On the Record With
JOHN WESTON, CHIEF EXECUTIVE, BAE SYSTEMS

A Partner for Both Europe and America

Though there's been much speculation about BAE Systems hooking up with an American company like Boeing, BAE Systems chief executive John Weston said that a Boeing deal would be impossible as long as BAE remains a member of the under-development Airbus Integrated Co. (AIC).

"We do have an air structures business that is not part of AIC, and we will continue to try to win work; we're doing more Boeing leading edge work," said Weston. "But we couldn't join outside civil aircraft business that would be in competition with Airbus."

Weston mentioned the completion of the AIC structure as one of BAE's corporate milestones for the year so far. "It is a very good deal for us, and paves the way for launch of the A3XX," said Weston.

BAE Systems will own 20% of AIC, and will appoint two of the seven members on the AIC board of directors. The other AIC members are DaimlerChrysler Aerospace, France's Aerospatiale-Matra and Spain's CASA, which between them own the remaining 80% of AIC.

The three are also the founding members of the European Aeronautic, Defense and Space Company, which will be the third-ranked global player behind Boeing and Lockheed Martin.

BAE opted not to join its Airbus partners in EADS, but is nonetheless Europe's top defense company and the world's second. It is the global leader in head-up displays, airborne IFF systems, and in ground technical support to the U.S. Air Force.

BAE Systems has thinned its management ranks by about 15%, 11,000 people, since its merger with the electronics arms of Marconi, formerly called GEC. Weston said the company expects to save £55 million this year resulting from consolidation of information technology sites between the two companies.

Investors will have the opportunity to purchase approximately 40% of EADS via an initial public offering.

In recent months, BAE made two significant acquisitions to strengthen its presence in the U.S. First it picked up Lockheed Martin's Controls Systems division, and two weeks ago purchased Lockheed Martin's Aerospace Electronics Systems business, commonly referred to as Sanders.

"When (the two acquisitions are) completed, we will have a North American footprint of 25,000 employees, sales of $3.77 billion, and a significant presence in 28 states," said Weston. We are in a uniquely strong global position-particularly in transatlantic terms.

"We are justifiably proud to be the European company in this sector with the strongest representation in the United States, and the American company with the strongest representation in Europe. Nobody else can say that. Importantly, we will be well positioned on a number of key long-term high-tech programs such as F-22 and the Joint Strike Fighter as they move from development to production."

Competitively, Weston said his company's move into the U.S. will help prevent polarization and creation of a "fortress Europe" and "fortress America."

"The challenge in maintaining true competition in the U.S. market-if they want true competition-is you need more global solutions," said Weston. "If we want to have more collaborative programs, we need an industry structure that works for that."

BAE Systems is also the only European partner in the proposed Zephyr business-to-business website for buying and selling aircraft parts and services along with Boeing, Lockheed Martin and Raytheon. The four companies combined have an annual procurement of about $71 billion annually, and expect the website to significantly reduce their procurement costs while streamlining their supply chain.

The four companies expect to sign a letter of agreement on Monday, formalizing the creation of the Zephyr organization and resultant website.
But as an example of where BAE's sympathies truly lie, Weston contrasted its position on Joint Strike Fighter versus Eurofighter.

"We have 10% to 12% in the Lockheed Martin JSF, and 43% of Eurofighter minus the engine. We can deliver a Eurofighter in 2002, but I'm not sure we could deliver a JSF in the foreseeable future."

It's Weston's opinion that no significant pan-European project can go forward without its participation.

"The UK alone accounts for 36% of Western Europe's defense procurement and 44% of R&D. Major European programs are only affordable with the UK, and we are strongly positioned in the lead on new programs such as Meteor missile and A400M transport aircraft."

By Barry Rosenberg