BAE Systems Must Adjust its Cost-Base: New Chairman

U.K. aerospace giant BAE Systems must adjust its cost-base, according to newly appointed chairman, Roger Carr, amid ongoing cuts to defense budgets across the Western world.

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"Spending cuts are something the company has acknowledged and recognized; it has to adjust its cost-base... As with all businesses, you have to manage the costs, invest in new products and develop new markets. If you do that, typically, ultimately, you do well," Carr told CNBC on Friday.

BAE Systems confirmed the appointment of Carr on Wednesday. Carr will join BAE's board in October, and will take over as chairman from Dick Oliver in the first quarter of 2014. Carr is currently chairman of energy company Centrica, and previously headed confectioner Cadbury and pub and restaurant operator Mitchells & Butlers.

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Carr will join BAE at a challenging juncture for both the company and the aerospace and defense sector as a whole. BAE's reputation has been tarnished by last year's failed merger with Franco-German planemaker EADS, and by continual rounds of job cuts.

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Carr said that although market conditions remained challenging, the quality of BAE's management and workers would see it through "difficult times".

"BAE is a very good quality business and it has the competency and skills to excel in difficult times, and do really well when things get better," he said. "BAE is a pretty important part of the British industrial landscape, it employs 100,000 people, it is the major supplier to many countries around the world, it has a great heritage and it has a good future ahead."

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He added that BAE's biggest short-term challenge was coping with government cutbacks to defense budgets. Carr said he would aim to make BAE more efficient, in order to combat its past record of delays and expanded costs, when fulfilling government contracts.

"The mindset of both government and supplier is that we have to do this competitively on a global basis; the two organizations have to work closely together," he said. "BAE has got to make a profit for sure, but if we can be more efficient and work in greater harmony with our major customers, then I think that is a good outcome."

Earlier this week, BAE Business Development Director Peter Anstiss said that demand for jets from Asia and the Middle East could compensate for Western cutbacks, according to a report by Reuters. However, Carr emphasized his commitment to maintaining strong relationships with the U.K. and the U.S. governments, both of which are key clients.

"The defense companies can only deal, and should only deal, with those parts of the world that the British government feels is appropriate, and where there is in an allied relationship. So it isn't a normal commercial business," he said. "But I think that where you have customers, and there are many of them, the important thing is to work closely with them and use the unquestionable level of technology and competency that we have in that area to build bigger orders, and over time, bigger engagements."

BAE's stock has gained sharply this year and is up 15.62 percent year-to-date. In comparison, the FTSE 350, of which BAE is a component, is 7.73 percent higher since the start of 2013.

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