Original URL: http://www.theregister.co.uk/2008/11/19/turner_parliamentary_evidence/

Ex-CEO says BAE's British future 'in doubt'

Also: Eurofighter development far from complete

By Lewis Page

Posted in Government, 19th November 2008 10:51 GMT

The just-retired chief executive of BAE Systems plc has once again suggested that the company will move to America if it doesn't get what it wants from the British Ministry of Defence. Mike Turner also admitted that the controversial Eurofighter superjet is far from fully developed, calling on the MoD to "finish the job" and sink extra billions into completing it.

At an evidence session held yesterday morning by Parliament's defence committee, Turner made several blunt remarks. Much of the discussion hinged on the Defence Industrial Strategy (DIS) laid out by the former military procurement minister, Lord Drayson, in 2005.

Almost since the DIS policy document was published, there has been a lot of doubt as to whether the government would or could stand by it. These doubts have been strengthened by Drayson's subsequent angry resignation from the MoD, and the lengthy delays in production of a promised DIS update - the so-called DIS 2.

James Arbuthnot MP, chairman of the committee, seeking to sum up Turner's - and his industry colleagues' - views, said: "The DIS is not funded?"

"Correct," replied Turner.

"The DIS is dead?" asked Arbuthnot later.

"On hold," said Turner. "I remember when it came out, we said [at a BAE board meeting] 'At last we have a future in the UK' ... now that is in doubt".

Turner is no longer CEO of BAE Systems, of course, having been replaced by Ian King this September. Nonetheless his remarks have significance.

In theory, BAE is not free to move its headquarters to America or place itself under a non-British CEO unless HM government approves. However, the so-called "golden share" held by the government might well turn out to be worthless in the event. A similar arrangement in the case of the airports firm, BAA, was overturned by the European courts - though in that case the national-security case was not so strong as it would be with BAE.

In general, though, the prevailing view is that if BAE wants to move to America it probably can. Indeed, it more or less already has. During Mr Turner's tenure as CEO the company let go thousands of UK employees, sold off its share of Airbus and bought its way into the US, to the point where it has substantially more American employees than it does Brits.

During the evidence session, Turner also lamented that Europe had failed to come together on armoured vehicles the way it did with the Eurofighter, so weakening the British armour industry. Current low-intensity wars have seen heavy purchasing of armoured and protected vehicles intended to safeguard Western troops from ambushes and mines, but little of that business has come to Britain.

"That would have been a great opportunity, but we didn't achieve it" said Turner.

Arbuthnot suggested that perhaps only Turner could have achieved it - alluding to the fact that BAE might have chosen to buy up European armoured-vehicle firms rather than ones in America as it actually did. BAE's US acquisitions have made a lot of money selling armour to the Pentagon, but the British tank industry is effectively moribund and that of Europe fragmented.

"We looked at buying in the EU," said Turner. "In the end, it wasn't in our economic interest to do so".

Turner, and his industry-body colleague Ian Godden of the Society of British Aerospace Companies, were also quizzed on their views regarding the long delayed DIS 2 plans - or even the possibility of a full strategic defence review (SDR) like that of 1998.

"A new SDR might deny [the world role seen for the UK in the 1998 document]," said Turner.

"We liked the DIS ... we don't want certainty today. We would get the wrong answer ... for a time we pushed for DIS 2. Now we don't think that's sensible ... we would lose too much", he added.

Godden said that "there is a balance between being in limbo [as we are now] ... and the wrong result. Industry does not wish to add to the pressures on the MoD at this moment ... we will wait."

Much of the discussion had centred on the fact that delays and uncertainty always tend to drive up the end cost to the taxpayer. This is a known truth with defence projects. Indeed the Defence Committee has previously suggested that if money can't be found to carry forward all existing projects as planned, it is better to cancel some and run the others properly - rather than keep running all of them badly, saving money in the short term but paying more in the end.

Turner was asked what he thought of the idea of cancellations as opposed to delays.

"We don't like it," he said. "We like the DIS".

The always knotty issue of arms exports also came up. Naturally the industry men were in favour of these, but considered that only government backing at the start could make them viable.

"It would be useful to have products," said Turner, bemoaning the fact that at present BAE factories have very little role in the British Army's FRES armour programme - and that there are no firm plans for a future generation of Royal Navy frigates. BAE owns the UK shipyard industry as well as the tank factories.

Turner also appeared to suggest that the incredibly expensive Eurofighter superjet - now reaching RAF service after more than twenty years in development at a projected acquisition cost of at least £20bn - was far from complete, and would be difficult to export in large numbers as it now stands.

This is because the Eurofighter, dubbed "Typhoon" by the RAF, was designed as a pure air-to-air combat plane. It has had some "austere" air-to-ground abilities bolted on lately. However, making it into a proper multi-role jet which would actually be saleable (to other people than the RAF and the Saudis) will require a lot more money to be spent - according to Turner.

"I appeal to the MoD to finish the job on Typhoon," he said, still speaking about export possibilities.

It would seem that reports pointing to a final UK Typhoon pricetag of £25bn+ weren't exaggerated. In the scenario called for by Turner, the RAF would mothball a lot of its current Batch 1 and 2 Typhoons, mainly operating the full-fat multi-role Batch 3s - the same type that BAE would be selling to overseas customers at competitive prices.

Meanwhile, each of the RAF's future, perhaps 140-strong operational Typhoon fleet would have cost the UK taxpayers better than £175m. ®