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BAE Systems rues cuts in defence spending

BAE Systems sales in 2011 fell by 14% to £19.2bn, due to lower demand for US army vehicles and a £500m reduction in turnover from the Ministry of Defence

Britain’s largest manufacturing employer, BAE Systems, on Thursday warned of “little sales growth” this year as cutbacks in US and UK government spending led to a 14% fall in 2011 revenues.

The defence contractor was the second largest faller in the FTSE t100 in early trading as its shares slipped 3.5%. Sales in 2011 fell by 14% to £19.2bn, due to lower demand for US army vehicles and a £500m reduction in turnover from the Ministry of Defence.

Acknowledging the spending constraints that are weighing on BAE’s earnings in the UK and the US, chief executive Ian King said: “Affordability has become the priority for our customers.”

BAE employs 38,500 people in the UK, where it makes Astute-class nuclear powered submarines, aircraft carriers and military jets at facilities including Barrow-in-Furness in Cumbria, Warton in Lancashire and the historic shipyard in Portsmouth. King declined to comment on whether a review of BAE’s shipbuilding operations will lead to the closure of the Portsmouth yard, where the Mary Rose was built, with the potential loss of 1,500 jobs.

“Everybody says it is the Portsmouth review. It is a shipbuilding capability review,” he said, adding that “nothing is ruled out” in a review that is also weighing the future of Scottish sites on the Clyde at Scotstoun and Govan.

With the MoD spending review cutting £500m from UK sales and BAE preparing to base its US land business around a reduced annual turnover of bn (£3.19bn), the company indicated sales will be flat this year. Operating profits in 2011 were flat at £1.58bn.

The group is the largest supplier of land vehicles to the US army. The US is BAE’s largest market, accounting for 47% of sales compared with 29% in the UK. Cutbacks by the UK government have created unease among the ranks of UK defence contractors, with the chair of the aerospace, defence and security trade body warning this month that Britain did not have a “clear proactive national strategy, with clearly appointed champions to drive it.” King said he agreed with the comments, made by Robin Southwell, who is also boss of EADS in the UK. BAE has cut 22,000 jobs over the past three years, reducing its workforce to 80,000 worldwide.

King indicated that BAE would consider cutting the price of the Eurofighter Typhoon to wrest back a bn Indian government order from French rival Dassault. BAE’s co-developers in the project are Italy’s Finmeccanica and EADS, the pan-European aerospace and defence group. “We are in discussions with our partners on anything that we can do. And if that includes the need, as we consider the bids, to reduce the price then that is something we will look at.” However, King said that even if Typhoon won the order it would not represent a significant boost for British manufacturing, because only a small number of the jets will be made in the UK. King added that BAE and the UK would get more value from a potential order from the Oman government, where BAE is the lead contractor in the Typhoon consortium, and the prospect of Typhoon upgrades and the construction of a maintenance facility in Saudi Arabia – already a major Typhoon customer. “The added value of a Saudi or an Oman contract is higher to us,” said King. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds