BAE's £2.6bn profit bonanza fuels row over 'affordable' pay as taxpayer billions flow in
Record profits and rising shareholder returns at Britain's largest defence contractor have collided with a month-long strike at its Lancashire factories, creating an uncomfortable spectacle for a government pouring unprecedented sums of public money into military spending. BAE Systems announced £2.6bn in pre-tax profits on Wednesday — up from £2.3bn the previous year — whilst more than 1,200 skilled workers at its Warton and Samlesbury sites remain on picket lines, demanding wages that keep pace with inflation.
The company's stated reason for rejecting the workers' demands? It must remain "affordable for customers". That argument becomes rather more awkward when those customers are increasingly British taxpayers, funding a defence budget surge to 2.5% of GDP by 2027, with reports this week suggesting it could reach 3% by the end of parliament.
What's interesting here is the timing. BAE's share price jumped 3% on the results announcement, rewarding investors who've watched the company turn geopolitical instability into consistently growing returns. Meanwhile, the workers who actually build the Typhoon jets and Tempest next-generation fighters are being offered 3.7% pay increases — below the current inflation rate — after receiving what Unite describes as 3.6% rises "against their will" in 2024.
When "market-leading" meets the picket line
BAE Systems insists its employees receive "market-leading pay and rewards", a claim the company repeated in its response to the ongoing industrial action. Unite disputes this characterisation rather vigorously. The union represents 5,000 workers across the two Lancashire sites, where average salaries sit around £50,000 for the skilled machinists, engineers and technicians whose labour underpins Britain's air combat capabilities.
The workers are demanding 5.2% pay rises for 2025, which they frame as compensation for last year's below-inflation settlements. The company's 3.7% counter-offer would, in real terms, represent another pay cut if inflation holds near current levels. Sharon Graham, Unite's general secretary, didn't mince words: "BAE's profits are little short of obscene. The company is making billions from government contracts and yet refuses to pay our members what they are worth."
That "obscene profits" line is union rhetoric, certainly, but the underlying numbers give it context. Sales climbed 10% to a record £30.7bn. The order backlog reached unprecedented levels. Chief executive Charles Woodburn told investors the company is "well-positioned" in what he termed "a new era of defence spending", expecting profits to grow by another 10% in 2026.
BAE maintains that most employees continue working normally and that contingency plans are minimising disruption. Yet the company's actions last autumn suggest it viewed the strike threat seriously enough to pursue legal remedies. It lost a High Court bid in November to prevent the walkouts — an attempt at blocking legitimate industrial action that may well have hardened union resolve.
The taxpayer's awkward position
Britain's defence industrial strategy now faces a contradiction it cannot easily dismiss. The government justifies spending increases by citing existential security threats and the need to maintain domestic manufacturing capability for critical military systems. Ministers regularly invoke national security when defending contracts with BAE, which employs around 98,000 people globally and remains Europe's largest defence contractor.
Yet when that same company posts record profits whilst claiming it must stay "affordable", the question becomes: affordable for whom? The Ministry of Defence isn't a price-sensitive consumer shopping around for fighter jets. Defence procurement operates in a highly constrained market with few suppliers capable of delivering complex systems like the Tempest programme, which Britain is co-developing with Italy and Japan.
The workers striking in Lancashire aren't assembling consumer electronics that can be manufactured anywhere. They possess specialised skills in aerospace engineering and weapons systems that took years to develop and cannot be easily replaced. Maintaining that skills base is itself a matter of national security — something the government acknowledges in policy documents even as its primary contractor argues it cannot afford inflation-matching pay.
Richard Hunter, an analyst at Interactive Investor, captured the dynamic neatly: "BAE is basking in the increasing heat of geopolitical tensions with a set of results which have comfortably blown past estimates." Russia's invasion of Ukraine, rising tensions with China, and broader instability have been demonstrably profitable for defence manufacturers. The company's order backlog reflects governments worldwide racing to replenish weapons stocks and modernise capabilities.
What comes next
The strike entered its third week in February, with Unite showing no signs of backing down and BAE apparently committed to its current offer. The company has run profitability through this period, suggesting either that the Lancashire sites aren't as critical as the union claims, or that BAE has successfully implemented workarounds that may ultimately reduce its dependence on this particular workforce.
Neither outcome seems ideal for workers. If the strikes genuinely threaten production schedules for Typhoon and Tempest, the government might eventually pressure BAE to settle — but that intervention hasn't materialised. If the strikes don't significantly disrupt operations, the union's leverage diminishes substantially.
For the government, the optics worsen as defence spending rises. Every additional billion allocated to the defence budget will invite scrutiny about where that money ultimately flows. Shareholder returns and executive compensation at major contractors become political liabilities when presented alongside below-inflation wages for the people doing the actual work. Labour has traditionally closer ties to trade unions than the Conservatives, making the situation particularly uncomfortable for Keir Starmer's administration.
Defence spending approaching 3% of GDP represents tens of billions in annual expenditure. Whether that investment genuinely enhances Britain's security depends partly on maintaining the skilled workforce capable of delivering complex military systems. BAE's profit margins suggest there's money in the system. The question now is whether any of it reaches the workers in Lancashire before their patience — and the government's tolerance for awkward headlines — finally runs out.
