Pension black hole batters BAE

DEFENCE equipment group BAE Systems was back in the red today, after it unveiled a £420m write-down on the value of its avionics and electronic command and control businesses.

The group also revealed that the black hole in its retirement schemes increased to £2.6bn from £2.1bn.

BAE said its pensions shortfall had grown because liabilities increased after its actuaries took another look at the schemes' mortality assumptions.

The charge to the company's profits to cover the deficit during the first half of the year leapt to £82m from £54m.

BAE's losses came in at £296m for the first half of the year after £688m of goodwill amortisation and asset impairment charges from the group's previous acquisitions.

In a statement the company said: 'Included in this charge for 2004 is a £420m impairment charge relating to the group's interests in the avionics and C4ISR businesses, most of which were acquired in 1999 as part of the merger with Marconi Electronic Systems.

'The impairment primarily reflects initial valuations of the businesses prepared in the first half of the year as part of the planned Eurosystems transaction.'

C4ISR is the command, control, communication, computing, intelligence, surveillance and reconnaissance business which closely works with the Ministry of Defence. The avionics business is being merged with the defence electronics interests of Finmeccanica, the Italian group.

The write-downs and ballooning pensions hole took the shine off otherwise encouraging underlying results which saw profits jump by nearly 20% to £392m, above City expectations.

The interim dividend is pegged at 3.7p. BAE shares opened today at 211 3/4p, close to two-year highs.