Bae Comes Under Fire

Bristol employer and defence group BAE Systems has been criticisedover pretax losses of more than GBP600 million which result from aGBP750 million charge for delays on two major MoD contracts.

Delays with the group's contracts to deliver three submarines,Astute, Artful and Ambush, and 18 Nimrod anti-submarine aircraft,resulted in costs climbing to more than GBP1.4 billion above theoriginally agreed price of GBP5.5 billion for the work.

On Wednesday the company, which employs 600 people at its Filtonsite, announced that it had struck a deal whereby it would takeresponsibility for GBP750 million of that and the taxpayer would payan extra GBP700 million.

Yesterday it emerged that as a result of the delays, the company,which is the UK's biggest defence contractor, reported a pre-taxloss of GBP616 million.

That compares with profits of GBP70 million the previous year, andit is the group's worst result since the early 1990s.

In the past year Defence Secretary Geoff Hoon said the company wasno longer British because more than half its shareholders wereforeign.

That comment came at a time when BAE was competing with Frenchrival Thales for the contract to build the Royal Navy's nextgeneration of aircraft carriers.

It won the role of prime contractor on the project but the designcontract went to Thales.

It has also had to issue a statement denying rumours of boardroomdissent.

Stuart Louden, of Clifton stockbrokers Hargreaves Lansdown said:"The shares are potentially cheap and if they get some of thecontracts they are hoping for it could be quite an interesting stockat these levels.

"But there are better value stocks and better run businesses.

"It's a huge monolithic business that no one has been able toreally grab hold of and turn into an efficient company for the 21stcentury." Philip Lawrence, director of the aerospace research centreat UWE, leads a team that has developed a new programme of managementfor handling large contracts.

He said the MoD's drive to cut costs might have led companies,including BAE Systems, to offer unrealistic bids and he said a newapproach was needed to the way contracts were managed.

He said: "There's no doubt the Astute submarine contract and theNimrod are programmes that have been badly managed. If I was BAE I'dhold up my hands to that." BAE Systems chairman Sir Richard Evanssaid yesterday that now the two contracts were resolved, the companywas in a good position to move forward.

He said: "The management team has moved swiftly to address seriousissues in our UK programmes.

"The outlook for our business in the UK is now much improved andcomplements our strong and growing position in the UK."