THE proposed takeover of BAE systems by EADS raises a significant number of issues which have profound consequences for Britain. Not only does Her Majesty’s Government have an obligation to make a political decision on the takeover, as the guardian of the “golden share”, but it also has a duty to safeguard Britain’s national security and economic interests.
We are concerned at a proposal which will put the bulk of Britain’s defence industrial base in the hands of a company predominantly owned by the French and German governments. It has a German chief executive and a headquarters already split between France and Holland. Without some vital safeguards we do not think that this deal will be in the UK’s national or manufacturing interest.
Once news of the merger broke, BAE shareholders and the public alike were surprised by the plans. Not only did it seem contrary to all the statements and strategy set out by the BAE senior management over the last decade – in 2006 BAE voluntarily sold its 20 per cent stake in Airbus for £1.87bn – but it also doesn’t tally with BAE’s successful US expansion. BAE and EADS work well already through joint ventures (such as MBDA missile systems). Most of these joint ventures continue to be highly profitable. Other, bigger programmes, have come through a combination of government and commercial ventures – the best example being the Eurofighter Typhoon project. These joint ventures succeed without the need for merger.
Because of the UK’s special relationship, and the hard work of consecutive governments, BAE enjoys an exceptionally trusted position within the US Department of Defense and other agencies. This has allowed the company to expand and compete alongside US competitors in ways which EADS has not. Indeed, BAE has an exceptional special security arrangement, which EADS has been unable to secure. This special status and the International Traffic in Arms Regulations waiver (which Tony Blair secured through the UK/US technical trade treaty) have been key to BAE’s success.
More recently, Britain followed the example set by the US and passed into law the Bribery Act 2010. This legislation gives US lawmakers confidence in British defence contractors’ behaviour on a like basis to firms in the US. Given the remote likelihood that Spain and France will pass a similar law, current BAE business in the US could be threatened if it comes under new ownership. Many in Congress would not miss an opportunity to use this against a foreign competitor owned by foreign governments. The risks to BAE and our manufacturing base are clear and real.
It is no secret that in the past EADS has suffered from political interference from the French and German governments. It would be naive to think that, if those two governments held a significant shareholding in the new company, they would not continue to meddle. French industrial policy shows no sign of changing towards the UK/US model.
Britain, like the US, is a member of the “five eyes” community. This long established intelligence relationship, plus the special status BAE enjoys in technology sharing, means that not only does the British taxpayer benefit from shared research and development, but our armed forces also reap the advantages of some of the best equipment in the world.
We have a high regard for the chief executive of EADS and have no reason to doubt that his plans are commercially-driven and well-intentioned. Tired of Franco/German squabbling, Tom Enders has tried for years to remove the government shareholdings in EADS. However, the question has to be whether BAE and British manufacturing jobs are the vehicle to achieve that end. We fear that other European governments will fudge the governance reforms needed by only dissolving the voting pact but not divesting themselves of their shareholding. Without such changes it seems it is EADS and its government shareholders who have everything to gain, while the British armed forces, UK manufacturing and BAE have everything to lose.
Such is the importance of the proposed EADS/BAE merger to the UK that it should be a condition of the merger being approved by HM Government that the state owned shareholdings are fully divested and parliament is given substantial time to scrutinise any deal before it is concluded.
This article is based on extracts from a joint letter organised by Ben Wallace MP, Conservative MP for Lancaster and Wyre. It was signed by 45 Conservative MP’s and sent to the Prime Minister.