x Abu Dhabi, UAEMonday 22 January 2018

BAE chief defiant even in eye of the storm

After the failure to merge with EADS, Dick Olver reflects on what went wrong during a visit to the UAE, where he wants to help build an industrial capability alongside oil and energy

Dick Olver, the chairman of BAE Systems, says the UAE is really important to the company and has huge ambitions here. Christopher Pike / The National
Dick Olver, the chairman of BAE Systems, says the UAE is really important to the company and has huge ambitions here. Christopher Pike / The National

Dick Olver has many things on his mind as he settles briefly into the comfort of an Abu Dhabi hotel suite.

For one, there is the helicopter warming up at Al Bateen airport to take him to Al Ain to see one of his UAE business projects there.

The chairman of BAE Systems, one of the world's biggest defence contractors, is also weighing the reasons for the collapse of the so-called "deal of the decade", the merger with the Airbus manufacturer EADS that fell through last week.

He is assessing the attitude of his shareholders following the failure of the deal. There have been some suggestions that he should change the strategic direction of BAE, or else consider his position.

But there is also more normal business. Despite the intrigue back at London HQ, which has taken on a decidedly political aspect since the deal's collapse, Mr Olver must get on with the job of helping to sell BAE's sophisticated high-tech weaponry to clients around the world.

That is why he was in the UAE this week, on a trip to Abu Dhabi to see business partners, and no doubt get the latest state of play on some of the big multibillion-dollar contracts currently at stake in the Arabian Gulf region.

"I've been coming here many years, in the oil industry with BP and now in my defence days. I know it pretty well and it's very important to BAE," he says.

But first things first. Who was to blame for the failure of the merger with EADS? He is adamant: "The French wanted it, the British government was hugely helpful, and the US was intrigued. But we never got to the point of explaining it. The Germans said no.

"Angela Merkel [the German chancellor] took Tom Enders [the chief executive of the Airbus manufacturer EADS] by surprise. He didn't expect her to be so negative. She was the one who made the deal not go ahead."

Mr Olver is equally adamant on the way forward, especially in the face of unease among some shareholders. "The prize was so large, the risk was worth taking. But the strategy remains the same. There are no issues in the relationship with the US and with EADS. In fact, those relationships will be enhanced by what has happened."

On Invesco Perpetual, the largest shareholder with 13 per cent of the shares and which voiced public criticism of the deal and Mr Olver's strategy, he says: "I meet with shareholders every day and will continue to do so. Invesco didn't want to do this deal and didn't want acquisitions of any kind. They wanted only to sweat the assets."

Some observers have suggested BAE is now "in play" from an American takeover bid after the deal's failure, but he is having none of that either.

"There is no reason the big US primes [aerospace companies such as Boeing or Lockheed] would want to double the size of their defence business at a time when the market is turning down because of budget cuts. Would they pay a premium? No."

It has been suggested that the price of shareholders' backing for Mr Olver's strategy will be his commitment to return some £500 million (Dh2.95 billion) to investors this year by way of a share buy-back, and that this is dependent on his ability to clinch deals in the Middle East.

On the first part, he defends his record: "BAE is cash-generative and the dividend has risen each year for the eight years I've been in charge. We've given back £500m for each of the past two years," he insists.

But he does recognise the importance of the Middle East to the ongoing business. "In Saudi Arabia we have very large government-to-government relationship, and that generates a huge amount of business." BAE is hoping that the Saudis will soon clinch a deal for the purchase of 72 Typhoon airplanes which, with long-term contracts on training, maintenance, missile supply and other bits of business, could be worth £7bn.

The company is also in the final stages of agreeing a deal with Oman for the purchase of 12 Typhoons which, with other air, land and sea ordnance could be another valuable contributor to the shareholder handout fund.

In the UAE, there is also a growing amount of work. "We have a long history in the UAE and huge ambitions here. The Hawk training aircraft has been in use a long time, and we're in an agreement with International Golden Group [an Abu Dhabi company] to supply RG31 armoured cars. These can be assembled here in UAE. The relationship with IGG is very important."

BAE is in partnership with Mubadala Development, a strategic investment company owned by the Abu Dhabi Government, in the Strata project in Al Ain, where composite airplane parts are made. He would like this to be the start of something bigger.

"The UAE's really important to us, and we'd like to do more business here, in land systems, cyber and security. We're talking to the whole of the industrial base, and would really like to help with the long-term strategic vision of the UAE by helping put in place an industrial capability alongside oil and energy."

Then he is off to the helipad for the trip to Al Ain, but with a defiant message to dissident shareholders: "I am the chairman of the board and I am confident of the board's full support."