Business

Why BAE bought Ball Aerospace and why it matters

Published

2 years ago

August 17, 2023

admin

For some time now there has been a growing air of confidence around BAE Systems.

That was underlined when, earlier this year, the UK’s biggest defence contractor reported a record order book.

And it was further emphasised when, today, BAE announced it is spending $5.55bn (£4.35bn) on the aerospace division of the US packaging giant Ball Corporation.

The deal, described by BAE as a “unique opportunity to strengthen BAE Systems’ world class multi-domain portfolio”, is the biggest acquisition this year by a British company.

The Ball Corporation is a specialist supplier of satellite systems, geospatial intelligence, tactical solutions and antenna arrays.

The acquisition of its aerospace arm takes BAE more deeply into both the space sector and into what, in defence industry jargon, is described as ‘C4ISR’ – command, control, communications, computers, intelligence, surveillance and reconnaissance.

Ball, the world’s biggest maker of aluminium drink cans, put the business up for sale earlier this year as it seeks to focus on packaging and to reduce its $9.7bn debt pile – which is partly a legacy of its £4.5bn takeover of Rexam, the former FTSE-100 packaging group, in June 2016.

Rivals beaten by BAE

BAE faced stiff competition to buy the business.

Private equity companies Blackstone and Veritas Capital were both in the running, as were other defence contractors, including the $61bn US giant General Dynamics and Textron, whose products include Cessna aircraft.

Charles Woodburn, the BAE chief executive, said the business – which BAE had not expected to become available – would be an “excellent addition” to BAE’s portfolio and an “excellent strategic fit”.

He added: “This is a significant and exciting day for BAE Systems.”

Mr Woodburn said Ball Aerospace was expected to grow its sales by 10% a year during the next five years and that it was also expected to add to BAE’s profits during the first year following the deal.

Ball Aerospace has already doubled its sales during the last five years and BAE expects those sales – which were $1.98bn in 2022 – to hit some $4bn by the end of the decade.

Mr Woodburn added: “We are making this acquisition from a position of strength. Ball Aerospace hits the mark in terms of a number of our strategic priorities… [including] defence, intelligence and scientific missions.”

Why BAE bought Ball Aerospace

Mr Woodburn outlined several reasons for buying Colorado-based Ball Aerospace.

The first is that the space sector is a market of growing importance to BAE’s customers. It will also deepen BAE’s relationship with the likes of NASA – one of Ball Aerospace’s key customers.

The second is the growing importance to BAE’s customers of environmental monitoring and surveillance as they seek to respond to climate change.

Ball Aerospace, which employs more than 5,200 people, is a key supplier of advanced remote sensing and other scientific systems and analytic tools and expertise.

It also enjoys a strong relationship with the National Oceanic and Atmospheric Administration, the US government body that provides daily weather forecasts, storm warnings and climate monitoring.

The third reason is the war in Ukraine.

Tom Arseneault, who heads BAE’s US arm BAE Systems Inc, said the war had led to a surprisingly rapid drawdown of munitions that was forcing governments to spend more in areas such as that serviced by Ball’s tactical solutions business, which supplies stealth cameras and antennas used on land and sea, and in air and space.

He said the company was optimistic about the regulatory process – a key point given that the US government, under first Barack Obama and then Donald Trump, has become increasingly sensitive in recent years about allowing the acquisition of strategic businesses by overseas buyers.

The deal means the US will now account for just under half of BAE’s global sales.

Debt fears cause shares to fall

Shares of BAE fell by just over 5% on the news amid concerns that BAE’s debt will increase following the takeover.

Some analysts also expressed concerns that Ball Aerospace’s profit margins are slightly below those enjoyed by BAE’s electronic systems arm.

BAE’s margin is between 15-17% while Ball’s margins are between 10-12%.

But Mr Arseneault dismissed that, arguing that synergies between the two businesses would in time bring Ball Aerospace’s margins higher.

He added: “As part of a company with like supply chains, similar customers and… the ability of the teams to leverage each other’s connections and buying power will… underpin margin improvement.”

That pledge probably stacks up given BAE’s recent history.

As Mr Woodburn noted, BAE has a track record during the last few years of improving margins in its electronic systems business, while more broadly it also has a solid track record in integrating acquisitions in this field.

Following the blockbuster merger between US defence giants United Technologies and Raytheon in 2019, US regulators forced the enlarged company to offload a number of businesses, two of which were subsequently snapped up by BAE.

These were successfully integrated into BAE’s electronic systems business despite the disruption posed when the pandemic erupted shortly afterwards.

The bigger picture is that, while many people associate BAE with military hardware such as jet fighters, tanks, submarines and torpedoes – all of which remain important parts of what it does – the company has been evolving over recent years.

Products and services in electronic systems, cyber security and intelligence are an increasingly crucial part of what it offers customers.

The war in Ukraine has highlighted, in particular, the importance of satellite technology.

The way warfare is conducted is changing – and this deal underlines how this important British business is responding.

Business

Government considering measure to slash industrial energy prices

Published

5 hours ago

June 19, 2025

admin

Government considering measure to slash industrial energy prices

Ministers are considering a commitment to cut soaring industrial energy prices for British companies to the same level enjoyed by competitors in France and Germany as part of its industrial strategy.

Sky News understands proposals to make energy prices more competitive are at the heart of final discussions between the Department for Business and Trade and the Treasury ahead of the publication of its industrial strategy on Monday.

Industrial electricity prices in the UK are the highest in the G7 and 46% above the median for the 32 member states of the International Energy Agency, which account for 75% of global demand.

In 2023, British businesses paid £258 per megawatt-hour for electricity compared to £178 in France and £177 in Germany, according to IEA data. Matching those prices will require a reduction of around 27% at a cost of several billion pounds.

Money blog: Interest rate held – but Bank of England gave ‘small surprise’

Earlier this month, automotive giant Nissan said UK energy prices make its Sunderland plant its most expensive in the world.

Business secretary Jonathan Reynolds is understood to be sympathetic to business concerns, and chancellor Rachel Reeves told the CBI’s annual dinner the issue of energy prices “is a question we know we need to answer”.

Extending relief

While around 350 companies in energy-intensive industries, including steel, ceramics and cement, enjoy some relief from prices through the energy supercharger scheme, which refunds 60% of network charges and is expected to rise to 90%, there is currently no support for manufacturers.

Sky News understands ministers are considering introducing a similar scheme to support the 200,000 manufacturing businesses in the UK.

Cutting network costs entirely could save more than 20% from electricity prices.

Explainer: Why are UK industrial electricity prices so high?

The mechanism for delivering support is expected to require consultation before being introduced to ensure only businesses for whom energy is a central cost would benefit. This could be based on the proportion of outgoings spent on energy bills.

It is not clear how the scheme would be funded, but the existing industrial supercharger is paid for by a levy on energy suppliers that is ultimately passed on to customers.

A central demand

Bringing down prices, particularly for electricity, has been the central demand of business and industry groups, with Make UK warning high prices are rendering businesses uncompetitive and risk “deindustrialising” the UK.

The primary driver of high electricity costs in the UK is wholesale gas, which both underpins the grid and sets the price in the market, even in periods when renewables provide the majority of supply.

Why are costs so high?

Wholesale prices account for around 39% of bills, with operating costs and network charges – the cost of using and maintaining the grid – making up another 25%, and VAT 20%.

Business groups, including the manufacturers group Make UK, have called for a reduction in those additional charges, as well as the so-called policy costs that make up the final 16% of bills.

These are made up of levies and charges introduced by successive governments to encourage and underwrite the construction of renewable sources of power.

Make UK estimate that shifting policy costs into general taxation would cost around £3.8bn, but pay for itself over time in increased growth.

Government sources confirmed that energy prices are a central issue that the industrial strategy will address, but said no final policy decisions have been agreed.

The industrial strategy, which is delayed from its scheduled publication earlier this month, will set out the government’s plans to support eight sectors identified as having high-growth potential, including advanced manufacturing, life sciences, defence and creative industries.

Business

Why are UK industrial electricity prices so high – and what can be done about it?

Published

5 hours ago

June 19, 2025

admin

Why are UK industrial electricity prices so high - and what can be done about it?

Britain has the highest industrial electricity prices in the G7, a cost businesses say makes it impossible to compete internationally and risks “deindustrialising” the UK.

Electricity prices are driven by wholesale fuel prices, particularly natural gas, but include taxes and “policy costs” that business groups, including Make UK and the CBI, want the government to cut.

Sky News understands the issue is a “live discussion” within government as ministers finalise the government’s industrial strategy, due to be published next week.

Money blog: Interest rate held – but Bank of England gave ‘small surprise’

So what are the options, and why are prices so high in the first place?

How much does UK business pay for electricity?

Industrial electricity prices in 2023 were 46% higher than the average of the 32 members of the International Energy Agency, a group that includes EU and G7 nations that, between them, account for 75% of global demand.

UK businesses paid an average of £258 per megawatt-hour, according to IEA data – higher than Italy (£218), France (£178) and Germany (£177), and more than four times the £65 paid on average in the USA.

While wholesale prices have been driven up in the last five years by external factors including post-pandemic demand and the Ukraine war, this is not a blip – UK prices have been consistently above the IEA average for decades.

Why are prices so high?

The main determinant is exposure to wholesale gas markets. Gas underpins the UK grid, reliably filling the gaps renewables and nuclear sources cannot fill. Crucially, gas also sets the price in the electricity market even when it is not the primary source of energy.

The UK market uses a “marginal pricing system”, in which the price is set by the last, and thus most expensive, unit of power required to meet demand at any one time.

That means that while renewable sources, initially offered at a cheaper price, may provide the majority of power in a given period, the price for all sources is set by gas-fired power stations providing the balance of supply.

Industrial electricity bills are lower in markets that are less exposed to gas. In France, gas sets the price less than 10% of the time because its fleet of nuclear power stations underpin supply.

What makes up electricity bills?

The biggest single element of electricity prices is wholesale gas costs, which make up 39% of the bill, according to industrial supplier SEFE.

The next largest element is “network costs”, charges imposed for using, maintaining and expanding the grid, which account for 23%. Operating costs are 2%, with VAT adding a further 20%.

The remaining 16% of electricity bills is made up of “policy costs”, levies and payments introduced over the last two decades to subsidise the construction of renewable power capacity, primarily wind power.

Increasing renewable supply and storage to reduce exposure has been the long-term solution favoured by successive governments. Sir Keir Starmer‘s administration has a target of shifting to a “clean power” grid by 2030 and achieving net-zero carbon emissions by 2050, a target Kemi Badenoch describes as “impossible”.

Some energy-intensive industries (EII), such as chemicals, steel, and cement, already receive support, with a 60% relief on network charges and a reduction of around 10% from the British Industry Supercharger fund, which the government is considering increasing.

What does business want?

Business groups are calling for these policy costs to be lifted and shifted into general taxation, calculating that a 15% reduction in prices would give them a chance of competing more equitably.

Make UK say cutting policy costs would cut 15% from bills, and is also proposing a “contract for difference” for manufacturers’ electricity, a model borrowed from the renewables market.

Under the plan, the government would guarantee a “strike price” for electricity 10% lower than the wholesale price. When prices are higher, the taxpayer would refund business, and when they are lower, industry would pay back the difference.

Make UK estimate the cost to the exchequer of £3.8bn. They believe it will be cost-neutral courtesy of increased growth. The alternative, they say, is an uncompetitive manufacturing sector doomed to decline.

“We need to see the government remove those costs in the industrial strategy,” says Make UK chief executive Stephen Phipson.

“We believe it will be cost-neutral because of the benefit to the economy of retaining manufacturing in this country. If we don’t see it happen, we will risk deindustrialising the United Kingdom.”

A government spokesperson said: “Through our sprint to clean power, we will get off the rollercoaster of fossil fuel markets – protecting business and household finances with clean, homegrown energy that we control.”

Business

Bank of England holds rate but eyes cuts ahead despite global risks

Published

11 hours ago

June 19, 2025

admin

Bank of England holds rate but eyes cuts ahead despite global risks

The Bank of England has signalled that a weakening labour market could yet trump rising global challenges to allow for more interest rate cuts in the near term.

Policymakers on the nine-member monetary policy committee (MPC) voted 7-3 to maintain Bank rate at 4.25%.

There was greater support than was expected for a cut.

The Bank had previously signalled that a majority on the committee were cautious about the effects of global instability – especially the on-off US trade war.

Money latest: What interest rate decision means for your money

But the minutes of the Bank’s meeting showed there was a greater focus on a rising jobless rate and evidence that employers are shedding jobs – indicating it had dominated the meeting.

It acknowledged, however, that there were potential challenges from the on-off US trade war and as a result of the Israel-Iran conflict.

The barrage of warheads has already resulted in double-digit percentage spikes to oil and natural gas prices in the space of a week.

“Interest rates remain on a gradual downward path,” governor Andrew Bailey said while adding that there was no pre-set path.

“The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation,” he added.

The Bank maintained its core message that it would take a “gradual” and “careful” approach.

“Energy prices had risen owing to an escalation of the conflict in the Middle East. The committee would remain vigilant about these developments and their potential impact on the UK economy,” the Bank said.

The rise in the UK’s jobless rate, along with recent data on payrolled employment, has been linked to a business backlash against budget measures, which kicked in in April, that saw employer national insurance contributions and minimum pay demands rise.

While a weaker labour market, including a fall in vacancies, could allow room for the Bank to react through further interest rate cuts, the spectre of war in the Middle East is now clouding its rate judgements.

The last thing borrowers need is an inflation spike.

The UK’s core measure of inflation peaked above 11% in the wake of Russa’s invasion of Ukraine – giving birth to what became known as the cost of living crisis.

Inflation across the economy was driven by unprecedented spikes in natural gas costs, which pushed up not only household energy bills to record levels but those for businesses too – with the cost of goods and services reflecting those extra costs.

Borrowing costs have eased, through interest rate cuts, as the pace of price growth has come down.

The rate of inflation currently stands at 3.4% but was already forecast to rise in the second half of the year before the aerial bombardments between Israel and Iran had begun.

LSEG data shortly after the Bank of England minutes were published showed that financial markets were expecting a quarter point cut at the Bank’s next meeting in August and at least one more by the year’s end.

Commenting on the Bank’s remarks Nicholas Hyett, investment manager at Wealth Club, said: “Conflict in the Middle East risks higher energy prices potentially pushing inflation higher – though calling the course of events there is almost certainly a mugs game, and the Bank has said that under current conditions it expects inflation to remain broadly at current levels for the rest of the year.

“The risk is that all the uncertainty leaves the Bank paralysed, with rates stuck at their current level,” he concluded.