BAE to Expand Exports, Products

Mar. 25, 2012 By ANDREW CHUTER – Defense News

Wants To Use U.K. Ammunition Agreement as Template

LONDON — In 2008, the British government rescued BAE Systems’ munitions business here by inking a groundbreaking long-term supply deal.

Now, with British ammunition purchases trailing off amid budget cuts, BAE is looking to exports and new products to fill the gap and — it hopes — grow the business.

BAE is targeting Australia, France and New Zealand in a bid to create agreements similar to the company’s 15-year pact with the Ministry of Defence here. The Munitions Acquisition Supply Solution (MASS) has transformed the way Britain buys everything from small arms to 155mm howitzers.

Craig Fennell, head of BAE’s munitions business development in the U.K., said the company is also looking at getting back into regions where it used to sell products, such as the Middle East.

BAE’s strategic plan calls for developing about half of its revenues from non-MoD business.

MoD accounts for about 85 percent of revenue for a business in which BAE has invested over 200 million pounds ($317.3 million) in the past four years, building a shell case production plant near Middlesbrough and small arms production lines at its Radway Green plant, and upgrading an explosives filling plant in Glascoed.

No figures on BAE’s U.K. munitions revenue were available.

Fennell said generating additional revenue for the business is not just about exporting more ammunition. The business also has the potential to take on other roles.

“We are exploring whether we can get into things like filling bombs,” Fennell said. “We have done that kind of work before and could do it in the new facilities we have.”

BAE also has a number of new products in the pipeline, such as the European correcting fuze, which it is developing with Junghans Microtec of Germany.

Last month BAE launched a smart 81mm mortar bomb kitted out with General Dynamics-supplied roll-controlled fixed canards and a GPS. The precision mortar bomb was demonstrated to six countries, including the U.S., the U.K., Canada and the Netherlands, during a recent test firing at the Yuma Proving Ground in Arizona.

Although no decision has been made, BAE could also make the 40mm cased telescoped ammunition designated for the new CTA International cannon, to be used on British Army Warrior and Scout vehicles.

The MASS deal requires MoD to pay a strategic capability charge of 100 million pounds per year to cover most of BAE’s overhead and retain munitions capabilities in the U.K.

In return, MoD gets ammunition at prices fixed for five years at a time, although the company must guarantee it will reduce cost annually.

Both sides say it is among the best industry/MoD partnerships they have experienced in the U.K.

MASS was initially expected to be worth about 2 billion pounds over 15 years, but estimates are now closer to 3 billion pounds.

Under the MASS deal, MoD signals its ammunition requirements three years ahead. Therefore, the company can see well in advance how much spare capacity it has available for other customers.

BAE can already see that MoD’s projected take for 2013 and 2014 will be down from previous levels, after volumes of 81mm mortars and small arms more than doubled in recent years.

Other munitions, such as the 120mm tank shell, have not fared as well. Numbers of Challenger 2 tanks were radically cut and the vehicle has not deployed to Afghanistan.

Large-caliber ammunition production will likely never recover as Britain begins reducing equipment levels for the Challenger, AS90 155mm howitzer and other programs.

That production decline is being driven more by capability and manning cutbacks ordered by the government in its 2010 strategic defense and security review and less by the upcoming withdrawal of combat troops from Afghanistan, according to Col. Chris Sanderson, deputy leader of MoD’s general munitions team at the Defence Equipment & Support organization.

Sanderson said it was clear that by 2020 the quantities of munitions purchased by MoD will have fallen further below 2013 levels.

By then the MASS deal could become something other than just a production agreement, Sanderson said. The MoD is beginning to explore whether industry might have a role in providing a more cost-efficient service by maintaining, storing, transporting and disposing of ammunition.