Business

If BAE isn't hurting, how tough are the cuts?

BBC business editor Robert Peston looks at defence spending issues

How tough are the Ministry of Defence's cuts?

Well, in the end they can't have been that severe, because I don't expect BAE Systems - which in the case of the UK can be described as our very own military industrial complex (to use that great Eisenhower phrase) - to issue any kind of profits warning, when it makes its interim management statement on Thursday.

What BAE loses in maintenance contracts on the decommissioned Harrier jets and assorted boats, it will make up (in part) putting catapults and "arrestor" gear on those bloomin' carriers so that they can accommodate the conventional model of the Joint Strike Fighter.

Now you might assume that the cancellation of the Nimrod MRA4 programme, as announced by the prime minister, might be painful for BAE.

But what I see at BAE is mild bemusement rather than tears.

The point is that after eight years of delays and 200% inflation in the cost of each aircraft, the diminished fleet of nine reconnaissance aeroplanes is almost complete, at a cost to the taxpayer of more than £3bn.

As I understand it, one plane has already been handed over and another six are almost completed.

Work on the programme is about 90% complete.

There will be a cost to BAE, in that it would have received a contract to maintain the aircraft once it entered service. So a limited number of jobs at BAE that would have been created will now disappear.

But BAE has been paid to build this aeronautical white elephant - a kind of hi-tech Dumbo - which is the big bit of the contract.

If the plane is finished, why on earth is it being ditched by the government?

Well apparently there will be useful savings in running costs. I'll let you know how much, when I can quantify that saving.

So what will happen to these unbelievably whizzy reconnaissance and intelligence-gathering planes, which are equipped with more than 90 antennae and sensors and can scan an area the size of the UK for military threats every 10 seconds?

The MoD will take delivery of them. But officials say that they haven't yet decided what their fate will then be.

The Nimrods could be dismantled, or put in storage (they'd need a pretty big shoe-box).

And I suppose they could be sold - although I am told that's unlikely, because they were designed with the UK's particular defence needs in mind, especially its idiosyncratic nuclear submarine fleet.

That said, if you have a few billion squids lying around, and you fancy the latest in aeronautical cloaking and monitoring technology, I know a prime minister who might well be open to offers.‬‪

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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