ALEXANDER CAMPBELL / LONDON
Shares in BAE Systems climbed sharply last week with the news that the company had reached a deal with the UK Ministry of Defence on delays in two major defence programmes. While there were few surprises in the company's 2002 results, investors were cheered by the news that the damage caused by persistent engineering and management problems on two of BAE's largest programmes will be less than expected.
Profits were wiped out by the £750 million ($1.2 billion) cost of programme delays and budget overruns on the Nimrod MRA4 maritime patrol aircraft and Astute submarine programmes. The company reported losses of £686 million on sales of £12.1 billion.
With cash reserves down £575 million to £930 million, the company will be able to continue buying US companies. Since the start of the month, chief executive Mike Turner has spent $109 million on two specialist engineering and services companies in the USA, and more takeovers are likely.
BAE may also have its eye on bigger game. Its attempt last year to buy TRW was a failure, but a major US acquisition is on the cards. Although its stock has recovered from last month's lows, it is far from strong enough to support a major fundraising move.The MoD has agreed to pay BAE another £700 million -Ê£270 million on MRA4 and £430 million on Astute -Êto help meet cost overruns. Further overruns should be prevented by the new project structure, say BAE and the MoD, but if they occur the damage will be shared between them.
Source: Flight International
