With long-term stability now in place across BAE Systems' air, land and naval business lines, its share price at the highest level in nine years and fresh orders streaming in from the British and US militaries, chief executive Mike Turner's decision to leave the company next year has drawn a successful conclusion to what has been a turbulent period in the history of the UK's leading defence contractor.
Turner's August 2008 departure at the age of 60 will come five years before his required retirement, but company sources say the Hawker Siddeley recruit of 1966 has opted to bow out early, after declaring as "mission accomplished" his work of the last five-plus years.
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Appointed to replace John Weston from March 2002, Turner has presided over BAE while the company has been transformed from an often adversarial supplier to the UK Ministry of Defence to a trusted partner on many of its current and future projects. He has also headed BAE's dash for a new continent, with its North American business activities now worth more each year than the orders secured in its traditional home market.
He was also a pivotal player in BAE's decision to divest its 20% stake in commercial aviation giant Airbus - a move which generated €2.75 billion ($3.9 billion) in cash last October, but more importantly removed worries over the long-term sustainability of the civil airliner sector and development difficulties with major projects such as the A380 and A350.
Creating a balanced portfolio has been a key objective at BAE since crises affecting its Nimrod MRA4 reconnaissance aircraft and Astute submarine programmes came to a head in 2003 as delays and cost overruns damaged the company's reputation and its share price on the London Stock Exchange.
Recovering from the crash took several years to achieve, but the crises helped drive a transformation in the way the company was to do future business with the MoD. That change is bearing fruit on recent procurements, such as of the Hawk 128 advanced jet trainer. No longer willing to sign the fixed price development and production contracts of old and hope for the best in delivering on them, BAE has become a "risk averse" negotiator, largely to the satisfaction of the MoD and the company's shareholders.
Also greatly assisted from July 2004 by the presence of chairman Dick Olver, a former BP executive, BAE appears to have turned the corner from the dark days. Turner believes he will leave the company "in excellent financial shape, and with a strong forward strategy and a robust business plan".
The chief executive's decision to step down - which BAE says "had been considered for some time", and received unanimous approval - comes after three key personal targets have been achieved. Firstly, Turner's role in pushing for the creation of the UK's Defence Industrial Strategy - which seeks to protect national capability through partnering in key industrial sectors such as military aircraft and naval vessels - has guaranteed long-term stability and profitability for its UK industrial base.
Secondly, the company's strategy of meteoric US expansion has seen it treble its North American business in short order, including through its purchase since 2005 of Armor Holdings and United Defense for a combined £4.4 billion. From an almost standing start, these deals mean BAE is now the world's largest producer of armoured vehicles, and are seeing it enjoy a boom in orders, upgrades and support deals on the back of UK and US operations in Afghanistan and Iraq.
Vitally, Turner has also steered BAE safely through a severe period of turbulence linked to questions over the UK's previous sale of military equipment to Saudi Arabia, the subject of a bitter and prematurely halted investigation by the UK Serious Fraud Office and ongoing action by the US Department of Justice. Crucially, he has also seen through negotiations to supply the Saudi Arabia with 72 Eurofighter Typhoons, continuing a lucrative relationship with the nation and supporting Riyadh's own fledgling defence industry.
Where next for BAE? In all likelihood, the company will look to consolidate on its recent achievements, rather than rush to make fresh acquisitions on either side of the Atlantic. BAE claims that its adjusted sales of more than £15 billion last year and its 96,000 employees rank it as the world's third largest defence contractor, and sixth as a supplier to the US armed forces. That status should be enough for its shareholders - for now at least.
Reform of the UK shipbuilding sector and the signature of a strategic partnering agreement with the MoD on fixed-wing aircraft and unmanned air vehicle activities before year-end remain domestic priorities. Longer term, adding to BAE's home market list of Australia, Saudi Arabia, South Africa, Sweden, the UK and the USA will be an objective for its new leader. Fresh targets include India and Japan, with success to potentially come via further sales of the Typhoon.
BAE has not released a schedule to appoint a successor to Turner, but says it is starting the process of "appointing a successor as chief executive to achieve an orderly handover."
The search will be led by senior executives including Turner and Olver, with candidates to be considered from both inside and outside the company. But fears of foreign management or a move to the USA have been allayed, as the company's top post must be held by a UK citizen under its current articles of association.
Turner's departure will open the way for senior figures to vie for the top industrial post in the UK's defence industry, and for an annual salary of more than £885,000. The successful candidate is likely to be less hard-nosed industrialist and more attuned to the MoD's present culture of partnering, but sharing Turner's passion for all things Manchester United is unlikely to be an interview topic.
With its share price safely above the 500p mark last week, and with a market capitalisation of £17.9 billion, BAE is an attractive target for a bright new leader. With a diverse and stable business also including its key role in the Lockheed Martin F-35 Joint Strike Fighter project, the future looks genuinely bright. And for Turner? Job done.
Source: Flight International
