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BAE Systems/EADS potential merger

This is a discussion on BAE Systems/EADS potential merger within the Geo-strategic Issues forum, part of the Global Defense & Military category; http://www.baesystems.com/article/BA...s-Announcement BAE Systems plc (BAE Systems) and EADS N.V. (EADS) have today made a statement to the London Stock Exchange ...


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Old September 13th, 2012   #1
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BAE Systems/EADS potential merger

http://www.baesystems.com/article/BA...s-Announcement

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BAE Systems plc (BAE Systems) and EADS N.V. (EADS) have today made a statement to the London Stock Exchange about a possible business combination between BAE Systems and EADS.

BAE Systems and EADS have a long history of collaboration, and are currently partners in a number of important projects, including the Eurofighter and MBDA joint ventures. The two companies confirm that they are now in discussions about a possible combination of the businesses. The potential combination would create a world leading international aerospace, defence and security group with substantial centres of manufacturing and technology excellence in the UK, USA, France, Germany and Spain as well as in Australia, India and Saudi Arabia.

BAE Systems and EADS believe that the potential combination of the two businesses offers significant benefits for all stakeholders, over and above their individual business strategies, which both businesses continue to execute strongly. In particular, they believe that the combination of the two complementary businesses offers the opportunity of greater innovation, long term financial stability, and an extended market presence, which will enable them to compete even more effectively on the world stage.

Any agreement on the terms of a potential combination will require approval by the Boards of both BAE Systems and EADS, and would be subject to, amongst other things, a number of governmental, regulatory and shareholder approvals. There is no certainty at this stage that the discussions will ultimately lead to a transaction.

BAE Systems is a strong, well‐run company, successfully implementing our strategy. During the process of the discussions with EADS, BAE Systems will continue to focus in meeting all of their current commitments.
Sure you've all probably heard about this, but there wasn't a thread about it so I thought why not.

Just watched a segment about it on BBC Points West, and it mentions an interesting point. Because BAE makes the RN SSNs and SSBNS, it has to - by law - have a British CEO.

Then if this deal goes ahead, the CEO of EADS is French and the COO is German. So there is a potential (almost a certainty given the 60/40 split between EADS/BAE) that the British boss of BAE may have a bigger boss of a different nationality. So it's a bit tricky.

Plenty of people are equating this to British jobs being lost to the mainland, which - from what i've been hearing/reading - isn't a concern being published at the moment.

I'm fairly sure that BAE will be the largest shareholder when you sort out the companies that make up EADS, based on Wiki figures for % values (from Sept 2011) and assuming the ratio of ownership of EADS doesn't change, it will be the following

BAE Systems - 40% (UK)
SOGEADE - 13.42% (France)
Daimler AG - 13.42% (Germany)
SEPI - 3.2% (Spain)
"Free float shares" - 29.6% (N/A) - are these shares owned by private investors? Don't know much about this stuff.

Lot of assuming there so it's by no means correct, but it's something to consider anyway.

EDIT: Good article from the BBC

http://www.bbc.co.uk/news/business-19585064

Quote:
The fact there are relatively few overlaps between the two companies should make a merger palatable for voters, and thus to politicians scrutinising the implications.

Industry analysts say rather than posing a major threat to European jobs and investment, a merger would have the potential to safeguard many jobs.

At a time when the defence industry is coming under increasing pressure, as ever more countries cut their defence budgets, the boom in commercial aviation enjoyed by EADS's dominant Airbus division could help balance the business.

As such, a combined EADS-BAE would tower over the competition as the world's largest aerospace and defence company, carefully balanced with one leg in each cyclical sector.
But then there's the whole issue about the US market, personally I highly doubt that BAE Systems will be included in many extremely high tech (super secret) US projects because of French, German and Spanish links. Too many people to bring into the party to keep it 'secret'.

Quote:
There is, of course, the risk that BAE's ability to continue exploiting the "special relationship" could be hampered by a merger with EADS, Dr Ashbourne-Walmsley adds.

"The Americans greatly prefer to deal with other countries on a bilateral basis," she says. "The US State Department in particular finds it difficult to deal with multilateral entities."

The same is true for BAE's other major customer, Saudi Arabia: "The Saudis also value the close government-to-government relationship with the UK," she says.

Sensitivities about sharing military and technology secrets have a tendency to get in the way of multilateral defence deals, turning them into political battles between diverging national interests.
Biiiiig blob of text, but didn't want to get pulled up for "post whoring" by splitting it up.

It's a tricky issue, makes commercial sense but has serious strategical implications. Could EASILY scare the US into any sort of dealings with BAE in the near future. I for one don't see it going ahead, the US and Saudi Arabia are very keen in maintaining links with the UK, and ONLY the UK. I believe they both have the ability to prevent the merger from going ahead.

Last edited by RobWilliams; September 13th, 2012 at 05:26 PM.
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Old September 14th, 2012   #2
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EADS and BAE in defence tie-up talks - FT.com

By the looks of it, both company's will keep their individual status, but it has to be approved in the USA, which i cant see for the life of me why they would allow it? i mean if they went ahead and approved it then it would put american jobs at risk due to the increased competition.
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Old September 14th, 2012   #3
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But then there's the whole issue about the US market, personally I highly doubt that BAE Systems will be included in many extremely high tech (super secret) US projects because of French, German and Spanish links. Too many people to bring into the party to keep it 'secret'.
Here's a article that shows some of the restrictions that BAE / EADs merger could face in the USA;
BAE-EADS merger could face US regulatory hurdles

As the article explains BAE has benefited well from the special relationship between the UK/USA. I cant see EADs getting the same access as BAE. Also BAE does have access to very sensitive equipment that european firms dont have.
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Old September 14th, 2012   #4
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Here's a article that shows some of the restrictions that BAE / EADs merger could face in the USA;
BAE-EADS merger could face US regulatory hurdles

As the article explains BAE has benefited well from the special relationship between the UK/USA. I cant see EADs getting the same access as BAE. Also BAE does have access to very sensitive equipment that european firms dont have.
Nice find on the article, well i know it won't be impossible, export laws will stop a lot of information sharing, the company i work for is a american company and we deal with a lot the V22 & F-35 work there has to be controls in place such as key cards/pass codes, and all drawings and equipment is protected so it cant be printed or sent to an over seas site, just to get the work we had to invest millions in upgrading the whole system to a point where the Americans were happy that it was secure. no reason that the same cant be applied in this situation?

This would stop the splitting on the american arm of the business or as the article stated it could be the easiest way of doing it.

Just a thought i'm not even sure if it is possible with such a large company and i am only speculating
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Old September 14th, 2012   #5
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Originally Posted by Cadredave View Post
Here's a article that shows some of the restrictions that BAE / EADs merger could face in the USA;
BAE-EADS merger could face US regulatory hurdles

As the article explains BAE has benefited well from the special relationship between the UK/USA. I cant see EADs getting the same access as BAE. Also BAE does have access to very sensitive equipment that european firms dont have.
This is exactly why I believe the US will shut this down to prevent any unwanted European involvement.

I only see 2 outcomes

1 - The US lets this thing go ahead, and as such BAE is shoehorned out of plenty potentially lucrative deals with the US and loses a fair chunk of their income.

2 - The US slams the door on the whole idea

It's only REALLY going ahead because EADS wants an "in" in the US civilian aerospace market which won't go anywhere anyway. With a company like Boeing right on your doorstep are you going to outsource to Europe? The media would LOVE that idea (!).
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Old September 14th, 2012   #6
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This is exactly why I believe the US will shut this down to prevent any unwanted European involvement.
Im not an expert on the business side of defence but IMHO the US wont so much as shut it down but place so many restrictions on BAE/EADs involvement in the USA that they only get minor work share from major projects or BAE is forced to separate the US arm from the rest.

Quote:
1 - The US lets this thing go ahead, and as such BAE is shoehorned out of plenty potentially lucrative deals with the US and loses a fair chunk of their income.

2 - The US slams the door on the whole idea

It's only REALLY going ahead because EADS wants an "in" in the US civilian aerospace market which won't go anywhere anyway. With a company like Boeing right on your doorstep are you going to outsource to Europe? The media would LOVE that idea (!).
From recent Defence projects you can see just how ruff the US can play when it comes to the Military side of business the Air Tanker war being the most recent, EADs got a toe in the door reference the Lakota Helo, and to me the Military procument is the golden goose they are pretty much level with Boeing on the civilian aerospace side but are at a major disadvantage when trying to win Major Military contracts.

There are many more people on here who apply there trade on here for a day job, im just at the end of that food chain when I get the products in my hand for training or Ops.

CD
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Old September 14th, 2012   #7
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Im not an expert on the business side of defence but IMHO the US wont so much as shut it down but place so many restrictions on BAE/EADs involvement in the USA that they only get minor work share from major projects or BAE is forced to separate the US arm from the rest.
From what i've been reading, the merger needs the approval of the United States (and other parties) in order to be able to go ahead so the ability is there.

I can really see the restrictions going ahead, but actually in retrospect it won't be too bad considering the vast majority (if not all) of BAE Systems work for the US is built in the US anyway so I highly suspect one basic restriction would be all work on US soil and other security measures yadda-yadda.

As to splitting it into Europe and US wings, if it did happen then EADS wouldn't be too happy about it, after all the US market is what they're going for.

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Originally Posted by Cadredave View Post

From recent Defence projects you can see just how ruff the US can play when it comes to the Military side of business the Air Tanker war being the most recent, EADs got a toe in the door reference the Lakota Helo, and to me the Military procument is the golden goose they are pretty much level with Boeing on the civilian aerospace side but are at a major disadvantage when trying to win Major Military contracts.

There are many more people on here who apply there trade on here for a day job, im just at the end of that food chain when I get the products in my hand for training or Ops.

CD
Certainly globally Airbus and Boeing are very closely matched, maybe Boeing ahead due to internal orders, but like you say Boeing are faaaaaaaar ahead in the defence market which is probably why they're keen to team up with BAE.

The US won't Kowtow to EADS, if they don't want to play ball then they'll take the ball home and have a kick about with their mates closer to home. They won't compromise, they'll do it in terms of their strategic interests and rightly so.

I remember reading on one point that Australia and Saudi Arabia actually can veto the merger because BAE has significant assets in those countries and have a lot to potentially be messed up with the merger.

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Old October 8th, 2012   #8
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From what i've been reading, the merger needs the approval of the United States (and other parties) in order to be able to go ahead so the ability is there.

I can really see the restrictions going ahead, but actually in retrospect it won't be too bad considering the vast majority (if not all) of BAE Systems work for the US is built in the US anyway so I highly suspect one basic restriction would be all work on US soil and other security measures yadda-yadda.

As to splitting it into Europe and US wings, if it did happen then EADS wouldn't be too happy about it, after all the US market is what they're going for.

Certainly globally Airbus and Boeing are very closely matched, maybe Boeing ahead due to internal orders, but like you say Boeing are faaaaaaaar ahead in the defence market which is probably why they're keen to team up with BAE.

The US won't Kowtow to EADS, if they don't want to play ball then they'll take the ball home and have a kick about with their mates closer to home. They won't compromise, they'll do it in terms of their strategic interests and rightly so.

I remember reading on one point that Australia and Saudi Arabia actually can veto the merger because BAE has significant assets in those countries and have a lot to potentially be messed up with the merger.
I think you are worrying to much about US restrictions, there are plenty of issues with UK which are far more concerning.

The US can't block for trade reasons, unless they feel it would create an uncompetitive marketplace. Security is another matter but there have been joint European/US project before.

Personally I think BAE made a very short sighted descision when they sold their 20% stake in Airbus in 2006. I can't see what is in it for EADS, US defence spending is likely to fall sharply post 2015 exit from Afghanistan, a particularly key areas for the BAE Land Systems, which I understand has been a star performer.

There is so much waste and duplication in European defence procurement, the merger may help reduce this. The client who is paying will still have a big say and the UK MOD is a big client. MBDA seems to be working out well.

But it makes sense for shipbuilding to be separated out, I think this would be a lot better for the RN anyway. I think it would be best if Babcock was leaned on to buy it or it went independent.

I can't really see Saudia Arabia and Australia complaining.
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Old October 8th, 2012   #9
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I think you are worrying to much about US restrictions, there are plenty of issues with UK which are far more concerning.

The US can't block for trade reasons, unless they feel it would create an uncompetitive marketplace. Security is another matter but there have been joint European/US project before.
Well my main concern about the US is that BAE has made a fairly sizable investment in the US defence industry and it's worth a fair chunk of cash to them and they deal with some VERY high tech US gear (IIRC BAE got a contract from LockMart to supply EW systems for US B-2 bombers).

So whilst it may not directly contribute a whole lot to the UK (as vast majority of US work is done by US workers i think), if that aspect of the buisness were to be lost or bargined away or whatever then the UK will certainly feel the repercussions of it I reckon.
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Personally I think BAE made a very short sighted descision when they sold their 20% stake in Airbus in 2006. I can't see what is in it for EADS, US defence spending is likely to fall sharply post 2015 exit from Afghanistan, a particularly key areas for the BAE Land Systems, which I understand has been a star performer.
Definitely with you here, very poor decision IMO for quick cash-in-hand.

AFAIK the main draw of EADS to the US market isn't in the defence sector but in the domestic civil aviation market, an area which it hasn't seem to have done particularly well in and IIRC wants to use BAE's US market links to get a foot in the door, at least that's what i've read. Personlly I see there's far more profit in the LatAm/Middile East/Asia market for civil aviation.

Considering the general trend of the US leaning towards a more sea/air combination in the Pacific rather than air/land in the Middle East you could be right. But I suspect amphibious vehicle contracts (+ maintaining the current forces) will be more than enough.

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There is so much waste and duplication in European defence procurement, the merger may help reduce this. The client who is paying will still have a big say and the UK MOD is a big client. MBDA seems to be working out well.

But it makes sense for shipbuilding to be separated out, I think this would be a lot better for the RN anyway. I think it would be best if Babcock was leaned on to buy it or it went independent.
Oh definitely, I for one am a big advocate in more joint logistical programs like the A400M. Personally i'd like to have seen more European involvement with the A330 MRTT, but weren't the French on about buying some in 2013 at some point?

But how much would a BAE/EADS merger help reduce duplication? I mean off the top of my head I can't really think of many "big" projects which it could potentially help.

BAE have a monopoly on shipbuilding in the UK, i'm highly doubtful they'd be willing at all to part with it.
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Old October 8th, 2012   #10
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Well my main concern about the US is that BAE has made a fairly sizable investment in the US defence industry and it's worth a fair chunk of cash to them and they deal with some VERY high tech US gear (IIRC BAE got a contract from LockMartin to supply EW systems for US B-2 bombers).

So whilst it may not directly contribute a whole lot to the UK (as vast majority of US work is done by US workers i think), if that aspect of the buisness were to be lost or bargined away or whatever then the UK will certainly feel the repercussions of it I reckon.


Definitely with you here, very poor decision IMO for quick cash-in-hand.

AFAIK the main draw of EADS to the US market isn't in the defence sector but in the domestic civil aviation market, an area which it hasn't seem to have done particularly well in and IIRC wants to use BAE's US market links to get a foot in the door, at least that's what i've read. Personlly I see there's far more profit in the LatAm/Middile East/Asia market for civil aviation.

Considering the general trend of the US leaning towards a more sea/air combination in the Pacific rather than air/land in the Middle East you could be right. But I suspect amphibious vehicle contracts (+ maintaining the current forces) will be more than enough.



Oh definitely, I for one am a big advocate in more joint logistical programs like the A400M. Personally i'd like to have seen more European involvement with the A330 MRTT, but weren't the French on about buying some in 2013 at some point?

But how much would a BAE/EADS merger help reduce duplication? I mean off the top of my head I can't really think of many "big" projects which it could potentially help.

BAE have a monopoly on shipbuilding in the UK, i'm highly doubtful they'd be willing at all to part with it.
I am not sure what you have been reading about Airbus civil sales but I doubt anything BAE could offer would help:

Who's flying with Airbus in the U.S.*| Airbus, a leading aircraft manufacturer

Airbus globally has hammered Boeing who once were so dominated all competition had almost given up, including Lockheed & McDonald Douglas.

You have to take your hat of to the French, they are great at focus and leadership. Airbus is an amazing achievement, largely driven by them.

BAE have not been in shipbuilding long and I am sure would dispose of if required.

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Old October 8th, 2012   #11
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BAE have not been in shipbuilding long and I am sure would dispose of if required.
Firstly, to quote post #8786 in the RN thread..


"http://www.baesystems.com/baesystems...EADS%20merger&

Reading between the lines this 'merger' isn't quite one company taking over another, it's more, two companies who'll be managed by ONE Board of directors.

The idea being that BAE does X, Y & Z, but EADS does V, W & X.

So both companies KEEP on doing what they are doing, as there is actually very little commonality / cross-over. Whole thing points towards a SINGLE European defence manufacturer who can COMPETE with the likes of BOEING or LOCKHEED-Martin, on a LEVEL playing field.

It's gonna take a whole lot of governmental agreement from Italy, Germany, France, Spain & the UK, (as well as the US), before it can be finalised & according to press coverage I've seen on the web, it' likely to be late Oct 2012, before anyone can find out if it's ACTUALLY gonna go ahead...

Till then, we can all speculate....."



Secondly - BAE has been in shipbuilding since 1999 / 2000 when it bought out GEC-Marconi's "Marconi-Marnie" business, along with everything else, when it merged, including the 65 or so US sites / companies that GEC owned.

At this time their order book is full, between completing the T&T / Brazilian OPV's, the Omani OPV's, Type-45, the design & build of the 1st Type-26, while completing the x2 carriers. In addition to one or two support contracts, as well as in-country builds in the Asia-Pacific region.

With that portfolio & the comments above about complementary companies, working in partnership, do you think that they'll even be allowed to hive off such an important part of the business ??

I for hope that it's NOT the case, as it will keep British jobs in Britain, under British ownership...
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Old October 8th, 2012   #12
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Firstly, to quote post #8786 in the RN thread..


"http://www.baesystems.com/baesystems...EADS%20merger&

Reading between the lines this 'merger' isn't quite one company taking over another, it's more, two companies who'll be managed by ONE Board of directors.

The idea being that BAE does X, Y & Z, but EADS does V, W & X.

So both companies KEEP on doing what they are doing, as there is actually very little commonality / cross-over. Whole thing points towards a SINGLE European defence manufacturer who can COMPETE with the likes of BOEING or LOCKHEED-Martin, on a LEVEL playing field.

It's gonna take a whole lot of governmental agreement from Italy, Germany, France, Spain & the UK, (as well as the US), before it can be finalised & according to press coverage I've seen on the web, it' likely to be late Oct 2012, before anyone can find out if it's ACTUALLY gonna go ahead...

Till then, we can all speculate....."



Secondly - BAE has been in shipbuilding since 1999 / 2000 when it bought out GEC-Marconi's "Marconi-Marnie" business, along with everything else, when it merged, including the 65 or so US sites / companies that GEC owned.

At this time their order book is full, between completing the T&T / Brazilian OPV's, the Omani OPV's, Type-45, the design & build of the 1st Type-26, while completing the x2 carriers. In addition to one or two support contracts, as well as in-country builds in the Asia-Pacific region.

With that portfolio & the comments above about complementary companies, working in partnership, do you think that they'll even be allowed to hive off such an important part of the business ??

I for hope that it's NOT the case, as it will keep British jobs in Britain, under British ownership...
I glad you mentioned the VT contracts.......BAE not actually being very good at winning many martime export themselves, preferring just to rely on bullying an ill informed Government.

For a company to thrive it needs to focus, look at RR...and even EADS. It would be a mistake to leave the shipbuilding business with a merged company. To wither from neglect and lack of development funding. It would put British jobs at risk and more importantly our core defence capability. If the merger goes ahead, this needs to be ring fenced and kept under UK ownership (sale to a UK company, Governent backed MBO, floatation withing agree timescales. I personally thinking it would have better growth potential outside of BAE ownership anyway, its hardly been a success under BAE stewardship!
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Old October 8th, 2012   #13
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This is exactly why I believe the US will shut this down to prevent any unwanted European involvement.

I only see 2 outcomes

1 - The US lets this thing go ahead, and as such BAE is shoehorned out of plenty potentially lucrative deals with the US and loses a fair chunk of their income.

2 - The US slams the door on the whole idea

It's only REALLY going ahead because EADS wants an "in" in the US civilian aerospace market which won't go anywhere anyway. With a company like Boeing right on your doorstep are you going to outsource to Europe? The media would LOVE that idea (!).
EADS has a significant share of the US civilian aerospace market right now, via Airbus & Eurocopter, & has had for a long time.It wants to increase that share of course, but I'm sure that it doesn't imagine that taking over BAe will help - because BAe isn't a significant player in that market. BAe's big business in the USA is military.
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Old October 9th, 2012   #14
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EADS has a significant share of the US civilian aerospace market right now, via Airbus & Eurocopter, & has had for a long time.It wants to increase that share of course, but I'm sure that it doesn't imagine that taking over BAe will help - because BAe isn't a significant player in that market. BAe's big business in the USA is military.
Oh definitely, i'm not saying that EADS is using BAE to directly increase it's hold on the civilian aerospace market. What I remember reading was that - because BAE has extensive market contacts in the US (not civilian but it's better than nothing) - EADS wants to use that influence to try get more contracts from Boeing.

Apart from that, I don't really see what else this'll do of much benefit. EADS know sweet FA about the maratime/land markets and BAE vis a vis civil aviation. So whilst the idea to have a major company with "wings" in all theatres, work orders won't be benefitted because of this.
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Old October 9th, 2012   #15
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I glad you mentioned the VT contracts.......BAE not actually being very good at winning many martime export themselves, preferring just to rely on bullying an ill informed Government.
OK, I'll bite...

VT contracts are / were the most wonderfull, bestest things on planet earth !























...Now that everyone else who is in the business, or actually reads the papers / surfs the net has stopped laughing & rolling on the floor, can I just clarify one thing.

IF VT were SOOooooooo Good at shipbuilding, why.....

#1. ...did they sell off their Maritime / shipbuilding business?

#2. ...did they give back over 50 M to BAE, AFTER the sale had been approved, went thru & BAE had coughed up the 300M ???


(....go away & research those two questions, then come back with a factual answer backed up with extracts from the web, rather than a personal opinion).


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For a company to thrive it needs to focus, look at RR...and even EADS. It would be a mistake to leave the shipbuilding business with a merged company. To wither from neglect and lack of development funding. It would put British jobs at risk and more importantly our core defence capability. If the merger goes ahead, this needs to be ring fenced and kept under UK ownership (sale to a UK company, Governent backed MBO, floatation withing agree timescales. I personally thinking it would have better growth potential outside of BAE ownership anyway, its hardly been a success under BAE stewardship!

With ALL DUE RESPECT, have you ever looked at the history of British shipbuilding over the last 40 years ??

Are you aware of how many shipyards / builders there were in 1980 & how many were left in 2000 ?

Add to that, how many are actually still in business NOW ??

Like it or not, BAE have helped to save an Industry & a skills base that successive governments didn't give a rats ass about.

10 years after they took over 'stewardship' of the Maritime business, it's still here , still building ships & still growing.

Personally, I'd call that a success in this climate.




Rant over...


SA
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