David Leigh and Rob Evans
June 7, 2007
The biggest arms firm in Britain by a long way, the company has bought up much of the rest of the UK industry. In 1960 the British Aircraft Corporation (BAC) was first established through an amalgamation of four plane makers.
BAC made huge sales to Saudi Arabia. In 1977 the Labour government nationalised it as British Aerospace. But soon after Margaret Thatcher came to power in 1979 she privatised it. British Aerospace was transformed into a public company in 1981. Within four years the government had sold it off completely.
British Aerospace steadily bought other companies. In 1987 it purchased Royal Ordnance, the government's own armaments division manufacturing guns, shells and tanks. It took over Marconi, the military division of GEC, in a £7bn deal in 1999.
This included the nuclear submarine yards at Barrow-in-Furness, and two naval shipyards on the Clyde. The new company dropped both the "British" and the "Aerospace" from its name and became BAE. It went on to buy Britain's Alvis Vickers tank and armoured car manufacturer in 2004. BAE then began expansion into the US.
Towering over all its UK competitors, BAE receives annual contracts worth more than £1bn from the Ministry of Defence. Its dominance was further assured in 2005 when ministers agreed to the so-called defence industrial strategy. This effectively guarantees huge continuing government contracts.
BAE employs more than 90,000 people throughout the world, from its headquarters in Farnborough, Hampshire. It has four major aircraft factories in Britain - Warton and Samlesbury in Lancashire, Brough in Yorkshire and Woodford in Cheshire.
It has three main shipyards - Govan and Scotstoun in Glasgow, and Barrow in Cumbria. Tank and armoured car plants are in Leeds, Newcastle and Telford, a radar factory at Cowes, Isle of Wight, a torpedo plant near Portsmouth, and munitions plants at Caerwent and Bishopton.
BAE sells hundreds of different types of military equipment.
BAE is Britain's only manufacturer of warplanes. These include the Hawk light bomber/trainer and the Nimrod surveillance aircraft.
It makes the Eurofighter (also called the Typhoon) with three other European companies, at Samlesbury and Warton, outside Preston. This replaces the Tornado, which was sold by the company for more than two decades. BAE also has a significant stake in the programme led by US firm Lockheed Martin to build 3,000 Joint Strike Fighters for the US and UK. With the Swedish firm Saab, it once owned half of the company that sells Gripen jets around the world.
BAE is the major naval manufacturer in the UK, boasting that it is
It is also one of Britain's main manufacturers of surface ships. It is the prime contractor in the £3bn contract to build two new aircraft carriers, and produces the Type 45 destroyer, support ships and weaponry including naval guns, radar, sensors, Spearfish and Stingray torpedoes, mines, and unmanned submarines.
BAE manufactures a range of tanks and armoured cars (including the Challenger tank, the Warrior and the Scorpion), guns, howitzers, mortars and ammunition. BAE owns a third of MBDA, the world's largest missile manufacturer whose range includes the Exocet.
BAE is also involved in selling and leasing civil commercial aircraft and components to airline companies around the world. These include the BAe 146 and Jetstream. Most notably, it owned 20% of the consortium making the Airbus passenger jets from 1978 until it sold its stake for £1.9bn in 2006, largely abandoning the civil sector to concentrate on arms.
The British roots of BAE could soon mean very little. BAE executives have even hinted that the company's headquarters could be moved to America, complete with a US chief executive.
BAE has already become the seventh-largest arms company in the US and the only foreign company in the top 10 arms corporations in the US. Around 40% of its sales (£5bn in 2006) are generated in America - it has 40,000 employees scattered around 36 states.
The expansion began in 1999. It was motivated by a simple reality - governments in Britain and Europe were spending less on armaments, while the US budget remains huge and growing (over 45% of all the world's military expenditure).
Since 1999, BAE has bought all or part of 15 American companies in deals worth $6bn (£3bn). In May 2007 it struck a £2bn deal to take over Armor Holdings, the US company that makes bulletproof vests and armour for the Humvee military vehicle.
The £2bn agreement in 2005 to buy United Defense Industries, the manufacturer of Bradley tanks used in Iraq, is BAE's other recent high-profile acquisition. The US end of the business has its headquarters in Rockville, Maryland
The company has even sought, so far unsuccessfully, to merge with a US arms company. Ministers have signalled that they are not against BAE shifting to America, provided the UK government can still buy enough arms to equip its own forces. BAE is listed on the London stock exchange, although almost half its shares are owned by Americans.
The bribery allegations mounting up against BAE are a potentially thorny problem for the company. The US government has long been aware of the long list of corruption accusations against BAE around the world. US officials complained to the British government as far back as 2002 about the "consistent pattern of alleged behaviour, over time", adding that "this volume of reported allegations about one company would have triggered a [US criminal] investigation long ago".
Officials at the US Department of Justice are looking in 2007 at whether they should launch an investigation into BAE. Prosecutors could go after BAE under the Foreign Corrupt Practices Act if they could establish that bribes were paid through US banks or US firms.
The US has a vigorous record of prosecuting companies. Penalties can be harsh - executives can be jailed for five years, while companies can be fined up to $2m and barred from US government contracts.
One factor that would count against BAE in any prosecution are the specific promises executives made to the US government in 2000 when they bought part of Lockheed Martin. Dick Evans, BAE's former chairman, told parliament in 2004 that the company had made "absolutely definitive and binding commitments" not to pay bribes [document].
BAE's other two main markets are Britain (38% of sales) and Saudi Arabia (12%).
Although the US is Saudi Arabia's biggest arms supplier, BAE has had a large chunk of Saudi spending thanks to a series of aircraft deals that began in 1967. UK deals do not have to get the congressional approval that has bedevilled American arms sales because of the vociferous Israel lobby there.
BAE has kept up to 5,000 expatriate technicians and pilots in Saudi Arabia over the last two decades, in heavily guarded compounds at Riyadh, Dharan, Khamis Mushayt and Tabuk. An entire MoD department in London, with up to 700 staff, has administered the government-to-government programmes. With annual revenue of up to £2bn, the Saudi programmes have provided BAE with 12-25% of its profits and kept the company afloat.
David Leigh and Rob Evans
Friday June 8, 2007
Mike Turner Born in 1948, he joined one of BAE's predecessor companies in 1966. He became chief operating officer of BAE in 1999 after the Marconi merger, and in 2002 was made chief executive. Routinely described as an abrasive alpha male; describes himself as a "rough guy from the north". The Serious Fraud Office say they regarded him as a corruption suspect in its investigation of BAE bribery allegations. Hobbies include sailing his 52ft yacht.
Dick Evans Chairman until 2004, after which he remained on the payroll as "adviser".
Dick Oliver Became chairman in 2004 after 31 years at BP. He is frequently reported to have clashed with Mike Turner, allegedly because he has a more diplomatic style than Turner and also because he was encroaching on his responsibilities.
Stephen Mogford Joined British Aerospace as an engineer straight from university in 1977. In the 1990s he was in charge of running the al-Yamamah programmes. In 2004 he was accused of being the man behind BAE's "slush fund" of corrupt payments to Saudi officials, authorising them with the words "ok to pay".
He was interviewed by the Serious Fraud Office regarding the Saudi bribery allegations. He was on the BAE board for six years until he was demoted in late 2006 in a reshuffle. He left BAE in May 2007 to run the Italian-owned arms company Selex Sensors.
Charles Masefield Vice-chair of the board.
Mike Rouse Director of marketing since 2002. He was one of the four BAE executives named as corruption suspects by the SFO in its BAE bribery investigations. A long-serving executive who has for many years been involved in selling arms to Saudi Arabia, most recently the third tranche of the al-Yamamah deal. Whitehall documents show that he lobbied on behalf of BAE to water down official rules aimed at stamping out corruption.
Julia Aldridge Deputy head of the HQ Marketing Services Unit (to her former boss Hugh Dickinson), she was also named as a corruption suspect by the SFO. Alleged to have administered the operation to move to a secret vault in Geneva files containing details of covert payments to foreign politicians. She often travels to Geneva to consult the files.
Peter Wilson In charge of the al-Yamamah programme in Saudi Arabia in the early 2000s. Arrested and interviewed by the SFO in November 2005 during its inquiries into the alleged payments of bribes to Saudis. Released without charge.
Damien Turner Middle East managing director, formerly director of personnel and resources for the al-Yamamah Saudi programme. Questioned by the SFO over BAE "slush fund" allegations.
Tony Winship Former RAF wing commander, he flew in Saudi Arabia as a seconded Lightning pilot for the Airwork company, and then became a BAE "customer relations" executive. Questioned by the SFO about his role in organising "slush fund" benefits for the head of the Saudi air force, Prince Turki bin Nasser.