1977 to 1997
The company was formed in the United Kingdom as a statutory corporation on 29 April 1977 as a result of the Aircraft and Shipbuilding Industries Act. This called for the nationalisation and merger of the British Aircraft Corporation, Hawker Siddeley Aviation, Hawker Siddeley Dynamics and Scottish Aviation. In 1979 BAe officially joined Airbus, the UK having previously withdrawn support for the consortium in April 1969.
In accordance with the provisions of the British Aerospace Act 1980 on 1 January the statutory corporation was transferred to a limited company, which then re-registered as a public limited company (plc), under the name British Aerospace Public Limited Company, on 2 January 1981. On 4 February 1981 the government sold 51.57% of its shares. The British government sold its remaining shares in 1985, maintaining a £1 golden share which allows it to veto foreign control of the board or company.
On 26 September 1985, the UK and Saudi Arabian governments signed the Al-Yamamah arms deal with BAe as prime contractor. The contracts, extended in the 1990s and never fully detailed, involved the supply of Panavia Tornado strike and air defence aircraft, Hawk trainer jets, Rapier missile systems, infrastructure works and naval vessels. The Al Yamamah deals are valued at anything up to £20 billion and still continue to provide a large percentage of BAE Systems' profits.
In 1986, With Alenia Aeronautica, CASA and DASA, BAe formed Eurofighter GmbH for the development of the Eurofighter Typhoon.
On 22 April 1987, BAe acquired Royal Ordnance, the British armaments manufacturer, for £190 million. Heckler & Koch GmbH was folded into this division when BAe acquired it in 1991.
In 1988, BAe purchased the Rover Group which then was privatised by the British government of Margaret Thatcher.
In 1991, BAe acquired a 30% interest in Hutchison Telecommunications through a stock swap deal, where Hutchison was given a controlling stake of 65% in BAe’s wholly owned subsidiary - Microtel Communications Ltd. In August 1991, BAe formed a naval systems joint venture, BAeSEMA, with the Sema Group. BAe acquired Sema's 50% share in 1998. 1991 also saw BAe begin to experience major difficulties. BAe saw its share price fall below 100p for the first time. On 9 September 1991, the company issued a profits warning and later that week "bungled" the launch of a £432 million rights issue. On 25 September 1991 BAe directors led by CEO Richard Evans ousted the Chairman Professor Sir
Roland Smith in a move described by The Independent as "one of the most spectacular and brutal boardroom coups witnessed in many years." Evans described the troubles as a confluence of events:
"our property company [Arlington Securities] was hit with a lousy market. Sales of the Rover Group sank by about a fifth and losses mounted. The government's defence spending volumes underwent a major review. Losses in our commercial aerospace division increased dramatically with the recession in the airline industry."
In 1992, BAe formed Avro RJ Regional Jets to produce the Avro RJ series, an evolution of the BAe 146. In mid-1992 BAe wrote off £1 billion of assets, largely as part of redundancies and restructuring of its regional aircraft division. This was largest asset write-off in UK corporate history. The General Electric Company (GEC), later to sell its defence interests to BAe, came close to acquiring BAe at this time. BAe cut 47% of its workforce (60,000 out of 127,000), 40,000 of which were from the regional aircraft division.
Evans decided to sell non-core business activities which included The Rover Group,
Arlington Securities, BAe Corporate Jets, BAe Communications and Ballast Nedam. Although the rationale of diversification was sound (to shield the company from cyclical aerospace and defence markets) the struggling company could not afford to continue the position: "We simply could not afford to carry two core businesses, cars and aerospace. At one point Rover was eating up about £2 billion of our banking capacity." BAe Corporate Jets Ltd and Arkansas Aerospace Inc were sold to Raytheon in 1993. In 1994 the Rover Group was sold to BMW and British Aerospace Space Systems was sold to Matra Marconi Space. In 1998 BAe's shareholding of Orange plc was reduced to 5%. The Orange shareholding was a legacy of the 30% stake in Hutchison Telecommunications (UK) Ltd when Hutchison exchanged its own shares for a mobile phone company (Microtel Communications Ltd) from BAe.
BAeSEMA, Siemens Plessey and GEC-Marconi formed UKAMS Ltd in 1994 as part of the Principal Anti-Air Missile System (PAAMS) consortium. UKAMS would become a wholly owned subsidiary of BAe Dynamics in 1998. In 1995 Saab Military Aircraft and BAe signed an agreement for the joint development and marketing of the export version of the JAS 39 Gripen. In 1996 BAe and Matra Defense agreed to merge their missile businesses into a joint venture called Matra BAe Dynamics. In 1997 BAe joined the Lockheed Martin X-35 Joint Strike Fighter team. The company acquired the UK operations of Siemens Plessey Systems (SPS) in 1998 from Siemens AG. DASA purchased SPS' German assets.
Transition to BAE Systems: 1997 to 1999
Defence consolidation became a major issue in 1998, with numerous reports linking various European defence groups – mainly with each other but also with American defence contractors. It was widely anticipated that BAe would merge with Germany’s DASA to form a pan-European aerospace giant. A merger deal was negotiated between Richard Evans and DASA CEO Jürgen Schrempp. However, when it became clear that GEC was selling its defence electronics business Marconi Electronic Systems, Evans put the DASA merger on hold in favour of purchasing Marconi. Evans stated in 2004 that his fear was that an American defence contractor would acquire Marconi and challenge both BAe and DASA. Schrempp was angered by Evans' actions and chose instead to merge DASA with Aerospatiale to create the European Aeronautic Defence and Space Company (EADS). This group was joined by Spain’s CASA following an agreement in December 1999.
The GEC merger to create a UK company compared to what would have been an Anglo-German firm, made the possibility of further penetration of the United States (US) defence market more likely. The company, initially called "New British Aerospace", was officially formed on 30 November 1999 and known as BAE Systems.