Sunday Interview: BAE boss Nigel Whitehead : relations with EADS have strengthened

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Ahead of the decision on whether to close one of BAE's main British yards, Nigel Whitehead, the defence giant's UK CEO reveals his future plans.

Without any degree of understatement, this has certainly been a pretty significant year for the British defence giant BAE Systems and the drama is not over yet.

As the company tries to draw a line under its failure to merge with the Franco-German civil aviation giant, EADS (Euronext: EAD.NX - news) , there are pressing matters closer to home. And there, as the head of BAE's UK business, Nigel Whitehead is in charge.

On a cold and blustery day at BAE's training centre in Preston, Lancashire, Mr Whitehead calmly runs off the list of just some of the challenges his business is facing.

These include the Ministry of Defence's shrinking budget as George Osborne presses ahead with austerity measures; attempts to snatch back from France's Dassault Aviation (Other OTC: DUAVF.PK - news) a $10bn (£6bn) contract to provide India with Eurofighter Typhoon jets; and last but definitely not least is BAE's imminent decision on which dockyard it will close as part of a plan to consolidate British shipbuilding.

The latter process is a hugely contentious and emotive subject, putting thousands of jobs at risk. It boils down to a decision about whether to close BAE's Portsmouth shipyard, or one of its two Glasgow shipyards, located in Govan and Scotstoun.

Mr Whitehead says BAE is working closely with the MoD on the matter, with the decision predicated on future workloads once the two Queen Elizabeth class aircraft carriers at present being built are completed. Industry insiders expect the ultimate blow will be dealt to Portsmouth, which has naval roots dating back to the 13th century, and is where the Mary Rose was built between 1509 and 1511. "We will be making decisions this year, so we have a number of weeks in which to do that," says Mr Whitehead.

The challenge facing the MoD and BAE is to be realistic about the flow of work required to sustain Britain's shipyards, as well as preserving crucial defence skills within this country over the long term.

"The issue is how do we consolidate but make sure that we've preserved the capability to design and manufacture complex warships," says Mr Whitehead.

"We all understand that what we're dealing with is industrial capability which has to be maintained if we're going to make the next generation of ship. It's a mature way of looking at it."

He won't be drawn on what the future might hold for Portsmouth, Govan and Scotstoun, nor does he shy away from the reality that ending shipbuilding at one of the sites will almost certainly be part of the story.

"We anticipate that there will be a reduction in footprint and we anticipate that part of that might actually be the cessation of manufacturing at one of the sites."

A few miles down the road from the Preston training centre is BAE's sprawling military air facility at Warton, where around 6,000 staff are engaged on a number of programmes, including the Typhoon, Tornado and the high-security development of unmanned aircraft prototypes for the future of British defence.

The Typhoon programme was one of the driving forces behind BAE's desire to merge with Airbus (Paris: NL0000235190 - news) owner EADS, in what would have created a £30bn European defence and aerospace giant to rival America's Boeing (NYSE: BA - news) .

After losing out to Dassault's Rafale aircraft in the latest stage of negotiations with India, the Typhoon joint-venture partners decided a more formal partnership would help their cause on future bids.

Mr Whitehead says that although the collapse of talks which the companies were forced to abandon when Angela Merkel personally intervened to block the deal would slow BAE's international ambitions, something constructive had been gained for the Typhoon programme.

"The relationship with EADS has been strengthened. The mutual trust has grown as a result of the fact we were very authentic and honest with each other, and there was no sense of trying to outdo each other. So from that perspective there is a warmth between the two companies, and a willingness to focus our attention on jointly working to win export opportunities. It's positive."

As well as trying to snatch back the Indian contract from the jaws of defeat, BAE is also hoping to win a lucrative contract to provide the United Arab Emirates with 60 of its Typhoon fighter jets.

On that project, BAE and its partners have had considerable help from David Cameron, who travelled to the Middle East earlier this month to strengthen relationships with the UAE and other countries, and to smooth the path for future Typhoon orders.

The significance of the Prime Minister's personal intervention is not lost on Mr Whitehead: "It makes a huge, huge difference. First (OTC BB: FSTC.OB - news) of all, it sends a very strong message to our customers. BAE Systems (LSE: BA.L - news) tends to sell to nation states rather than to individuals, and those nation states look for the nature of the relationships they have with the UK.

"It also sends a message internally within government, that this is something the Government wants to do. It is an active leadership and it is one that has had a big ripple effect through government and through industry.

"The onus is now on me to come up with compelling propositions and proposals within the export market. But I'd rather be in that position than trying to persuade others to help me."

He says the support given by the Government to British manufacturing is "very real", and suggests this is a major change compared with pre-crisis times.

"As recently as six years ago, I gave a public speech where a government official stood up and said: 'Why doesn't your company decide what it wants to be when it grows up? Why don't you just get out of manufacturing and do some high-level intellectual stuff instead?' I would not hear that today.

"Manufacturing is actually on the up in the UK. It still provides 10pc of all the employment in the UK, and we're still the sixth-biggest manufacturer in the world as a nation."

Of course, BAE is also involved in the "high-level intellectual stuff" too, including its cyber security and intelligence business, Detica, which employs around 2,500 people in the UK.

Back at the training centre though, it is building and preserving defence and manufacturing skills in the UK that has brought Mr Whitehead to Preston on a cold Monday morning, and he is clear on the need to catch people at a young age.

"Although we design and produce some of the most complex machines conceived by human beings anywhere on the planet, the reality is that the organisation rests very heavily on those who are employed post their GCSEs, and we grab them at that stage and mould them into the sorts of people that can make a contribution in the type of workplace that we need to create these complex machines.

"It is by no accident that we end up in a position in a meritocracy where our organisation is run by ex-apprentices."

Mr Whitehead is critical of some fellow manufacturers, accusing them of being "lazy" when it comes to training skilled workers. "Only 8pc of companies have apprentice-ships, and only 11pc of manufacturing companies in the UK have apprenticeships and that's a concern. And a number of companies have taken advantage of the downturn and assumed that they can employ people with skills and experience without having to train."

He says it is left to companies such as BAE to try to bridge the gap in the employment market, which has left more than 1m 16- to 24-year-olds out of work in what Mr Whitehead describes as "a national tragedy".

But he recognises that paying for training is not easy for many smaller companies, so he is helping some of BAE's UK suppliers by establishing a scheme to train 50 apprentices.

If BAE and others do not take responsibility for training young people, Britain will miss out in "the global economic race", says Mr Whitehead. The country has been warned.

= N igel Whitehead CV =

Age 49

Born Aberdeen

Family Married to Heather, two daughters

Career Joined Rolls-Royce as an engineering apprentice. Aerodynamicist with British Aerospace, later group MD of BAE's military air solutions unit. In 2008, became UK head of BAE Systems

Not a lot of people know... he is passionate about painting and harbours an ambition to be a professional artist