The Defence Crisis; BAE Are Still Hopeless

It appears that the defence procurement stories we’ve been tracking are coming to a head. Recently, it emerged that the Astute SSN, Nimrod MRA4, and T-45 destroyer projects are going significantly overbudget again; the first two of these are, of course, the ones that were already £800 million over budget and several years later. The common factor in them is of course that BAE is the prime contractor in all three. BAE has been the owner of the Vickers submarine yard in Barrow and the Govan and Scotstoun shipyards on the Clyde since 1999; Nimrod is a legacy of Hawker Siddeley and for that matter of De Havilland, and the job is being done at BAE Woodford.

Chuck in the fact that we’re still not cutting steel on the carriers – which, at an estimate £3.9bn, start to look positively cheap – and that the Army’s FRES vehicle project has still not produced any actual vehicles, and is now costed at £14bn (!!!), and it’s clear that the UK’s defence policy is in ruins. There are a number of reasons for this; the first is a history of disastrous management back to the 1980s. The second is the decision to let BAE buy the GEC-Marconi defence businesses in 1999. The third is Iraq, of course; I-bloody-raq.

Recap; spending as a percentage of GDP was pushed up towards a target of 5 per cent in the 1980s, which should have seen the armed forces superbly equipped for some time to come. How this didn’t happen would require a small book, but there were a string of horrible procurement fiascos. There were the whole succession of cost-sucking redesigns to what became Eurofighter, a wedge of electronic systems which all went wildly over budget, the failed Nimrod AEW3 airborne early-warning aircraft, the decision to buy the SA80 rifle in order to privatise Royal Ordnance; but there was surprisingly little output from all that money. Projects became eternal; MRA4 has its genesis in the “Nimrod 2000”, whose title should tell you how long ago it began.

Then, on the boom came the crash; in the expenditure-constrained 90s, the MOD was asked to a) deliver a peace dividend and b) complete its equipment projects, two things that could obviously not both happen. Also, more and more gear was coming up for renewal; the VC10 tankers, the Sea Harrier, the CVS carriers, the T42 destroyer, the Swiftsure and Trafalgar class submarines, the Clansman radio system. By the mid-90s, the UK was facing a mammoth block-obsolescence problem, worsened by the lack of progress on several key European projects like the Future Large Aircraft (now the Airbus A400M, and still not here).

The solution was meant to be the Strategic Defence Review launched by the first Blair government; this was the first since the Cold War to actually review strategy rather than the budget alone. It concluded that the least likely form of war was the one the military was still designed for, a NATO Central Front battle against the Red Army; peacekeeping, intervention, or whatever might be required anywhere in the world. Their answer involved pushing on with the big kit projects, and specifically more amphibious and support shipping, two large aircraft carriers, and attack helicopters to support light troops. They also wanted to look into the possibilities of finding a more deployable armoured vehicle; this became FRES.

We’ll come back to SDR; what happened next was that GEC-Marconi, under the brilliant guidance of John Mayo and George Simpson, decided to get rid of all its non-telecoms businesses and its pile of cash. The government was conflicted; on the one hand, it was Blair, and they didn’t want to interfere. On the other hand, there was an attachment to the idea of a national champion; what was really wanted was scepticism at the prospect of a monopoly supplier of almost all the Forces’ equipment. Increasingly, I think permitting the merger was one of the worst decisions of the Blair years; it facilitated Mayo and Simpson running Marconi into the ground, it left the government negotiating with a monopolist arms maker, and it let BAE’s management culture infect another chunk of industry. BAE’s deep history goes back to the government-pushed mergers in the aviation industry in the 1960s; the idea was that the companies needed to build scale to finance R&D, but what tended to happen with each one was that the top management demanded they keep their empires, and what got dropped were half the development projects. It didn’t help that investment in civilian work mostly went into Concorde at BAC; rather than developing new products, the business became one of angling for huge government contracts that took 20 years to work through. One of the component parts, English Electric, had had the engineering motto “when in doubt build a demonstrator”; there would be no more of that at BAE. The decision not to participate in Airbus until 1977 was another contributory factor, as was the Tony Benn-driven merger between BAC and Hawker Siddeley. And the years of easy, Al-Yamamah funded 80s success…well.

Having bought out the GEC-Marconi defence businesses, BAE began preparing to seek its fortune in the US; the big strategic aim was to get Boeing to buy them, generating big bucks for the board. So, all the interesting bits of the company were shut down or hived off; just as a huge boom in regional jets began, development of the RJX was killed off and the line at Woodford shutdown. Canadair and Embraer of Brazil seized the day. Just as a boom in business jets began, the business jet operation was sold to Raytheon, where it is doing very nicely. Even the name was changed from British Aerospace to BAE Systems in order to remove the word British and the impression that aeroplanes were one of its products; at least they didn’t choose another of the options that floated around Farnborough at the time, “Millenium Aerospace”.

Meanwhile, SDR went on its way. The Army was reorganised, losing some heavy armour and forming another light brigade; the 24 Airmobile and 5 Airborne Brigades were rolled into 16th Air Assault, all helicopters placed in an integrated command, as were the Navy and RAF Harriers. This was the easy stuff; everywhere the policy met BAE, though, there was trouble. (To be fair, the BOWMAN radio project, which wasn’t one of theirs, was pretty crap too.) The T-45 destroyers, Eurofighters, submarines, and Nimrods took longer and longer and sucked up ever more money; FRES went nowhere.

And then we found ourselves in a war, which saw all kinds of chickens darken the skies coming home to roost. It was time to decide whether the Government wanted its wars, its equipment, or its budget; they decided not to decide, and from this point on the kit projects were competing for the same pie as the war. Further, BAE now realised that the Americans weren’t capital exporters any more, and began buying everything they could in the States, which meant they began showing up in all kinds of other stuff; radios and vehicles, not just aircraft and ships. The impact on FRES was serious. This was skinned over by “capability gapping”; letting things go and putting off the replacements. But now, we’re seeing the replacements on the other side of the gap sliding right, and there is little we can do about some of them; the RAF and Fleet Air Arm’s future is predicated on the F-35, which is being squeezed for funding in the US and is also the target of a Boeing kibosh attempt. This means that the air defence capability gap opened by the decision to retire the Sea Harrier FA2 may be open-ended; like the bankers’ distinction between a bridging loan and a “pier loan”.

It’s time for big decisions; will we get’em? More to the point, will they be good ones? What is especially depressing is that not only does Gordon Brown have heavy responsibility for wildly stupid things like the vehicles that were sold, bought back for SAIF SAREEFA II, sold, bought back for Afghanistan, sold, bought back for Iraq, sold, and bought back for Afghanistan, and the tanker PFI, but the Conservatives have shown absolutely no credibility or even comprehension of the position.

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