BAE case study- intro

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					Background BAE Systems is a systems company, innovating for a safer world. BAE Systems is a global company engaged in the development, delivery and support of advanced defense, security and aerospace systems in the air, on land and at sea. The company headquartered is in Farnborough, Hampshire, England, that has global interests, particularly in North America through its subsidiary BAE Systems Inc. BAE us the largest defense contractor in Europe and world’s second-largest. In 30 November 1999, the BAE Systems was formed by merger of two British companies, Marconi Electronic Systems (MES), the defense electronics and naval shipbuilding subsidiary of the General Electric Company (GEC), and aircraft, munitions and naval systems manufacturer British Aerospace (BAe). It employs 130,000 people, including Joint Ventures across 5 continents with more than 110 sites. It has annual sales of around 13 billion. BAE Systems designs, manufactures and supports military aircraft, surface ships, submarines, space systems, radar, avionics, communications, electronics, guided weapon systems and a range of other defense product. The BAE Systems sites in Warton and Salmesbury, Lancashire, are primarily involved in the defense aviation business, involved in the design and manufacture of the Typhoon combat aircraft, Hawk advanced jet trainer, Joint Strike Fighter and Nimrod MRA4 maritime reconnaissance aircraft. In addition Warton is involved in the maintenance, upgrade and support of various other military aircraft including the Tornado and Harrier. As a manufacturer of products each worth many mullions of pounds, the associated tools, machinery and equipment is also worth millions, and it is essential for BAE Systems to be able to keep track of these assets. BAE Systems carries out work for a number of key customers,

including the Ministry of Defense (MOD), Department of Defense (DoD), NETMA (Nato Eurofighter & Tornado Management Agency) and others. Products The company’s Typhoon, Tornado and Harrier fighter- bombers are all front line aircraft of the RAF. BAE is a major partner in the F-35 Lightning II programme. HERTI (High Endurance Rapid Technology Insertion), an Unmanned Aerial Vehicle (UAV) was declassified by The British Government in July 2006 which can navigate autonomously. BAE Systems’ interests in commercial aviation are vested in BAE Systems Regional Aircraft. This unit no longer produces aircraft, however it continues to lease and support its product, the BAe 146/Avro RJ family, BAe ATP, Jetstream and BAe 748. The British Army’s Challenger II, Warrior Tracked Armoured Vehicle, M777 howitzer, Panther Command and Liaison Vehicle and L85 Assault Rifle was manufactured by BAE Systems Land Systems. Areas of business Australia, Saudi Arabia, South Africa, Sweden, the UK and the US were defined by BAE Systems as “home markets”. In UK, BAE Systems is the predominant supplier to the Ministry of Defence. BAE was operating in “the only truly open defence market”, which meant that it was competing with US and European companies for British defence projects, while they were protected in their home markets. In United States, the attraction of MES to British Aerospace was largely its ownership of Tracor, a major American defence contractor. BAE now sells more to the US Department of Defense (DOD) than the UK MOD. The company has been allowed to buy important defence contractors in the US, however its status as a UK company requires that its US subsidiaries are governed by American executives under Special Security Arrangements.

BAE Systems Australia is the largest defence contractor in Australia, having more than doubled in size with the acquisition of Tenix Defence. The Al Yamamah agreements between the UK and Saudi Arabia require “the provision of a complete defence package for the Kingdom of Saudi Arabia”, BAE employs 4,600 people in the kingdom. In South Africa, BAE is the largest military vehicle manufacturer which is 75% owned by BAE and is currently taking part in the US MRAP programme. Beside share of Saab, BAE’s also interests in Sweden are a result of the purchases of Alvis Vickers and UDI, which owned Hangglunds and Bofors respectively. Organization Business of BAE Systems can divides into five groups, that is Electronics, Intelligence & Support, Land & Armaments, Programmes & Support, International Businesses, and HQ & Other Businesses. In Electronics, Intelligence & Support, BAE System Customer Solutions provides analytic services, system integration, information technology, radar and naval systems. In Land and Armaments, BAE Systems was formed in 2005 by the merger of the newly acquired UDI with BAE Systems Land Systems. The group expanded with the acquisition of Armor Holdings in 2007. BAE Systems Product Group manufactures security products such as body armour, forensic kits, handcuffs and holsters for law enforcement agencies, militaries and security professionals. In Programmes & Support, it includes BAE Systems Military Air

Solutions, the former Surface Fleet Solutions business now included in the BVT Surface Fleet joint venture, BAE Systems Submarine Solutions, and BAE Systems Insyte. Military Air Solutions is responsible for the design, development and production of BAE’s major military aircraft programmes. BAE Systems Submarine Solutions is the company’s submarine division.

Insyte is a major supplier of defence electronics, integrated command & control systems, radars, simulators, meteorological systems, data links and C4ISR battle management systems. After that it incorporates BAE Systems Underwater Systems which manufactures underwater warfare products such as torpedoes and minesweeping systems. In International Businesses, BAE Systems Australia provides aircraft support, training and simulation, communication and command systems and is the principal subcontractor to Boeing in the 737 Airborne Early Warning & Control programme. BAE Systems Customer Solutions & Support International is centredon provision of services to Saudi Arabia as part of the Al Yamamah project and subsequent Saudi Typhoon contract. In HQ & Other, BAE System Regional Aircraft leases aircraft and provides support, spares and training for its products, the Avro RJ/BAE 146 family, BAe ATP and Jetstream. Needs Customer requirements for accountability and correct management of this commodity are becoming ever more stringent, placing increased demands on the contractor to deploy totally effective asset management technology and processes. There is increased focus on the audit of contractors to ensure that adequate controls are in place. It is essential that full asset tracking is in place to satisfy such audits. Therefore, BAE Systems has been using Datastream 7i, an asset performance management system. This provides them with fully effective traceability of assets from demand through to disposal or return to the customer, as well as improved data integrity, risk mitigation and simplified generation of customer inventory reports. Datastream 7i has become an essential component of BAE Systems’ FOD prevention and asset management strategy over the past few years, helping them continue to strive towards best

practices and optimum flight safety. As one of the world’s largest aerospace and defense companies, safety and best practice are of paramount importance. Datastream 7i provides the company with the ability to track and manage all tooling and government-owned assets, as well as production maintenance, buildings and facilities and calibration. With the system also rolled out to their logistics suppliers and contractors, they are sure of a seamless asset tracking solution all day, every day. As a large, multi national company, BAE Systems found that the amount of information available on and continuously being added to the corporate intranet was becoming a burden. BAE Systems had discover over 80 per cent of networked employees were wasting an average of 30 minutes a day retrieving information, while 60 percent were spending an hour or more duplication the work of others. This is the kind of inefficiency that cannot be ignored. Therefore, BAE Systems Virtual University, wanted a solution to solve this problem which technology would enable them to build a self- sustaining culture of learning and continuous improvement right across the company through education, training and research. Autonomy which is innovative and demanding standard technology was chosen. This also enabled them to identify expertise, visualize and effectively manage these objectives across a community of 35,000 engineers consisting of highly skilled individuals and teams of people working world-wide. The main purpose is to avoid traditional technology approaches that are manually dependant, such as users describing their areas of interest using either a list of predefined keywords or through the filling out of forms, which forgets that experience and interests change with unpredictable frequency.

Happening - BAE Systems corruption, bribery, money laundering In year 1985, Defence Secretary Michael Heseltine signs the first phase of the Al Yamamah arms deal with the Saudi government. The deal covers the supply and support of Tornado and Hawk jets and a massive airbase construction programme, and is estimated to be worth £ 50bn. In 1988, a further formal understanding concerning Al Yammah is signed between the UK and Saudi Arabia. In 1991, Saudi Tornado jets fly alongside RAF Tornado bombers in the First Gulf War. In May 2004, the Guardian newspaper alleges that BAE Systems has won the deal with aid of a secret slush fund. It claims Ministry of Defence police are investigating payments totalling £ 60m made during the course of the Al Yamamah deal by BAE Systems. BAE Systems confirms it is being investigated by the Serious Fraud Office (SFO), but strenuously denies any wrongdoing at November of that year. In December 2005, BAE Systems confirms it has agreed to supply Saudi Arabia with 72 Eurofighter jets and a talk to finalize the deal was continuing throughout 2006. At 1 December 2006, French planemaker Dassault confirms it is in talks to sell the Rafale, a key rival to the Eurofighter, to Saudi Arabia. BAE Systems admits that talks with Saudi Arabia over the Eurofighter deal have slowed down. After that, The Attorney General, Lord Goldsmith, announces that the SFO is dropping its investigation at 14 December 2006. At earlier of 2007, Saudi Arabia’s Defence Minister Crown Prince Sultan bin Abdul Aziz Al Saud says the country is looking forward to gaining delivery of the 72 Eurofighter jets “very soon”. At 17 January 2007, OECD sys there are “serious concerns” about the British probe being

dropped. At 29 April 2007, MPs warn that Britain’s reputation for fighting corruption may have suffered “severe damage” because of the dropping of the fraud inquiry. At 7 June 2007, ex- Saudi ambassador to the US, Prince Bandar bin Sultan, who negotiated a £ 40bn arms deal between Britain and Saudi Arabia and received secret payments for over a decade. At the next days, the attorney general, Lord Goldsmith, denies claims in The Guardian newspaper that he concealed from an international anti-bribery watchdog the existence of secret payments to a Saudi prince. At 11 June 2007, Lord Woolf, the former Lord Chief Justice of England and Wales, will head an independent review of business practices at BAE. At 26 June 2007, BAE says it is the subject of an anti-corruption probe by the US Department of Justice that will looks at its compliance with anti-corruption laws including its business “concerning the Kingdom of Saudi Arabia”. At 17 September Saudi Arabia agrees with the British government to buy 72 Eurofighter Typhoon warplanes at a cost of £ 4.3bn as part of a contract that defence sources said could grow to £ 20bn or more. The British High Court rules that the stopping of the SFO investigation was unlawful at 10 April 2008. Financial Information The table below show that the financial information of the BAE System from year 1999 till 2008. Year Turnover (£million) 31-12-2008 18, 543 Profit/(loss) before tax (£ m) 2.371 Net profit (£ m) 1,768 Earnings share (p) 49.6 per

31-12-2007 31-12-2006 31-12-2005(a) 31-12-2005 31-12-2004 31-12-2003(b) 31-12-2002(b) 31-12-2001(b) 31-12-2000(b) 31-12-1999(b)

15,710 13,765 12,581 15,411 13,222 15,572 12,145 13,138 12,185 8,929

1,477 1,207 909 845 730 233 (616) 70 179 459

1,177 1,054 762 555 3 8 (686)c (128) (19) 328

26.0 19.9 13.9 22.5 17.4 16.6 17.3 23.4 18.8 29.4

(a) : Restated to exclude Airbus Contributions. Included for comparison (b) : Data prepared using UK GAAP guidelines. Recent data prepared using International Financial Reporting Standards. (c) : Reflects £ 750 million charges for problems with Nimrod MRA4 (£ 500 million) and Astute class submarine (£ million) programmes. 250 As of 28 March 2008, BAE listed the following as “significant” shareholders as below: AXA (10.32%), Capital Group Companies, Inc (6.99%), Franklin Resources, Inc and affiliates (4.92%), Legal & General Group pic (4.07%) and Barclays plc (3.98%).

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