Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The head of Britain’s biggest defence company highlighted the challenges the industry has faced in ramping up armament production in response to the war in Ukraine, saying large increases can take up to two years.
BAE Systems chief executive Charles Woodburn said “this current generation” of European policymakers “absolutely get it” in terms of the need to have a solid industrial base, but the “question is about long-term national priorities over time”.
“Complacency can quickly set in, in times of peace, and it’s fair to say we’ve seen some of that,” he told the Financial Times, after BAE reported a record order backlog in the last financial year driven by new submarine contracts and demand from Ukraine.
Two years on from Russia’s invasion, the conflict has turned into a test of Europe’s industrial production capacity, as governments have raced to refill national stockpiles of ammunition and explosives that were depleted to meet surging demand from Ukraine’s armed forces.
BAE has increased production of 155mm artillery shells under a contract with the UK Ministry of Defence that will see it raise its production capacity eight-fold. Woodburn said BAE was making good progress on its investment plans and expected the higher output to come “on stream at the back end of this year”.
One of the lessons from the conflict, however, has been that while companies can add capacity from existing footprints, “there are limits to what you can do”.
“You can pretty much double your throughput by adding shifts and running your capacity flat out, but you can’t do much more than double,” he said.
To do multiples of that, he added, “takes time . . . you are looking at two-year lead times”.
Governments, he said, also needed to consider the time it takes to restart halted production lines, which could take “two to three years”.
Having “warm lines is very important, which then means all governments have to think carefully around sovereign capabilities at times of real pressure in terms of your strategy — what can you produce nationally versus what can you import from elsewhere”.
BAE, which builds everything from Eurofighter Typhoon jets to nuclear submarines and combat vehicles as well as making ammunition for the British military, on Wednesday reported higher sales and earnings for the last financial year. Sales to the end of December 2023 were up 9 per cent to £25.3bn while underlying earnings before interest and tax also increased 9 per cent to £2.68bn.
The company’s order backlog reached a record level of £69.8bn, driven by an order intake of £37.7bn following a number of contract awards, including for Britain’s next generation of nuclear submarines as well as combat vehicles.
The company is forecasting sales for the coming year to increase by up to 12 per cent and underlying earnings to rise up by to 13 per cent.
Woodburn said BAE may receive new orders for Typhoon jets, combat vehicles and munitions this year.
Read the full article here