By Rosalba O’Brien and Matt Scuffham
Published: 27 September 2011
(Reuters) – Europe’s biggest defense contractor BAE Systems said it will cut nearly 3,000 jobs in Britain as smaller global defense budgets hit orders for its fighter jets.
BAE said the four partner nations in the Eurofighter Typhoon program — the UK, Germany, Italy and Spain — were slowing production rates to help ease their budget pressures, affecting the workload at a number of sites.
The company, one of the largest prime contractors in the U.S, said production was also slowing on the F-35 Joint Strike Fighter jet, a U.S. program led by Lockheed Martin for which BAE produces the tailplane.
“Pressure on the U.S. defense budget and top level program changes mean the anticipated increase in F-35 production rates will be slower than originally planned, again impacting on our expected workload,” said BAE in a statement on Tuesday.
The 2,942 job cuts from Britain’s biggest manufacturer are a blow to the Conservative-led coalition government, which is seeking to rebalance the economy away from an over-reliance on financial services jobs in the overheated south-east of England.
Latest figures show unemployment rose at its fastest pace in two years, totaling 7.9 percent of the workforce.
Trades Union Congress chief Brendan Barber, speaking at the opposition Labour party conference in Liverpool in north-west England, said the job cuts were “yet another devastating body blow to our manufacturing base.”
Many of the job losses will come from the north-west, traditionally a center of British manufacturing. Two – in Warton and Samlesbury and involved in Typhoon and F-35 production – are based in Lancashire.
A third site in north-east England, Brough, makes the Hawk training aircraft. BAE said it had begun consultation on ending manufacturing capability at Brough, which also runs a structural testing facility. Around 400 posts will remain there from a current workforce of 1,300.
Critics of the government say its austerity program is choking off growth and risks plunging the country back into another recession.
Unite, the biggest trade union representing BAE workers, vowed to fight the lay-offs.
“The government cannot sit on its hands and allow these highly skilled jobs to disappear,” it said.
“It’s a dark day for thousands of skilled men and women across the country and it is a dark day for British manufacturing. BAE Systems have dealt a hammer blow to the UK defense industry and Unite is determined to fight the cuts.”
Weapons makers globally are bracing for more cuts in defense spending sparked partly by this summer’s debt-ceiling deal in the United States — the world’s biggest arms market.
British industry body ADS said it feared that the job losses would be “only the tip of the iceberg,” citing a fall in government defense spending from 10 percent 20 years ago to 5 percent currently.
“With such cutbacks under governments that have included all three major parties this is not a party political issue but a matter of the national interest that has a profound impact on the capabilities of both our Armed Forces and our industrial base,” ADS chairman Ian Godden said in a statement.
Howard Wheeldon, Senior Strategist at BGC Partners, said he had believed for some time that such a course was inevitable.
“While the loss…will be a serious blow to hopes of rebuilding the manufacturing skills base as a public company BAE must in terms of employment cut its coat according to the cloth available.”
The U.S. defense department is cutting at least $350 billion from previously projected spending, and additional cuts could kick in if Congress fails to find more deficit reductions by year-end.
Britain, meanwhile, slashed its defense budget by 8 percent last year to help reduce its deficit, hitting BAE, which makes around a fifth of its revenue in the UK. [ID:nLDE6720PZ]
BAE, which has already laid off around 15,000 employees worldwide over the last two years, reported a decline in first half pretax profit in July.
The company, which has a 33 percent stake in the Eurofighter joint venture company alongside EADS and Finmeccanica, is continuing to pursue Typhoon sales in India, Japan, Oman and Malaysia and has said exporting the fighter aircraft remains a priority.
British and U.S. arms suppliers have been battling to win new business in emerging defense markets as they look to offset the belt-tightening at home.
BAE shares were up 1.2 percent to 275 pence at 1056 GMT, underperforming a 2.5 percent rise in the blue-chip FTSE index.
(Additional reporting by Keith Weir and Stephen Addison in London and Adrian Croft in Liverpool; Editing by Chris Wickham and Sophie Walker)