24 January 2008
BAE Systems Australia has bought
Australia’s
second-biggest defence manufacture, Sydney-based Tenix
Defence Pty Ltd, for $775 million.
The sale contract was signed in
18 January in Sydney and is subject to regulatory
approvals in both Canberra
and Washington, DC, but is expected to be completed
by mid-2008. The purchase includes Tenix’s four
major defence businesses: Tenix Land, Tenix Aerospace,
Tenix Electronic Systems and Tenix Marine.
The deal makes Adelaide-based BAE
Systems Australia the country’s biggest defence contractor, with
revenues of $1.21 billion and a workforce of 5,300
personnel. It also makes BAE Systems Australia prime
contractor for the RAN’s $3 billion amphibious
landing ship, or LHD, program and a member of the Anzac
Alliance upgrading the RAN’s eight Tenix-built
Anzac-class frigates, as well as Australia’s
major player in the land systems sector.
In Australian Defence Magazine’s annual Top
40 listing of Australia’s defence companies,
Sydney-based Thales Australia topped the latest rankings
with revenues in 2007 of $757.5 million and a workforce
of 3,750 staff. In 2007 Tenix reported revenues from
its defence businesses of $650 million and a workforce
of 2,500 personnel. BAE Systems was fourth in the ADM
Top 40 ranking with revenues in 2007 of $560 million
and a 2,800-strong workforce.
“This acquisition more than doubles BAE Systems’ footprint
in Australia, making us the largest, in-country, through-life
capability provider to the Australian Defence Force,” BAE
Systems Australia’s CEO, Jim McDowell, said in
a statement 18 January. “It will significantly
enhance the depth and breadth of our capabilities in
Australia, adding a major naval business to our portfolio
while significantly increasing our land capability.”
“
BAE Systems is one of the largest defence companies
in the world with a record of innovation and leadership
in the defence sector,” said Tenix Chairman
Paul Salteri in a statement 18 January. “BAE
Systems’s purchase of Tenix’s defence
businesses will position these operations for the
future through access to enhanced R&D, expanded
distribution networks and access to greater capital.
[It] has the scale, the depth of production activities
and the experience to achieve the objectives that
we set at the start of this sale process of fostering
international growth for Tenix’s defence businesses.”
McDowell said in an interview 18
January the two companies have significant ‘complementarity’: BAE
Systems is a major manufacturer of artillery, armoured
vehicles and trucks in the U.S. and U.K.; in Australia
the company is a contender to replace the Australian
Army’s 155mm towed artillery under Project Land
17 with the M777 lightweight towed howitzer, and is
already prime contractor for a the $1 billion medium
and heavy truck element of the Army’s Project
Land 121 - Overlander. Tenix, meanwhile, is prime contractor
for the $550 million upgrade of the Army’s M113
armoured personnel carriers as well as being a contender
for the self-propelled artillery component of Land
17, teamed with Swedish manufacturer Bofors Ordnance
which, ironically, is also owned by BAE Systems.
Further down the track BAE Systems,
through its various military vehicle businesses in
the UK, Sweden and the
USA, will likely be a strong contender to replace both
the upgraded M113s and the Army’s ASLAV light
armoured vehicle fleets during the next decade under
Project Land 400.
Similarly, the two companies are
Australia’s
leading electronic warfare specialists. Between them
they manufacture Electronic Warfare Self Protection
(EWSP) systems for Australian Defence Force helicopters,
transport and patrol aircraft with separate contracts
under Project Air 5416 – Echidna. Tenix, meanwhile,
is prime contractor for Project Air 5391 Ph.6 - the
F-111 Interim EW Self-Protection program. And BAE Systems
manufactures the PRISM ESM system for RAN ships and
Nulka anti-missile decoys for the RAN, U.S. Navy and
Canadian Navy. But Australia has difficulty sustaining
two competing EW specialists, McDowell said. “This
makes it easier to make investment decisions and gives
us a fighting chance of sustaining the capability over
time.”
The deal means BAE Systems will
also acquire Tenix’s
two warship and patrol boat construction yards at Williamstown,
near Melbourne, and Henderson, near Fremantle in Western
Australia. As well as building the two Canberra-class
LHDs for the RAN, Tenix is building five offshore and
inshore patrol boats and a multi-role vessel for the
Royal New Zealand Navy under the NZ$550 million Project
Protector. It is also a key member of the Anzac Alliance,
based in WA, which sustains the RAN’s eight Anzac-class
frigates and is implementing the ships’ Anti-Ship
Missile Defence (ASMD) upgrade
While it’s hard to foresee further naval prime
contracts coming the way of the Williamstown yard,
both Williamstown (in the short term, at least) and
Henderson could become significant fabricators of hull
and superstructure modules for the RAN’s three
Air Warfare Destroyers as a sub-contractor to ASC.
And there will undoubtedly be other opportunities to
bid for both patrol boat and module fabrication work
in the future out of the Henderson yard. In the long
term the marine business will also be a strong through-life
support contractor for the RAN, especially on the West
coast.
However, it’s unclear whether or not Australia’s
new defence giant will be allowed also to buy the government-owned
submarine and warship builder ASC Pty Ltd in Port Adelaide
when this is put up for sale later in 2008.
ASC, which recorded revenues of
$312 million in 2007, is prime contractor for the
RAN’s $8.1 billion
contract to build three Navantia F100-based Air Warfare
Destroyers and also has a $3 billion, 20-year contract
to provide in-service support for the RAN’s six
Collins-class submarines.
The Australian government appears
at present to be pursuing a de facto two-shipyard
policy in order to
maintain competition within the naval construction
industry. In acquiring Tenix Defence, BAE Systems now
owns one of the two yards. While defence minister Joel
Fitzgibbon, in a pre-election debate in November 2007,
didn’t explicitly prohibit the new owner of Tenix
from acquiring ASC as well, he didn’t give such
a move an unambiguous green light either.
The Australian government hasn’t said when ASC
will be sold, nor how, nor how much of it. “The
process isn’t clear,” McDowell said, declining
to comment on the issue.
Noting BAE Systems’ heavy involvement in both
submarine and surface warship construction the UK,
McDowell has refused to be drawn on hypotheticals regarding
ASC. For the time being the former Tenix Marine is
its naval business in Australia and there are few obvious
synergies between its LHD, Anzac ASMD and Protector
programs, and the Type 45 destroyer and aircraft carrier
programs currently under way in the UK. It’s
probable that BAE Systems Australia will run its new
marine business as a stand-alone operation, at least
for the time being.
However, if the company is allowed
to acquire ASC, and succeeds in doing so, the potential
exists for
an injection of British surface warship and submarine
technology. The Royal Navy is even closer to the US
Navy than the RAN and it wouldn’t be hard to
imagine a situation where Australia becomes the constructor
and operator of a new family of non-nuclear submarines
as part of a global, tripartite naval alliance. However,
this speculation pre-empts any government decision
on the issues by many months.
The Tenix purchase also includes
two major joint ventures – RLM
Systems Pty Ltd, an Adelaide-based software and systems
engineering company jointly owned by Tenix and Lockheed
Martin; and TenixToll Defence Logistics, a partnership
with freight and logistics firm Toll Holdings, which
currently has the $900 million Defence Integrated Distribution
Systems (DIDS) trucking and warehousing contract.
Both partners have first refusal
on Tenix’s
share in these joint ventures, McDowell said, but BAE
Systems is keen to acquire Tenix’s share in both:
BAE Systems Australia’s Support Services division
has strong synergies with TenixToll’s operations;
and RLM Systems is responsible for supporting and upgrading
the RAAF’s Jindalee Operational Radar Network
(JORN), over the horizon radar system which is due
for its first major upgrade fairly soon. Meanwhile
BAE Systems Australia has supported over the horizon
radar operations and research by the Defence Science & Technology
Organisation (DSTO) at the experimental Jindalee radar
test bed at Alice Springs for some 20 years, he pointed
out.
The purchase of Tenix requires
formal approval from the Australian government’s Foreign Investment
Review Board and also the U.S. State Department where
the latter’s International Traffic in Arms Regulations
(ITAR) apply to both companies. But Tenix’s CEO,
Greg Hayes, briefed U.S. officials in Washington late
last year on the sale process, while BAE Systems’ McDowell
says that the Department of Defence and Defence Materiel
Organisation had been briefed and consulted at every
step so the deal is unlikely to be derailed by either
government’s red tape.
The company’s headquarters
will remain in Adelaide, according to McDowell, and
Tenix will be integrated
into the new organisation using the tools and processes
BAE Systems has developed over the past five years
through its program of mergers and acquisitions in
North America and Europe.
© Rumour Control 2008
ENDS
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