Defence deals bolster BAE

THE slump in commercial airliner orders will delay the resumption of growth at BAE Systems until next year, chief executive John Weston predicted. Its share of earnings from the joint European Airbus venture and other commercial aerospace activities have fallen back dramatically, though he is sticking to last November's forecast of a £400m exceptional cost.

In the current year further costs relating to the commercial side are expected to be £30m. Meanwhile, the defence business is ensuring that the year is not too affected by a relative grounding of commercial activities. With a wing tip in defence camps on both sides of the Atlantic, Weston is looking forward to orders worth £14bn for the American Joint Strike Fighter scheduled to be flying by 2005 and for the European Typhoon, which has moved from prototype to production.

Already US defence orders represent 28% of BAE business, with the UK narrowly behind at 27%.

The Typhoon will continue to boost BAE's avionics division thanks to its Captor radar systems and its defensive capability against missiles and other aircraft. Some 196 of the military version-of Airbus, the A400M, will be supplied to eight European governments starting in 2008 and these are expected to boost production just when the civil versions may be coming off the production lines at low points in the commercial aircraft cycle

Defence budgets in the US in particular are expected to soar this year. Weston believes that in Europe there is likely to be further consolidation in the aerospace industry. BAE has links with the Italians and Weston says he is considering how to build on that.

The £370m share of the £400m setback to the commercial airline side which was announced last November was responsible for pre-tax profits in the year to December falling to £70m from £179m the previous year. Earnings per share rose by 24.5% to 23.4p, enabling the group to pay a total dividend for the year of 9p, up from 8.5p. Dividend cover is 2.6 times.

Weston says the order book has increased by 6.8% to £43.8bn. Earnings per share rose 24.5% to 23.4p. BAE shares slipped 3% to 317 1/2p, down 8p.