Bloomberg News

BAE Seeks Work on Boeing 737 as Defense Budgets Shrink

April 02, 2013

BAE Systems Plc (BA/), Europe’s biggest defense company, is chasing a contract to supply flight-control gear to Boeing Co. (BA:US)’s 737 Max jetliner as it seeks to boost civil sales amid declining military spending in the U.K. and U.S.

BAE’s electronic-systems plant in Rochester, 30 miles east of London, is bidding to provide equipment that adjusts the plane’s flaps and rudder to dictate its movements, Michael Tierney, who is in charge of the site, said in an interview.

BAE, which quit large-scale civil aerospace manufacturing with the sale of its stake in Airbus SAS to European Aeronautic, Defence & Space Co. (EAD) in 2006, currently supplies controls only to the Boeing 777 in the civil market and will also bid to do so on the upgraded 777X. That plane is slated to enter service around the end of the decade, with the Max, a re-engined version of the world’s best-selling airliner, due for first delivery in 2017.

“We’re in a transition,” Tierney said. “Historically we have done a lot of control systems for the Typhoon fighter. Now we are concentrating on growing other parts of the business.”

BAE is targeting work with Boeing following the failure last year of a planned merger with EADS that would have boosted its chances of winning contracts from Airbus, in which it once had a 20 percent holding. The London-based company stopped making its own civil aircraft in 2001 and also tried to sell its U.S. commercial aerospace unit, Platform Controls, in 2010.

‘Strategic Conundrum’

Without contracts on new planes, the flight-control business risks entering permanent decline, according to Nick Cunningham, a London-based analyst at Agency Partners, who says BAE’s civil policy is a “strategic conundrum.” Work on the existing 777 model is guaranteed through 2019, Tierney said.

The production of controls for the Eurofighter Jagdflugzeug GmbH Typhoon warplane, in which BAE is a partner, may also begin to tail off from 2016 in the absence of further export orders.

BAE is looking to secure flight-control work with Embraer SA (EMBR3) as the Brazilian company introduces upgrades of its regional jets at the end of the decade, Tierney said. It’s also in talks to equip the Chinese MA700 turboprop after failing to secure a position on Commercial Aircraft Corp. of China Ltd.’s C919 narrow-body jetliner.

BAE could also adapt military technologies for commercial applications, including head-up displays which provide Typhoon pilots with information without having to look down at their instruments and which are also made at the Rochester site.

Bus Push

There may also be an opening to supply the C919 with active control sticks giving pilots more tactile feedback, Tierney said. BAE provides the devices for Lockheed Martin Corp. (LMT:US)’s F-35 Joint Strike Fighter and the CH-53K troop-transport helicopter, and has developed a more compact version of civil use.

A review is also under way to assess how BAE can extend the market for hybrid power-plants used to propel buses, the third main business focused on Rochester.

While about 3,000 buses use the HybriDrive technology in the U.S. and more than 500 in the U.K., European penetration is relatively low at around 180 vehicles, giving “huge growth potential,” according to Tierney.

BAE builds 300 hybrid systems annually and that output reach 800 units in a few years, he said, adding that the technology, which relies on power cells charged via an internal combustion engine, could qualify for state funding in France through the establishment of supplier relationships there.

In a reversal of the usual military-to-civil development of BAE’s programs, the engines may also transition to defense use via the company’s bid for the U.S. Army Ground Combat Vehicle contest, in which it’s competing with General Dynamics Corp. (GD:US)

The program is under review as part of a wider strategy update ordered by Defense Secretary Chuck Hagel last month.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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Companies Mentioned

  • BA
    (Boeing Co/The)
    • $131.63 USD
    • 0.39
    • 0.3%
  • LMT
    (Lockheed Martin Corp)
    • $196.84 USD
    • 0.41
    • 0.21%
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