Stewart Penney/LONDON

Poorly performing Nimrod upgrade and Hawk trainer programmes have been blamed in a profits warning from BAE Systems which resulted in the company's share price slumping 25% in a few hours. The company is taking a charge of £525 million ($723 million) split between its 2000 and 2001 accounts.

BAE chief executive John Weston also warned that profit growth is not expected to return until 2003. The company, formed last year by the merger of British Aerospace and Marconi Electronic Systems, is following the trend established by defence rivals like Lockheed Martin and Raytheon who have hit significant financial problems following large scale takeovers and acquisitions.

Nevertheless, Weston says the merger is delivering benefits with cash savings of £100 million already achieved and it remains on target for a £275 million contribution in 2002.

The latest problems are likely to result in several thousand job cuts on top of the reductions announced last year in the wake of the merger. The Hawk factory at Brough is thought to be particularly at risk.

The company says programmes and customer support and solutions (CS&S) are most affected. It blames the Hawk advanced trainer/light attack aircraft and the beleaguered Nimrod maritime patrol aircraft programmes. The slow progress of significant contractorisation contracts at the UK Ministry of Defence has hit CS&S. As a result it will take a £300 million charge before tax on the technically troubled Nimrod programme in 2000 and exceptional charges against profits in 2000 and 2001 of £110 million and £115 million respectively.

BAE says that the fixed price £2.2 billion programme to develop and convert 21 Nimrods to MRA4 standard will cost around £300 million more than the contract value. BAE is already known to have paid the MoD £46 million in liquidated damages. The programme's problems, including rebuilding the ageing fuselages and equipping them with new build wings, emerged in early 1999.

While BAE has Hawk orders from Australia, NATO Flying Training in Canada, South Africa and for replacement fuselages from the UK Royal Air Force, it has not recently secured a worthwhile order for the trainer. The company says tight defence budgets have limited orders. The next major deal is expected to come from India which, like Australia, will build the majority of the aircraft. In the medium term BAE says it foresees a market for 200 Hawks in the next six to eight years.

Weston expects other sectors including avionics, North America and commercial aerospace, to deliver profitable growth.

Source: Flight International