Announcement of organisational changes

A revised organisational structure will create strengthened Air, Maritime and Land sectors and remove management layers including the Platforms & Services (P&S) UK and P&S International operating groups. Technology remains a key priority for the Group, and a new Chief Technology Officer role will join the Executive Committee to focus on our investments, developments and exploitation of technologies across our products, services and operations.

The proposed restructuring of our Applied Intelligence cyber security business will drive continued growth from a more targeted portfolio of products and services focussed on providing leading cyber security, intelligence and financial crime prevention capabilities to government and commercial customers in priority geographic markets.

Separately, the company is today announcing proposed reductions to its Military Air and Information and Maritime Services workforce to align capacity more closely with current and expected orders.

Charles Woodburn, Chief Executive, BAE Systems plc, said:

“BAE Systems is a world leader in technology, advanced manufacturing and engineering and our diverse portfolio provides a strong platform for future growth. The organisational changes we are announcing today accelerate our evolution to a more streamlined, de-layered organisation, with a sharper competitive edge and a renewed focus on technology. These actions will further strengthen our company as we deliver our strategy in a changing environment.

“Separately, we are also announcing actions at some of our UK sites to align our workforce capacity more closely with near-term demand and enhance our competitive position 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. I recognise this will be difficult news for some of our employees and we are committed to do everything we can to support those affected.”

New organisational structure

The revised organisational structure of the Group’s operations (which excludes US-managed subsidiary BAE Systems, Inc.) will take effect from 1 January 2018.

Air: The new Air sector will bring together our international capabilities and expertise to respond to customer requirements, and compete more effectively for international export and collaboration opportunities. The Air sector will combine our current Military Air & Information, Saudi Arabia, Australia and Oman operations, as well as BAE Systems’ interest in the MBDA joint venture.
Maritime: A strengthened Maritime sector, comprising the Naval Ships, Submarines and Maritime Services businesses currently managed within P&S UK, will report directly to the Chief Executive.
Land: The Land (UK) business currently managed within P&S UK will report directly to the Chief Executive.
Applied Intelligence: A planned revised operating model will deliver a more targeted portfolio of products, services and geographic markets, focused on customers within three core business units: Government; Financial Services; and Technology & Commercial. The ongoing restructuring of our Applied Intelligence business includes the proposed reduction of up to 150 roles.

Military Air & Information

Discussions with current and prospective customers continue to support our expectations for additional Typhoon and Hawk orders, including the recently announced Statement of Intent by Qatar to purchase 24 Typhoon aircraft. Negotiations are progressing to agree a contract with the government of Qatar, which, if secured, would sustain Typhoon production jobs, and manufacturing well into the next decade. However, the timing of future orders is always uncertain and to ensure production continuity and competitive costs between the completion of current contracts and anticipated new orders, we now plan to reduce Typhoon final assembly and Hawk production rates.

The recently announced Statement of Intent from Qatar also included the intention to purchase six Hawk aircraft. While this is also subject to agreeing a contract between BAE Systems and the Qatar government, we have taken the decision to include this potential future order in production planning, extending Hawk manufacturing for a further 12 months at a reduced production rate. We are actively pursuing additional orders which, if secured in the next year, would further extend Hawk manufacturing.

Following the UK Government’s confirmation that the RAF’s Tornado fleet will be taken out of active service in 2019, Tornado support and sustainment activities at RAF Marham and RAF Leeming are progressively winding down and will cease at that time. Longer term, our presence at RAF Marham is underpinned by F-35 sustainment activities.

As a result of the above changes there is a total proposed reduction of up to 1,400 roles within the Military Air business across five sites, over the next three years.

Our Military Air UK operations will continue to benefit from the ramp-up of F-35 Lightning II production at Samlesbury to reach steady state production rates by 2020. Responsible for manufacturing 10% of every F-35 aircraft globally at our UK operations, we expect to maintain steady state production from 2020 well into the next decade. The business also benefits from significant support activities across Typhoon, Hawk and F-35, and we continue to invest in the technologies, skills and capabilities that are critical to maintain our leading position in military aircraft design, engineering, advanced manufacturing and support.

Maritime Services

In response to evolving customer requirements and an ongoing focus on efficiency improvements, a workforce reduction of around 375 roles is proposed across Maritime Services. The proposed rationalisation will more closely align capacity with workload, improve our competitiveness in order to retain and grow our position on key programmes, and retain critical skills and capabilities.

Trading Update

As outlined in a separate Trading Update announced today, trading for the period has been in line with management expectations and the Group's outlook for 2017 remains unchanged. In aggregate, we continue to expect the Group’s underlying earnings per share for 2017 to be 5% to 10% higher than full-year underlying earnings per share in 2016 of 40.3p and we continue to expect a small reduction in net debt compared with 31 December 2016.

ENDS

For more information, please contact:

Press office

T: +44 (0) 7801 717739

Rowan Pearman, BAE Systems

M: +44 (0)7721 107716

E: rowan.pearman@baesystems.com

Rachael Gordon, BAE Systems

T: +44 (0)3300 465301

M: + 44 (0)7793 423682

E: Rachael.gordon@baesystems.com

Notes to Editors

Executive Committee changes

From 1 January 2018, Chris Boardman, currently Managing Director, Military Air & Information, will be appointed as Group Managing Director, Air and will join the Executive Committee.
Nigel Whitehead, currently Group Managing Director, Programmes and Support, responsible for BAE Systems’ UK-based Military Air, Maritime, Land and Shared Services businesses, will be appointed as Chief Technology Officer (CTO) from 1 January 2018. In his new role as CTO, Nigel will continue to be a member of the Executive Committee.
Peter Lynas, Group Finance Director will assume responsibility for UK Shared Services, Procurement and Group Mergers & Acquisitions in addition to his existing responsibilities effective 1 November 2017 and will continue as Executive Board Director and member of the Executive Committee.
Guy Griffiths, Group Managing Director, International will be appointed as non-executive Chairman of the Air sector from 1 January 2018, supporting the Group Managing Director Air and reporting to the CEO.
All other Executive Committee members will continue in their current roles.

Proposed redundancies by location

	Proposed redundancies (approximated figures)
Warton & Samlesbury, Lancs	750
Brough, East Yorkshire	400
RAF Marham & RAF Leeming	245
Portsmouth & Solent	340
London, Guildford and other Applied Intelligence locations	150
Other UK locations	30
	1915