BAE boss sees turbulence ahead for UK aero sector

The UK aerospace industry is unlikely to escape the effects of the global slowdown says John Weston, chief executive of BAE Systems.

The UK aerospace industry is unlikely to escape the effects of the global slowdown, John Weston, chief executive of BAE Systems has told The Engineer.

The industry has seen strong growth in recent months – in sharp contrast to most of the UK’s engineering sector – but is likely to face tougher times ahead, Weston warned.

‘We’ve been riding the largest and longest up-cycle in the civil aircraft market that any of us can remember, so it is inevitable there is going be a slowdown at some point.’

Airbus recently cut its 2003 output projections from 450 to 400, and said some customers had asked for their orders to be delayed, adding to the growing concern that the UK aerospace industry will be hit by the global downturn.

Speculation

BAE’s share price was this week hit by speculation that it was to make a profit warning (falling 3% on Tuesday to 338p) following Airbus’s announcement. But Weston denied the aircraft manufacturer would be hard hit by a drop in demand for aircraft. ‘All Airbus is saying is that they are going to grow the output by slightly less than they were before, but the production line is significantly oversold on a number of models, so things would have to get quite severe before they impact on the company over the next year or two.’

On top of the expected drop in aircraft orders from the world’s airlines, the UK’s aerospace industry is also being hit by higher interest rates than those in the eurozone – a factor behind BAE’s pro-euro stance. ‘Most of our overseas trade is with Europe and, in the long term, the industry will just have to face up to interest rates higher than the eurozone if we are to stay out, and that’s not good for any of us.’

Shares in BAE have also been hit by recent reports suggesting the Indian government has cooled on negotiations to buy 66 Hawk jets – a deal worth around £1bn. The Indian government was said instead to be looking at the cheaper Russian MiG-AT, and had said the price tag of £15m per Hawk jet was too high.

But some believe the threat was simply a bargaining tool to drive down the cost of the aircraft. Weston said the delay should not be viewed out of context, as the company has now sold Hawks to around 17 countries, and has ‘reasonable prospects’ of selling a further 100 over the next eight years. ‘We’ve had a bit of a drought in getting people to sign on the dotted line over the last 18 months or so, and India is potentially the next one up, but we’ve been campaigning on this for 16 years, so whether it turns up this month, next month, or the month after, it’s not a long time in the greater scheme of things.’

BAE said recently it was cutting up to 260 jobs at its sites at Warton and Samlesbury near Preston, in a bid to streamline its administration and human resources teams. The company, which employs around 10,000 people at its Preston sites, said it hoped to relocate as many people as possible, but would be starting a voluntary redundancy programme.

Engineering re-shuffle

BAE is also planning to recruit 460 engineers before the end of the year, to help win new business. The company is hoping to secure more Eurofighter contracts, as well as work from the Joint Strike Fighter project. ‘There are some programmes coming up where we’re facing certain shortages – some traditional airframe skills will be stretched in getting the A400M, the Airbus A380 and Eurofighter through to production at the same time – but there is enough flexibility in the supply of skills around the globe for us to cope with that.’

BAE employs 34,000 engineers around the world, and is looking at how it can make the most of this large pool by organising engineering work into packages and sending it out to areas with the right mix of skilled people.

The company is restructuring itself to focus on growth areas such as support services and guided munitions, and is hoping to strengthen its presence in the important US market. ‘I actually spend a lot more time at our operations outside the UK these days, and we’re all working to get ourselves into a global mindset, rather than seeing ourselves as a UK company that does a lot of exporting.’

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