UK defence giant downbeat on profits as Saudi jets deal stalls

BAE Systems says slowing production of its Eurofighter jet will weigh on profit this year
UK defence giant downbeat on profits as Saudi jets deal stalls
(Getty Images)
By Bloomberg
Thu 22 Feb 2018 02:27 PM

BAE Systems on Thursday said slowing production of its Eurofighter jet will weigh on profit, spotlighting the pressure the UK company is under to win new orders and safeguard its future as a top warplane maker after Brexit.

Earnings are likely to be flat this year as build rates for the Eurofighter and Hawk jet trainer wipe out gains from increased military spending in the US, London-based BAE said in a statement Thursday. With major contracts winding down, the company is working with the UK government on a plan that could preserve jobs and engineering work.

Europe’s biggest weapons maker is already cutting 1,400 jobs in its military aircraft division as a result of declining demand. A 5 billion-pound ($7 billion) deal to supply Qatar with 24 Eurofighter Typhoons will help keep production alive, and BAE is bidding to sell the plane to Belgium, but a major follow-on order from Saudi Arabia has failed to materialize.

“Discussions with current and prospective operators of the Typhoon aircraft continue to support the group’s expectations for additional contract awards,” BAE said. “However, there can be no certainty as to the timing of these orders.”

Earnings per share rose 8 percent last year to 43.5 pence after the company had forecast a gain of 5 to 10 percent. Profit will be flat this year by that measure, it said, as sales at the air division fall 5 percent amid the dearth of Eurofighter orders and as deliveries from previous European, Saudi and Omani contracts near completion.

UK Defence Minister Gavin Williamson said Wednesday that Britain will pursue a new combat air strategy aimed at securing its role as a leader in military aircraft. The move comes as Germany - a key partner on Eurofighter - works on plans for a new warplane with France in a move that could exclude BAE from a next-generation jet.

Underlying earnings before interest, tax and amortization rose 7 percent to 2.03 billion pounds last year after analysts forecast a profit of 1.96 billion pounds, based on 14 estimates.

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