rather than be truly visionary. In scrapping the Nimrod, the current government brought to an end all large aircraft manufacturing in the UK.

Today, one of the last great British engineering companies stands on the precipice as a result of lack of government vision. Come October 1oth, we will know whether the government backs or declines the deal. With thousands of jobs, strategic assets, an aviation heritage second to none and national control at stake, Great Britain is on the verge of sinking in a mire wrought by political fudge and a lack of visionary ambition.

When we ask BAE Systems what’s in a brand, the answer is everything.

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