LONDON (Reuters) - BAE Systems’ new boss will cut around 2,000 jobs at Britain’s biggest defence contractor to tackle dwindling orders for the Typhoon fighter jet and the loss of revenue from Cold-War era aircraft nearing retirement.
The Eurofighter Typhoon has won fewer orders this year than rivals such as the Rafale built by France’s Dassault Aviation, and BAE is slowing production while it waits for Qatar to confirm its intention to buy 24 of the jets.
A bigger order expected from Saudi Arabia has not materialised.
The aircraft is the most important in BAE’s portfolio, accounting for nearly a third of its air unit’s sales last year.
Chief Executive Charles Woodburn, who took the top job in July after 15 months as chief operating officer, said BAE had to align its workforce capacity more closely with near-term demand and become more competitive to secure new business.
“Those actions are necessary and the right thing to do for our company, but unfortunately include proposed redundancies at a number of operations,” he said on Tuesday.
The looming loss of skilled manufacturing jobs and the potential ripple effect on the regions affected caused concern among politicians and unions.
Business minister Claire Perry said she would work with BAE to keep compulsory redundancies to a minimum.
“The company assures us that reductions can be managed on a voluntary basis as far as possible,” she told lawmakers.
She said BAE was cutting the jobs to improve the efficiency of its operations.
“This is not related to any UK defence spending decisions,” she said, adding that the government had spent 4 billion pounds ($5.3 billion) on BAE’s products and services in the last year.
UK-based defence analyst Francis Tusa said BAE was facing a double squeeze from confirmed orders for Typhoons drying up and Cold War Tornado jets, for which BAE has lucrative support contracts, nearing retirement.
BAE said that based on current orders for the Typhoon it needed to reduce the workforce at its sites in Warton and Samlesbury, northern England, where it makes parts for the aircraft, by 750.
Another 400 jobs will go in Brough, north east England, where the company makes the Hawk training jet, it said. Qatar said last month it intended to buy six Hawks in addition to the Typhoons.
It is also winding down support for Britain’s Tornados, which will be taken out of services in 2019, resulting in 245 job cuts at two RAF sites.
Britain’s Unite union vowed to fight the “devastatingly short sighted” job losses that it said would undermine the sovereign defence capability of one of the European Union’s top two military powers.
BAE, which in previous guises has been the backbone of Britain’s defence industry for decades, employs 34,600 people in the country out of its global workforce of 83,100.
BAE, which designs Britain’s new Dreadnought class of nuclear submarine, said it will also cut around 340 jobs at its maritime operations in Portsmouth and Solent, southern England.
And 150 jobs will go at its Applied Intelligence unit that helps companies and governments fight cyber-warfare.
THINNING OUT LAYERS
Defence analyst Howard Wheeldon said the cuts were essentially due to a gap in orders emerging in key programmes.
“It is the stamp of a new CEO who has looked across the group and decided where it needs to be heading,” he said.
“It takes out a management layer and lays out a new structure and the people for the years ahead.”
Woodburn plans to remove layers of management and organise the business around air, maritime, land and applied intelligence units from January.
Just over half of BAE’s 19 billion pounds ($25 billion) of sales in 2016 came from its aircraft business, which is also a partner in the F-35 Lightning II combat jet programme.
BAE said in August that any new orders were unlikely to impact production delivery rates positively for at least 24 months, and production would be under constant review.
The company said on Tuesday that discussions with current and prospective operators of the Typhoon continued to support its expectations for future contract awards.
The job losses and restructuring did not change its outlook for the year, the company said.
It said it still expected its underlying earnings per share to be 5 percent to 10 percent higher than full-year underlying earnings per share in 2016 of 40.3p and it continued to expect a small reduction in net debt compared with 31 December 2016.
Shares in the group were trading down 0.7 percent at 614.5 pence at 1500 GMT.
($1 = 0.7583 pounds)
Additional reporting by Tim Hepher; editing by Jason Neely and Keith Weir
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