BAE profits to take hit from defence cuts

EUROPE’S biggest defence contractor BAE Systems yesterday said the impact of the strategic defence review would be “modest” despite order cancellations meaning a reduction in earnings of around two per cent.

In a trading update BAE said it would “now work with the UK Ministry of Defence to address the detailed programme implications” of the changes.

It said it anticipated “some modest impact on performance of its UK business in 2010 from the changes” and a reduction in its financial planning assumptions meaning growth would be reduced by around 1p earnings per share.

However, it did admit it expected to take a £150m hit following the cancellation of three offshore patrol boats order by the government of Trinidad and Tobago although it added it was still in talks over the deal.

Britain’s strategic defence review was the first since 1998 and saw the cancellation of several contracts, a reduction in the overall defence budget, as well as a reduction in military personnel, the navy, aircraft and nuclear warheads

The government said the BAE made Harrier aircraft would be retired from service but that its fleet of Tornados would be maintained.

However, it cancelled a contract for several Nimrod MRA4 spy planes, which BAE said would result in “some near term reduction” of production.

On the upside BAE welcomed the government’s continued commitment to the European F-35 joint strike fighter programme.

BAE pointed out the UK provides only 20 per cent of its earnings.

It also said the US defence market was generating “a substantial number” of business opportunities.

However, it is estimated the cancellation of the UK defence contracts will still cost BAE around £48m a year.