Less Net



BAE Systems - Public Enemy Number One

If a most-wanted list existed for corporate criminals then BAE Systems would be public enemy number one. Wholesale corruption, grotesque cost over-runs and delays to gold-plated military programmes, the sale of sophisticated weaponry to authoritarian regimes around the world; by any standards, the charge sheet is a long and despicable one. Yet BAE continues to evade capture, disguising itself as a 'national champion', a high-technology, export-oriented success story, vital to the whole future of UK manufacturing. Like a latter-day Al Capone, it struts the stage, arrogant, untouchable and totally confident that its protection racket is simply too big and too powerful to be challenged.

What's that? You want to cancel one of the aircraft carriers to save money at a time of budgetary crisis? Well, let me explain something because we don't want any unfortunate misunderstandings now do we old chap? We have a binding contract that makes it more expensive to cancel than to continue, even if the second ship will only be in service for three years and never carry any aircraft, before being mothballed or sold. You simply must understand the bigger picture. Any savings from cancellation would be more than outweighed by the economic costs, in terms of compensation payments, unemployment and loss of manufacturing capacity. So you're going to stop squealing and come up with the £5 billion, aren't you my friend?

This latest episode encapsulates everything that is nasty about BAE. Effectively, it is putting a gun to the government's head by claiming to have an indispensable role in maintaining core skills and indigenous manufacturing capabilities that are vital for our national security, and that have priority over any other area of public expenditure. In other words, they are peddling that ultimate corporate canard, what's good for BAE is good for Britain. Yet the reality could not be more different. Arms expenditure represents a massive diversion of scarce resources that has done serious damage to the UK's capacity for civil research and production. Far from preserving employment, BAE has shed tens of thousands of jobs and will continue to do so. It is the rotten core of a military-industrial complex, spreading its cancer out from the institutions of government into the very fabric of British society.

How did we get into this awful mess? The story of BAE can be traced back to the end of World War Two, and the attempts by successive governments to encourage consolidation of the major aerospace companies so that the UK could have an internationally competitive industry benefiting from economies of scale. Established companies like the British Aircraft Corporation and Hawker Siddeley were brought together as British Aerospace. For a brief period during the 1970s, the company was even nationalised, along with British Shipbuilders, when the Labour Government attempted to plan a longer-term investment strategy for key industrial sectors.

However, following privatisation by the Thatcher government, BAE embarked on a programme of acquisition during the 1980s and 1990s, most notably the takeover of GEC-Marconi in 1999. This effectively provided it with monopoly control, not only in UK military aircraft production, but also in nuclear submarines and larger surface vessels, as well as much of the electronic equipment vital for all these major platforms. At the same time it divested the majority of its civil aerospace interests, culminating in the sale of its share in the European Airbus consortium in 2006, so that it could focus almost exclusively on arms manufacture.

As well as building a UK arms behemoth, taking at least 50% of the MoD's annual R&D and procurement budgets (although the use of commercial confidentiality by the MoD and BAE prevents any independent scrutiny of the total amount), BAE has also pursued an aggressive arms export policy. By far the most significant has been the long-term, multi-billion pound Al Yamamah deal with Saudi Arabia, initially in the 1980s for 48 Tornado fighter aircraft and associated equipment, followed by Al Salam in 2005 with the sale of 72 Typhoons (formerly the Eurofighter).

Finally, BAE has accelerated its global acquisition programme during the last decade, particularly in the United States with the purchase of major arms corporations including United Defense Industries in 2005, and is one of the leading suppliers to the Pentagon. In fact, it now generates more of its sales from the US DoD than from the UK MoD. Hence the rebranding of the company as BAE Systems, a global arms corporation, although, of course, it remains very happy to play the role of a UK champion for public relations purposes here.

Not surprisingly, BAE sells this as a great success story, making it one of the UK's most profitable manufacturing companies, with a world-wide reputation for engineering excellence in complex systems integration. But the record on UK contracts includes a catalogue of failure on hugely expensive equipment that has either been cancelled, or experienced massive cost overruns and delays. These include the original Nimrod early warning aircraft, cancelled in 1986 after a series of of technical problems and at a cost to the taxpayer of £1 billion, through to the recent £1.2 billion cost overrun on the Astute class nuclear submarine and a four year delay.

Its role in arms exports has simply been corrupt, reflecting the lack of any standards in this despicable trade. The Saudi deal has been driven by secret and illegal commissions to senior figures in the Saudi government running into the hundreds of millions of pounds. The full scale of corruption is difficult to quantify because governments have consistently prevented the disclosure of investigation findings, under the guise of commercial confidentiality or national security. In 1992, the National Audit Office's report on the operation of the Al Yamamah contract was suppressed, leading to strong suspicions that it detailed the extent of illegal payments, and that the government was concerned publication would damage BAE's commercial interests. Although this was denied by the government, it remains the only Parliamentary report never to have been published.

More recently, BAE was investigated in both the UK and the USA for corruption on a range of contracts, including those with Saudi Arabia, South Africa and Eastern Europe. The investigation into the Saudi Arabia contract was dropped by the Serious Fraud Office (SFO) in 2006 after the intervention of Tony Blair, who argued that there was a real danger to national security if the Saudis withdrew co-operation on issues like terrorism, which he claimed they were threatening to do because of adverse publicity surrounding the investigation. Without this intervention, the SFO might well have pursued charges both of corporate corruption and criminal activity by named, senior BAE executives.

However, the United States' authorities were more assertive under its anti-corruption legislation and early in 2010 BAE was fined $400 million, a large figure, even by US standards. According to the verdict of the District Court, the scale of the fine reflected "...deception, duplicity and knowing violations of the law on an enormous scale.", including the setting up of shell companies in the British Virgin Islands and Swiss Bank accounts and making illegal payments to agents through these while publicly stating it was in compliance with US anti-bribery law.




The US evidence demonstrates that a similar prosecution could easily have been pursued here in the UK and that the issue of national security was used by the New Labour leadership as a smokescreen to protect BAE's commercial relationship with the Saudi government. The SFO finally agreed a plea bargain with BAE this year. In return for admitting the minor charge of false accounting procedures on a radar contract with Tanzania and paying a £30 million fine, the SFO made the shameful decision to drop all the other corruption investigations against the company.

But perhaps BAE's greatest crime is its institutional corruption of central government. There is no need to wander around Parliament distributing brown envelopes filled with fifty pound notes. Nothing so crude. Rather, the company and major government departments have such a symbiotic relationship that is almost impossible to distinguish where the public and the corporate areas of responsibility on military procurement begin and end. This takes the form of a revolving door between senior civil service positions and executive roles in the company; complete and direct access to Cabinet ministers, up to and including the Prime Minister; automatic membership of advisory committees to government on policy for arms procurement and the arms trade; and the exclusive support of a vast coterie of officials in the MoD, the Department for Business Innovation and Skills and the Foreign Office to support BAE's major arms projects and export programmes.

The ultimate manifestation of this relationship is the Defence Industrial Strategy (DIS) a grandiose term conjured up by the MoD for a procurement regime that has nothing to do with defence, nor with an industrial strategy, but has everything to do with guaranteeing long-term contracts and profits for BAE. By arguing that the UK must retain the industrial capacity (or at least the semblance of that capacity) to produce complex weapons systems, the MoD has locked the UK into a series of research and procurement commitments with BAE running into hundreds of billions of pounds and lasting for the next twenty to thirty years.

No better example exists than the conventional nuclear submarine contract. Quite simply, this is a way of filling the gaps between Trident ballistic submarine programmes to keep the Barrow shipyard functioning. Despite the overall financial crisis, and the MoD's budgetary pressures, a seventh Astute submarine was ordered this year with no other purpose than to ensure a smooth transition to the production schedule for the first of the new Trident submarines beginning in 2014-15 (despite the usual, official propaganda that no final decision has been made to go ahead with Trident).

Looking to the next ten years, a fairly predictable pattern can be outlined. Because each new generation of military equipment is more expensive than the previous one, there will be fewer platforms ordered and further rationalisation of production. At present, the most vulnerable BAE site is the Brough factory in East Yorkshire which specialises in Hawk trainer aircraft and could well be shut down in 2011, with the loss of over a thousand jobs. But all the major surface vessel shipyards and aircraft factories face job losses.

So BAE will be making considerable profits through the various phases of design, construction and periodic refits on new equipment, while shedding tens of thousands of jobs. Yet if challenged, it will also roll out the same veiled threats on the loss of indigenous capacity and unemployment, even if the reality is that only very small, localised clusters of arms-dependency now exist, in Barrow (nuclear submarines), Glasgow (surface vessels) and around Preston (military aircraft). Indeed, while claiming to be the bedrock of UK manufacturing it will continue its corporate strategy of gravitation towards the United States, while increasing the use of overseas subsidiaries and subcontractors that will leave only specialist niches for R&D and production in the UK.

What should be done? The very least we could expect is some semblance of accountability. There should be full disclosure of all BAE's contracts including profit ratios on major programmes, and a clear, annual assessment of the value of all BAE contracts as a proportion of both total R&D and procurement expenditure by the MoD. The suppressed National Audit Office report should be released, as should the the files from the Serious Fraud Office, since it is clear that the grounds for dropping criminal charges in the Saudi case were spurious and that the real reason was the commercial interest of BAE. Because the independence of the SFO was compromised, there are also grounds for re-opening the whole investigation and pursuing criminal charges against named individuals from BAE.

But far, far, more is needed. Like the banks, the military-industrial complex is seen as too big and too important to fail. Like the banks, vast public resources have been pumped into it without any acknowledgment that it is effectively a nationalised industry. If BAE were publicly owned then its threats over compensation could be simply ignored – why would any government want to claim costs against itself? In an ideal world, given these successive waves of public investment, BAE would be nationalised without compensation and all of its major arms procurement and arms trade contracts cancelled.

Irrespective of the practicalities of restructuring BAE, the major imperative is to generate major savings in arms expenditure. If possible, manufacturing assets should be redirected to civil use but some facilities are simply too specialised in arms production and should be swiftly dismantled. The main priority would be to redirect funds and resources from arms expenditure to civil manufacturing programmes, including a massive public investment programme in renewable energy, energy efficiency and the public transport infrastructure. This will employ far more people in a range of skilled work than would ever be the case on arms programmes.

Instead, we will have the grim cycle of arms procurement topped by the mother of all black holes, the £20 billion Trident construction programme (or £90 billion if you include the total operational costs over its lifetime), with the usual gun-to-the-head threats on compensation costs and unemployment, if anyone has the temerity to challenge this total waste of money and resources.

BAE is the cynical heart of the UK's military-industrial-complex. Like the picture of Dorian Gray, it projects a wholesome exterior that masks a maggot-infested interior. Click onto the company website and the first image you will see is of a wave-power device, when over 90% of its activities are arms-related. Look at the glossy graduate recruitment literature that stresses systems engineering and you would hardly know that the ultimate objective of the equipment is to kill or maim people.

It's time to call BAE's bluff and expose its stinking cadaver to fresh air. It's time to build a truly civilised society where the arms trade, like the slave trade, is consigned to the scrapheap of history. It's time for the BAE protection racket to be closed down. Permanently.