Bae Takes A Billion-Dollar Gamble
The US alone will buy around 3,000 of the aircraft, and users of the F-16 worldwide are bound to be interested in the next-generation, radar-avoiding stealth JSF. For Lockheed and Boeing, the two US companies fighting to win the contract to produce the jet when a final decision is made in 2001, the outcome of the JSF competition will determine who dominates the fighter industry in the 21st century.
The programme is so big it has already claimed one large corporate victim years before the first jet rolls off the production line; it was McDonnell Douglass elimination from the competition last November which finally led the company to sue for terms and merge with Boeing. If the programme is vital for US aerospace giants, it is equally important for British Aerospace. The British government is putting $200 million into the JSF programme in the expectation that the jump jet version of the aircraft will produce a supersonic replacement for Britains ageing Harriers.
Yet JSF is worth far more to BAe than the 60-80 jets which the ministry of defence might order for the navy. Lockheed has offered BAe 12 per cent of the whole production run of the aircraft, a deal which could be worth more than 10 billion ($16.3 billion) to BAe in the 20-year life of the programme.
More than that, it will give BAe access to advanced US technologies and engineering processes to keep it close to the cutting edge in fighter design. Most important of all however it forms a strategic partnership between BAe and Lockheed, which could form a nucleus for a future transatlantic aerospace company. Given the stakes, and the importance attached by the Pentagon to the presence of the UK in the programme, both Lockheed and Boeing had been pursuing BAe hard in recent months to form the kind of strategic team announced yesterday. BAe has had to tread carefully, having picked the wrong partner by backing McDonnell Douglas in the first round of the competition. Boeing started with an advantage.
Having quickly agreed a full merger with McDonnell, it offered BAe an attractive package of work on its JSF design. Given that BAes engineers have formed close relationships with McDonnell by the co-operation on US versions of the Harrier and Hawk trainer over many years, BAes military aircraft division was keen to support the Boeing bid. Lockheed was initially slower to respond, and made BAe an offer which gave it production work for its factories, but a less enticing package of high technology development work. However, as negotiations progressed over the spring, Lockheed was forced to match the terms offered by Boeing. In choosing between the two bids, Sir Richard Evans, BAes chief executive, was looking for a strategic deal which would leave him well placed with technology and in the right place to seal a transatlantic defence merger if it became a possibility in the future.
He also had to balance internal concerns. While his military colleagues favoured Boeing, his civil airliner operations, part of the Airbus consortium, was worried at the potential reaction of BAes continental partners to a deal with their bitter rival. Eventually, the possibility that a future combined European defence and aerospace company, formed from the Airbus partners, could form an alliance with the largely military Lockheed to rival Boeing in the world market, was the deciding factor. One consideration remains however. Sir Richard and his colleagues cannot yet be certain that they have picked the winning aircraft. Having sounded confident about their previous alliance with McDonnell and then badly beaten, they cannot afford a second mistake. Bernard Gray BAe has had to tread carefully, having picked the wrong partner in the first round Copyright Financial Times Limited 1997. All Rights Reserved.