BAE Systems will eliminate almost 2,000 jobs over three years as it struggles to secure new orders for the Eurofighter Typhoon warplane and slims down its naval ships and cyber-security businesses.
At least 10% of posts at London-based BAE’s military-aircraft unit will go, mostly in northwest England, together with hundreds of positions at the maritime division and up to 150 at the cyber arm, the company said yesterday.
While Europe’s biggest defence contractor last month won an outline order for 24 Eurofighter jets from Qatar worth as much as £8.6bn ($11bn), that deal may take months or years to seal. At the same time, a long-awaited follow-on contract from Saudi Arabia has so far failed to materialise.
BAE needs to align its workforce “more closely with near-term demand,” chief executive officer Charles Woodburn said in the release, adding: “Those actions are necessary and the right thing to do for our company, but unfortunately include proposed redundancies at a number of operations.”
As part of the adjustment, output of the Eurofighter will fall, BAE said, without specifying the revised build rate. Qatar’s outline deal for six Hawk jet trainers, which accompanied the Typhoon agreement, will be included in future planning, extending production of that model by a further 12 months at a reduced level.
BAE said in August it was reviewing the Typhoon programme and that even if a new order was won it would take at least 24 months to boost production. Posts linked to the support of Panavia Tornado ground-attack aircraft, due to be retired in 2019, will also go, so that in total some 1,400 jobs will be lost at a warplanes business which employs 12,500 people. Growth prospects are focused on a ramp up in production of the Lockheed Martin Corp F-35, for which BAE makes the rear fuselage and tail.
Where the 1,915 job cuts will fall: Warton and Samlesbury (Eurofighter) 750, Brough (Hawk) 400, RAF Marham and Leeming (Tornado) 245, Portsmouth and Solent (naval) 340, London, Guildford (cyber) 150, other 30.
Shares of BAE fell as much as 1.4% before trading 0.4% lower at 616 pence as of 11:50am in London. The stock has gained 4.2% this year, valuing the company at £20bn.
BAE said it continues to anticipate additional Eurofighter and Hawk orders, and that the Qatar deal should sustain Typhoon production “well into the next decade.” The preliminary order, announced September 17, came as a surprise, especially since Qatar had already agreed to buy 24 Rafale jets from Dassault Aviation and as many as 36 Boeing Co F-15s.
UBS analyst Celine Fornaro has said it’s not clear what impact the deal might have on the anticipated Eurofighter contract from Saudi Arabia, already the model’s biggest export customer, which is seeking to isolate its Gulf neighbour over ties to Iran. BAE didn’t mention Saudi order prospects in its statement. BAE reiterated that full-year earnings per share are likely to be 5 to 10% higher than 2016’s 40.3 pence. Given the restructuring moves, that suggests “some out-performance exists somewhere,” Jefferies analyst Sandy Morris wrote in a note.
In addition to BAE, the Eurofighter consortium includes Rome-based Leonardo, and the German and Spanish divisions of Toulouse, France-based Airbus. While the plane was built to maintain Europe’s ability to produce an air-superiority warplane independent of the US, export potential has always been limited to the very richest nations.
The jet sells for about £90mn, though through-life servicing and other add-ons can quadruple that value.
Assembly lines in Germany and Spain are already scheduled to close at the end of next year, while Italian production has been buoyed by a 28-plane deal from Kuwait agreed in 2016.
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