Coffee House

Whitehall’s mistake over BAE and EADS

11 October 2012

There have been some sharp responses to the demise of the proposed BAE EADS merger. My personal favourite is John Redwood’s pithy:

‘Several of you wrote in expressing dismay at the proposed tie up between BAE and the Franco German civil aviation company. I did not write about it, as I assumed it would be an impossible deal to execute. The documentation was very voluminous, so I did not bother to read it. The politics were always likely to bring it down, so there was no need to analyse the business, economic and strategic issues.’

There seems to be little surprise that the deal collapsed. Most commentators welcome the failure, despite the commercial sense of the proposal. Douglas Carswell, for instance, hopes that it might lead to more competition within defence procurement. And the FT says (£) that the ‘correct decision’ was to put the doomed negotiators ‘out of their misery’.


The apparently foreseeable problems are political, with Angela Merkel copping the ‘blame’ in the British press (£) for refusing to accept BAE’s ‘red lines’ over the limitation of ‘quantum control’ of EADS’ government shareholders, which would have been vital in maintaining BAE’s lucrative relationship with the US government.

Plenty of talking heads suggest that the British government knew of the German position months ago. If accurate, those reports prompt the question: why was Whitehall so hot for such an unlikely deal? It is understood that, in addition to the discussions between the companies, the British government was more actively involved in brokering an agreement with the French and Germans, which is apparently a sign of its desperation to protect skilled manufacturing jobs at BAE after the firm failed to win multibillion dollar contracts in the east earlier this year.

But sources in Downing Street suggest that Whitehall’s support for the deal was about opportunity rather than necessity – BAE/EADS would be a world leader across the civil and military aviation spheres, a rival to Boeing. The government will now need to drive home the point that BAE is in good health, because the media’s attention is turning to possible job losses at the stand alone firm.


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  • Powder

    BAES is being dragged down by Typhoon. Hugely expensive, but no-one is buying. It started out as an excellent plane called the BAE EAP which could have been turned into a formidable military jet by around 1992. But some bright sparks thought it would be best to hand it over to a European consortium which spent nearly 20 years turning it into a huge white elephant at an unbelievably massive cost. And now, apparently, the answer to the problem caused by this project is to sell BAES off into an even bigger European consortium.

    Once, in living memory, Britain had the best aerospace, space and missile programmes in the world. Once.

    Oh, and the other thing that did for BAES was the staggeringly stupid idea of divesting itself of its entire stake in Airbus. That will go down as one of the dumbest business decisions in history. It will be taught in business schools for years.

  • Anna

    I don’t pretend to be an expert but I find the various positions interesting. Despite EU competition law, France ferociously protects its own big companies. Clearly Mrs Merkel feels she was protecting the German national interest. Our lot? Sell anything down the river if the cronies can make a killing.

    • dalai guevara

      It’s protectionism vs. the free market

      It baffles me that the same people who argue that the market should
      resolve everything are the people who are stunned like deer in
      headlights when the market resolves everything.

      • TomTom

        Defence is not subject to Single Market rules

    • David Lindsay

      “I don’t pretend to be an expert but I find the various positions
      interesting. Despite EU competition law, France ferociously protects its
      own big companies.”

      Damn right.

      We should try it sometime. Instead, we have the French State, as such, owning part of our electricity supply. I don’t blame them. We should never have stopped the British State from owning the whole of our electricity supply. Then the situation could never have arisen.

    • HooksLaw

      France is going to have trouble protecting its car industry. Peugeot needs to lose 2 factories and thousands of jobs and if it does not then it and the French economy will bleed to death.

      • Mirtha Tidville

        thats because they make cars that dont work very well…almost like BL in the 70`s

        • alexsandr

          really. I have used Pugs since about 1990 and found them very good.

  • David Lindsay

    If the Americans thought that BAE was anything other than an American company, then not only would it have no privileged access to the American defence market, but it would have no access whatever to the American defence market. The existence of that access manifests our status as a vassal state.

    The British public used to own BAE, indeed it was created by the action of Her Majesty’s Government. Yet the only question around it now is whether it should be owned outright by the French Republic and the Federal Republic of Germany, or treated for all practical purposes as the property of the United States of America.

    Why can it not be both? Some way may yet be found. But in any event, what a perfect illustration of the condition to which this United Kingdom has descended. Instead, BAE must be brought back into public ownership, as the monopoly supplier to our own Armed Forces and to no one else.

    Meanwhile, provided that there is the necessary government action to ensure diversification and thus to preserve skills while rebuilding the manufacturing base, the sale of arms abroad must be banned, perhaps progressively, but altogether in the end.

    Ed Miliband and Jon Cruddas, over to you.

    Of course, if the 45 Conservatives who have rightly objected to the merger between BAE and EADS under the domination of the French and German Governments really were Tories, then they themselves would be advocating this. Just as they would be advocating similar measures against the takeover of our railways and of our utilities by foreign states as such. And just as they would be opposing the use of British military resources of any kind in any cause other than strictly British national interests.

    One Nation politics, with an equal emphasis on the One and on the Nation. The 45 Rebellion is led by Ben Wallace. He is the Parliamentary Private Secretary to Ken Clarke. But, as Clarke’s very long Ministerial record makes abundantly clear, so much for that. He is in the same category as the man who privatised more of the British economy than any
    other Minister in history, Michael Heseltine.

    Again, Ed Miliband and Jon Cruddas, over to you.

    • HooksLaw

      You are trying to say that the Americans do not realise that BAE is British?

      BAE came from BAe and was a construction of mergers of many UK aerospace and related companies. It was never a nationalised company it was always a publicly quoted company owned by its shareholders, some of whom will be British.
      The UK government has always made clear its conditions before permitting a merger.

      It has taken over a number of US companies. its one of the 6 major suppliers to the US military. BAE in the USA is managed by Americans, its not impossible to think that BAE Systems Inc. might merge with a US company.

      As for the future, the inevitable cuts in the US defence budget will affect its profits, but the big effect will be on its American factories.

      • David Lindsay

        They don’t regard British as a nationality in its own right. If they did, then they would be as wary of BAE as they are EADS. But we are just a colony. If you doubt it, then look at the access that the Pentagon grants to BAE. They would never grant that to a company which they really believed was based in another sovereign state.

        • TomTom

          They would because British Defence Contractors have traditionally had a Managing Trust for their US subs run by Americans to insulate the operations. It is essentially a financial interest because the equipment made in the US is for US forces with firms like Tracor and Lockheed Martin

          • David Lindsay

            But being allowed to do that at all illustrates my point. They would never let anyone do that who wasn’t ultimately under their thumb. And why should they?

            • TomTom

              US Citizens are exactly that – so a British Company owns a US business run by US managers – even BP does that… does Barcap btw.

      • TomTom

        British Aerospace was created by the Labour Government in 1975 when it NATIONALISED aircraft building as British Aerospace and shipbuilding in British Shipbuilders. Doesn’t your GCSE textbook have a cartoon to illustrate recent British history ?

    • TomTom

      BAe is a US Defence Contractor because it bought US-based businesses not because it sells Astute submarines to the US Navy

      • David Lindsay

        And it was allowed to, with the businesses bought then allowed to retain their Pentagon status. Illustrating, even proving, my point.

        • TomTom

          Not really. If you know anything about Pentagon Procurement and Voting Trusts you will know that Peter Levene operated businesses in the USA through USH long before BAe and used a Voting Trust. BAe is not the first British Corporation to supply US Defence Systems – Peter Levene supplied SDI parts under Ronald Reagan

    • Powder

      Miliband and Cruddas? Members of the party which sold off most of DERA dirt cheap, basically handing over billions worth of state defence, intelligence and security technology to the private sector for pocket change. Mili Minor was senior special adviser to Brown at the Treasury at the time, which tells you he was directly involved in that sell off.

      • Powder

        Oh, and your beloved Labour also stood by and watched Westland sold off to the Italians.

  • The Oncoming Storm

    BAe is in a mess of its own making, previous management have got every major decision in its 35 history wrong such as giving up on commercial aircraft and then panic selling their Airbus shares at the bottom of the market when they took fright at the A380’s development costs. They fought they could get rich off the War on Terror but now that’s winding down and the chickens are coming home to roost

    • Dimoto

      Very true.
      And the idiot shareholders STILL won’t get rid of the board !

  • TomTom

    The story seems to be Enders wanted BAe in to counter French moves to control EADS but Cameron was leaning towards an Anglo-French deal as with everything else that would leave the Germans cut out of Defence contracting. Frankly if BAe was stupid enough to sell out of Airbus to focus on Defence it should go on its hands and knees to reverse such a strategic folly and become a minor sub of EADS. The French would happily take over the British Defence Industry – why doesn’t Cameron offer them Rolls-Royce too and make William The Conqueror proud. If Merkel cancelled this disaster God bless her and curse Morgan Stanley and Jeremy Heywood

    • dalai guevara

      Very good! Now let’s just hope no Russian comes along to do what you expect next…

      • HooksLaw

        Ever heard of NATO?

        • dalai guevara

          The Germans have had enough and might sell? 😉

        • TomTom

          Yes, and tour opoint is that France was not a full member but maintains its own HQ at Mons separate from NATO and has NO common defence platforms with NATO equipment

    • HJ777

      Why would this “make William the Conqueror proud”?

      William was the Duke of Normandy (which was effectively separate from France) – he wasn’t French, and the Normans were frequently in conflict with the French crown.

      William actually had a better inherited claim to the throne of England than did Harold (who had no inherited claim).

  • DavidDP

    Taking bets on silence from the same people when the Americans come to buy the firm?

    • prince hairy

      Oh no, not after Aston Martin and Jaguar and all the rest. The Americans won’t make another such mistake.

      No, they’ll just leave them be, and let some other government subsidize them.

      • Powder

        Aston and Jaguar didn’t have massive US DoD order books.

        • prince hairy

          Those order books can be filled by US firms, or by BAE as subsidized by the British government. The Aston-Martin/Jaguar/LandRover option of being bought up by foreigners, while giving up government subsidy but remaining under full socialist government control, is passe. The Americans won’t fall for that trick again.

          • Powder

            Those order books comprise signed contracts worth billions. It’s what makes BAES the second biggest defence contractor in the world (and the biggest arms contractor). Unfortunately the ridiculous Airbus divestment leaves it 95% reliant on military spending whereas its major competitors average about 75% military, 25% non-military. Boeing is best at 50:50.

            • prince hairy

              Actually, Boeing is 2/3 non-military.

              But yes, that’s the reason BAE is so vulnerable. Their military “signed contracts” can be vaporized in an instant, and the company broken up and then liquidated, as it only exists as a result of government subsidy, like Jaguar, Land Rover and all the rest at various points.

              Your Airbus diversion is mistaken. You really do need to pull up the Jag, Aston and Rover models, if you want to understand what’s going on here with BAE.

    • David Lindsay

      But we are them and they are us, don’t you know?

  • james102

    John Redwood seems to be suggesting he would not appoint the
    people involved in this to run a Whelk Stall.

  • HooksLaw

    Two companies look at a merger. It doesn’t workout and they call it off. Hardly earth breaking.
    They are not in competition anyway. Its funny the way the BBC etc say it is a merger of BAE’s fighter plane building abilities and EADS commercial interests. But in fact Typhoon is a joint project with a confection called Eurofighter, as is Airbus where BAE make the wings.

    They already work together in one way or another.

    • TomTom

      Eurofighter does not include France which does not fly them

    • HJ777

      BAE does NOT make the wings for Airbus.

      You are out of date. The wing-making operation was integrated into Airbus over a decade ago in return for a 20% share of Airbus (which BAE has subsequently sold).

  • prince hairy

    If the Americans say yes, it’s yes. If they say no, it’s no. Same as it ever was.

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