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BAE Systems

In November 1999, British Aerospace Public Limited Company merged with the Marconi Electronic Systems business of The General Electric Company plc, and the resulting entity was renamed BAE Systems plc, a company registered in England and Wales. BAE Systems, Inc. is headquartered in Rockville, Maryland, and is responsible for developing BAE Systems' trans-Atlantic business, relationships with the U.S. Government, administration of BAE Systems' Special Security Agreement with the US Department of Defense, and managing BAE Systems' U.S. based operating groups, namely the Electronics, Intelligence and Support, and Land and Armaments operating groups.

BAE Systems is active in each of seven home markets - Australia, India, Saudi Arabia, South Africa, Sweden, UK and the US. It is are divided into the following operating groups:

  1. The Electronics, Intelligence and Support operating group designs, develops, produces and services systems and subsystems for a wide range of military and commercial applications. The Electronic Systems sector, headquartered in Nashua, N.H., has operations spanning commercial and defense electronics markets and offers a broad portfolio of mission critical electronic systems from flight and engine controls to electronic warfare and night vision systems, surveillance and reconnaissance sensors, secure networked communications equipment, and power and energy management systems.
  2. BAE Systems Intelligence & Security provides real-time intelligence and analysis services to key intelligence professionals, decision makers, federal law enforcement officials and troops deployed around the world. BAE Systems Intelligence & Security is ready to support any mission, anytime, anywhere.
  3. Land and Armaments provides design, development, production, through-life support and upgrade of armored combat vehicles, tactical wheeled vehicles, naval guns, missile launchers, artillery systems and munitions. The Land & Armaments sector provides breakthrough technology solutions, world-class systems integration, flexible manufacturing and superior integrated logistics support.
  4. BAE Systems Maritime designs and manufactures naval ships and submarines, as well as their state of the art combat systems and equipment. It also offers an array of associated services, including training solutions, maintenance and modernisation programmes to support ships and equipment in service around the world and the management of supporting infrastructure.
  5. Military Air & Information is involved in the air sector and also offer an array of associated training solutions, support and information services for customers worldwide.
  6. BAE Systems Regional Aircraft is a leading provider of managed solutions for aircraft support services and engineering.
  7. The International operating group comprises the group's businesses in Saudi Arabia and Australia together with 37.5% interest in the pan-European MBDA joint venture, a 10.2% shareholding of Saab in Sweden and a 49% shareholding in Air Astana.

BAe is the fifth largest aerospace organization in the Western world and is among the 75 largest companies in the UK by value of its shares quoted on the Stock Exchange. It is principally engaged, either on its own or in collaboration with other companies, in the design, development and production of military and civil aircraft, guided weapon systems and in the provision of defence support services. Acquisitions in recent years have been mainly to broaden the defence base or to handle the extensive industrial property portfolio. The only major diversification was into the Rover Group which was later disposed of in 1994. BAe ranks itself as one of the Western world's top five defence companies and is Britain's largest exporter.

The business of BAe was brought into public ownership following the Aircraft and Shipbuilding Industries Act 1977. The Act established British Aerospace, a statutory corporation, and pursuant to its provisions the respective issued share capitals of British Aircraft Corporation, Hawker Siddeley Aviation, Hawker Siddeley Dynamics and Scottish Aviation were vested in the corporation on 29 April 1977. On 1 January 1978 the undertakings of those companies were acquired by the corporation as part of an internal reorganization. The component parts of BAe were themselves the results of the earlier major restructuring of the British aviation industry.

The undertaking of the statutory corporation established by the 1977 Act was transferred to British Aerospace Public Limited Company, on 1 January 1981 by virtue of the British Aerospace Act 1980; on 4 February 1981 just over half of the issued shares in the company were offered by HM Government to the general public and to employees, the remaining shares being retained by the Government. In September 1985 the Government sold its remaining ordinary shares in BAe while retaining its special share, and BAe at the same time raised 179.5 million of additional capital by the issue of new shares.

The rights attaching to the Government's special share did not extend to dividends or votes unless relating to certain changes to the Articles of Association. These relate primarily to the maintenance of UK control of both the Board and the company.

In 1987 BAe embarked upon a business acquisition programme both to complement and diversify from its existing activities. The first acquisition was RO in April 1987 at a cost of 190 million in cash, followed in December by Ballast Nedam, a Dutch civil engineering contractor, for 48 million, also in cash. In 1988 an 80 percent interest in the Rover Group was acquired for 192 million in cash, the remaining 20 per cent being purchased by Honda. In 1989 BAe was restructured whereby the holding company became a management organization supervising wholly-owned subsidiaries, each of which was responsible for a particular business managed as a separate profit centre. In August 1989 Arlington Securities Plc was acquired for 278 million, partly as diversification but also to apply its property management skills to BAe's own industrial sites which were extensive and becoming surplus to its requirements.

In 1991 BAe was severely affected by reductions in Western defence spending, and by the downturn in airline passenger traffic and civil aircraft orders resulting from the Gulf War and worldwide recession. It therefore embarked upon a strategic reappraisal of its activities. The decision was to focus on core businesses of defence and aerospace, and to address the problems of its Regional Aircraft business. British Aerospace Defence Limited was set up in 1992 to contain Military Aircraft, RO, Dynamics, and Systems and Services Division (SSD). BAe raised 432 million by way of a two-for-five rights issue and applied the proceeds to reduce group borrowings. At the same time, it made a provision of 250 million against reorganization and rationalization costs, and acquired the German small arms manufacturer Heckler & Koch for 14 million in cash.

In 1992 the world-wide recession and surplus of turbo-prop and regional jet aircraft resulted in the provision by BAe of 1,000 million (750 million after tax) against regional jet aircraft financing arrangements and reorganization costs. The reorganization provision related to BAe's excess manufacturing capacity and the need to close certain of its facilities.

In 1993 BAe began to sell businesses which were not part of its core of defence and aerospace. The corporate jets business was sold to US manufacturer Raytheon for 250 million as, although technically civil aviation, it had little in common with other group operations. Ballast Nedam was sold for 175 million, a figure representing approximately net asset value. A provision for turbo-prop aircraft financing losses of 250 million was made. Provisional agreement was reached to sell 50 per cent of the regional jet business to Taiwan Aerospace for 135 million, but this in the event was not concluded. During 1993 BAe restructured its banking facilities into a syndicated 1.5 billion five-year revolving medium-term loan which strengthened its financial resources.

In March 1994 BAe sold its 80 per cent shareholding in the Rover Group to BMW for 800 million cash, which resulted in a profit on sale of 396 million but a reduction in shareholders' funds of 569 million after tax and expenses. The medium-term loan was reduced to 1 billion as a consequence; Space Systems Division was sold for 56 million and in December 1994 BAe raised 178 million (before expenses) by way of rights issue in connection with its bid to acquire VSEL.

The Serious Fraud Office (SFO) is an independent Government department that investigates and prosecutes serious or complex fraud, and corruption. We are part of the UK criminal justice system with jurisdiction in England, Wales and Northern Ireland but not in Scotland, the Isle of Man or the Channel Islands. The Director of the SFO is appointed by and accountable to the Attorney General who is responsible to Parliament for the SFO and the other Law Officers' Departments. Fraud is a type of criminal activity, defined as: 'abuse of position, or false representation, or prejudicing someone's rights for personal gain'. Put simply, fraud is an act of deception intended for personal gain or to cause a loss to another party.

On 03 November 2004 the Serious Fraud Office ("SFO"), with the Ministry of Defence Police ("MDP"), commenced an investigation into suspected false accounting in relation to contracts for services between Robert Lee International Ltd, Travellers World Ltd and BAE in connection with defence equipment contracts with the government of Saudi Arabia. Today, searches were conducted at eight locations in London and the south of England by SFO investigators and officers from the MDP.

On 14 December 2006 the Director of the Serious Fraud Office decided to discontinue the investigation into the affairs of BAE SYSTEMS Plc as far as they relate to the Al Yamamah defence contract with the government of Saudi Arabia. This decision has been taken following representations that have been made both to the Attorney General and the Director of the SFO concerning the need to safeguard national and international security. "It has been necessary to balance the need to maintain the rule of law against the wider public interest. No weight has been given to commercial interests or to the national economic interest."

On 08 June 2007 the Guardian newspaper reported that the Attorney General ordered British investigators to conceal from the OECD details of the investigation into BAe Systems plc concerning the Al Yamamah contract and payments made under that contract. The Director of Serious Fraud Office confirms that the Attorney General Lord Goldsmith gave no such orders. The decision as to what information should be given to the OECD about the investigation was made by the SFO. The information provided by the SFO was as full as possible, having regard to the need to protect national security. The Director of the SFO also reiterates that the decision to discontinue the investigation itself for reasons of protecting national security was his and was not made under pressure from the Attorney General.

On 30 July 2008 the Serious Fraud Office welcomed the House of Lords decision to allow the appeal against the judgement of the Administrative Court. This means that the SFO's former Director, Robert Wardle, acted lawfully in discontinuing an investigation into alleged bribery and corruption surrounding the BAE contract to supply Tornados to the government of Saudi Arabia (The "Al Yamamah" contract). As a result of this legal ruling the current Director, Richard Alderman, has concluded that the investigation into the Al-Yamamah arms deal remained discontinued.

On 01 October 2009 the Serious Fraud Office announced that it intends to seek the Attorney General's consent to prosecute BAE Systems for offences relating to overseas corruption and will prepare its papers to be submitted to the Attorney when the SFO considers it is ready to proceed. This follows the investigation carried out by the SFO into business activities of BAE Systems in Africa and Eastern Europe.

On 29 January 2010 Count Alfons Mensdorff-Pouilly was charged in connection with defence contracts between BAe Systems plc and certain countries in Eastern/Central Europe. The charge is conspiracy to corrupt, contrary to section 1 of the Criminal Law Act 1977. Alfons Mensdorff-Pouilly, between 1 January 2002 and 31 December 2008, conspired with others to give or agree to give corrupt payments (contrary to section 1 of the Prevention of Corruption Act 1906) to unknown officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAe Systems plc.

On 05 February 2010 SFO withdrew proceedings against Count Alfons Mensdorff-Pouilly. Following the announcement about the global agreement between the SFO, the US Department of Justice and BAE Systems plc, the Director of the Serious Fraud Office considered the position in relation to individuals. The Director took into account that the company had agreed to plead guilty to serious offences both in the UK and in the US and to pay substantial financial penalties. In all the circumstances he decided that it was no longer in the public interest to continue the investigation into the conduct of individuals.

On 05 February 2010 the Serious Fraud Office ("SFO") and the US Department of Justice ("DoJ"), both announced settlements with BAE Systems plc, in a ground breaking global agreement. The DoJ agreement involves BAE's business dealings in a number of countries, whilst the SFO agreement concentrates on the company's operations in Tanzania. The SFO reached an agreement with BAE Systems that the company will plead guilty in the Crown Court to an offence under section 221 of the Companies Act 1985 of failing to keep reasonably accurate accounting records in relation to its activities in Tanzania. The company will pay 30 million comprising a financial order to be determined by a Crown Court judge with the balance paid as an ex gratia payment for the benefit of the people of Tanzania. In conjunction with this agreement the SFO has taken account of the implementation by BAE Systems of substantial ethical and compliance reforms and the company's agreement with the DoJ announced today, and has determined that no further prosecutions will be brought against BAE Systems in relation to the matters that have been under investigation by the SFO. This decision brought to an end the SFO's investigations into BAE's defence contracts.



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Page last modified: 15-08-2017 16:20:11 ZULU