British defense manufacturer BAE Systems is establishing a presence in Ukraine and has entered into agreements with the Ukrainian government to enhance its supply of weaponry and gear.

BAE intends to collaborate directly with Kyiv to identify potential partners for a project aimed at manufacturing 105mm light artillery guns in Ukraine. This initiative aims to gain a better understanding of Ukraine’s specific weapon requirements.

As the United Kingdom’s largest defense contractor, BAE Systems has been responsible for producing a significant portion of the equipment provided to Ukraine to help counter the Russian invasion. The UK plays a crucial role as a defense supplier to Ukraine, with recent contributions including long-range cruise missiles.

Ukrainian President Volodymyr Zelenskiy expressed his view that the most effective weapons currently aiding Ukraine’s defense efforts should be manufactured within the country. This aligns with Ukraine’s priority to develop its own weapons production capabilities. In May, Zelenskiy had already indicated plans to establish a BAE office in Ukraine.

Ukraine is eager to expand its arsenal, encompassing drones, munitions, and tanks, while simultaneously seeking to create job opportunities in an economy severely affected by ongoing conflicts.

BAE Systems, having benefited from increased defense spending due to the conflict, is already providing training and repair services to Ukraine’s armed forces.

Additionally, Ukraine has signed a statement of intent with Sweden to strengthen cooperation in the production and operation of armored vehicles from the CV90 family, produced by a Swedish division of BAE.

Western defense firms have been evaluating the potential for weapon production in Ukraine, taking into account security concerns.

Meanwhile, a Ukrainian armaments company known as Ukrainska Bronetekhnika, or Ukrainian Armor, has recently announced the resumption of production and delivery of mortar guns to the Ukrainian military. This includes a variety of mortar calibers and the production of artillery shells in collaboration with European manufacturers. Ukrainian Armor also manufactures Varta and Novator armored vehicles.

We’re not yet sure how much of this plan is merely propaganda designed to deflect criticism from Ukraine. After all, it was former PM Boris Johnson who derailed the Ukraine-Russia peace accord in late 2022, and a military plan like this should never be publicly advertised if the true goal is to win a war.

BAE Systems’ management is eager for this project to proceed as the company has been facing financial challenges due to a lack of active wars overseas, except in Ukraine.

Back in 2010, BAE Systems PLC pleaded guilty for bribery, and was ordered to pay $400 Million criminal fine by the US District Court in DC for “willfully making false statements to U.S. government agencies.”

“Today, BAE Systems pleaded guilty to knowingly and willfully making false statements to U.S. government agencies. The actions of BAE Systems impeded U.S. efforts to ensure international trade is free of corruption and to maintain control over sensitive U.S. technology,”

Gary G. Grindler, Acting Deputy Attorney General

“BAE Systems will pay a $400 million fine for its criminal conduct – one of the largest criminal fines ever levied in the United States against a company for business related violations. The remediation measures BAE Systems has undertaken, in conjunction with its agreement to retain an independent compliance monitor, are evidence supporting BAE Systems’ stated commitment to ensure that it operates in a transparent, honest and responsible manner going forward. The Department of Justice will continue to hold accountable companies that impair the operations of the U.S. government by lying about their conduct and operations.”

https://www.justice.gov/opa/pr/bae-systems-plc-pleads-guilty-and-ordered-pay-400-million-criminal-fine

Since then, BAE System’s finances forced the company to lay off some of its staff. Information on several instances of layoffs by BAE Systems during this 2010 to 2023 period includes the following:

• In March 2010, BAE Systems laid off about 100 workers at a military vehicle facility in West Chester, Ohio, after losing a major contract^[4].
• In May 2010, BAE Systems announced that more than 600 people had lost their jobs since March, and an additional 130 workers would be laid off due to the overall economic climate for its industry^[5].
• In January 2013, BAE Systems laid off 300 employees, two-thirds of them at its plant in southern New Hampshire, due to changing staffing requirements and the overall economic climate for its industry^[2].
• In August 2016, BAE Systems announced that it may lay off up to 200 workers at its shipyard in Alabama in the fourth quarter of 2016^[6].
• In July 2017, BAE Systems warned of hundreds of layoffs at its San Diego shipyard due to changing staffing requirements and the overall economic climate for its industry^[3].
• In March 2023, BAE Systems laid off nearly 150 people in the US due to changing staffing requirements^[1].

It is important to note that the search results may not be comprehensive or up-to-date, and the actual number of employees laid off by BAE Systems from 2010 to 2023 may be higher.

Another reason why this is all propaganda is to raise its stock valuation as it plans for purchase debt-ridden Ball Aerospace.

BAE Buys Ball Aerospace: The Bad News for Investors

As Ball explains in its press release, BAE is picking up Ball Aerospace for a price of 19.6 times trailing EBITDA. Yet BAE Systems stock itself sells for only 10.6 times trailing EBITDA. So by one metric, at least, BAE is paying a valuation nearly twice that of its own stock to acquire Ball Aerospace.

And by some other metrics, as well. For example, BAE is paying 32.9 times 2022 operating profit for Ball Aerospace. (BAE’s own price-to-EBIT ratio is 12.8). BAE is paying 2.8 times sales to acquire Ball Aerospace. (BAE’s price-to-sales ratio is only 1.3).

Long story short, if Ball isn’t getting a great deal selling Ball Aerospace, well, BAE isn’t getting much of a better deal buying it, either.

https://www.fool.com/investing/2023/08/28/bae-buys-ball-aerospace-the-bad-news-for-investors/

Another significant challenge for the UK is the reported Russian objective of concluding its denazification operation in Ukraine before the end of the year, or early next year.

One thing is certain, though: Russia is likely to send Kalibr supersonic missiles to the weapons manufacturing plant before it can produce any obsolete weapons of war, as it has been doing throughout the campaign, and that’s how this elaborate plan will explode.