BAE turns its sights on US

BAE Systems has launched a search for a senior American businessman to become a non-executive director.

The high-profile appointment is designed to strengthen the board at a time when the defence giant is growing swiftly in America and weighing up a major merger there.

Nearly 30% of BAE's defence business is now in the US and the dramatic growth of the Pentagon's budget brings potential for further expansion.

The decision to hire an American also reflects the fact that US institutions now own most of the group's shares.

BAE has made it clear that it would consider a strategic merger with an American or European company. However, recent moves by Paris to create a French defence giant have encouraged BAE to look to America.

Thales, the French high-tech weaponry company working with BAE on building two aircraft carriers for the Royal Navy, has been considered a target for a merger. But Paris wants instead to encourage a merger between EADS, France's biggest defence company and Thales.

BAE is more likely to seek a partnership with Lockheed Martin in the US because Boeing, with which BAE has good relations, ruled out a link-up earlier this year. Dick Olver, the new BAE chairman, is convinced that the company is in a unique position because of its ability to run leading businesses in both Europe and America.

Olver is expected to purge the board of some old guard Tory politicians to make way for the new American non-executive board member. Former Defence Secretary Michael Portillo andformer Chief Whip Lord Hesketh, are believed to be vulnerable.

Olver, a former deputy chairman of BP, is believed to be unimpressed by some of the board's lack of strategic awareness of BAE's strengths and weaknesses.

The company's shift in strategic focus comes as it starts to grapple with the embarrassment of a Serious Fraud Office probe into suspected false accounting connected to allegations that a slush fund was used to influence officials in Saudi Arabia.

The alleged slush fund is said to have been used to pay for exotic holidays, limousines and other expensive gifts for Saudi princes, as well as staff from the Ministry of Defence.

BAE denies wrongdoing. But the danger for the company is that the publicity-shy Saudis may take their business elsewhere.