By Robert Wall
LONDON-- BAE Systems PLC is betting it can secure more Typhoon
combat jet as well as naval orders this year to underpin a rebound
in full-year earnings before impairment charges after they fell 12%
last year amid cutbacks in military spending.
The British weapons maker said underlying earnings before
interest, taxes, and amortization, which strips out some one-time
items, retreated to GBP1.70 billion ($2.6 billion) in the year to
end-December from GBP1.93 billion the previous year on a 8.5%
decline in revenue to GBP16.63 billion. The prior year's earnings
were boosted by a one-time contract settlement with Saudi
Arabia.
Earnings a share should be "marginally higher" this year
assuming additional aircraft and ship orders can be secured, the
company said.
BAE Systems, which builds the Typhoon combat jet in partnership
with Airbus Group NV and Finmeccanica SpA, risks having to scrap
production of the plane in early 2018 unless more customers sign
up.
"We need to ensure we can maintain our [production] line at the
rate of 30 aircraft per year," Chief Executive Ian King told
reporters on Thursday. "This is the year that we need to determine
new orders."
Mr. King declined to predict where the company expects deals to
materialize. The company has said it is pursuing a follow-on order
in Saudi Arabia, a sale to Bahrain, as well as deals in other
markets such as Malaysia. "The timing of these orders can always
move around," Mr. King warned.
BAE Systems took a GBP887 million asset impairment charge in
2013. A previous version of this article said the charge was
GBP887.
The prediction of additional aircraft and ship orders is
"unusually optimistic," said Sash Tusa, defense analyst at Edison
Group. The bullish forecast wasn't enough to boost BAE Systems
shares which fell in early trading.
The market for combat jets is highly competitive as western
manufacturers seek deals, from Latin America to Asia, to sustain
production lines in the absence of more orders from their own air
forces which have faced budget cuts. BAE Systems is battling rivals
such as Lockheed Martin Corp., the world's largest defense company
by sales, Boeing Co., Sweden's Saab AB and France's Dassault
Aviation SA for fighter-plane deals.
BAE Systems said that Germany, Italy, and Spain have held off on
taking delivery of some of their Typhoon jets over technical and
safety issues. Deliveries of planes assembled by BAE have continued
to its immediate customers, the U.K. and Saudi Arabia.
The defense contractor, which also builds Britain's aircraft
carriers, said net profit jumped to GBP740 billion from GBP168
billion in 2013 when BAE Systems took a GBP887 million
asset-impairment charge, compared with just GBP170 million last
year. BAE Systems said it would pay a dividend of 20.5 pence a
share, up slightly from 20.1 pence in 2013.
BAE Systems, like most western weapons makers, has endured a
period of falling sales as the U.S. and other countries have cut
military spending. The order backlog was GBP40.5 billion, or GBP2.2
billion below the level at the end of 2013.
Turmoil in the Middle East and tensions with Russia over the
crisis in Ukraine are suggesting spending patterns may start to
improve. President Barack Obama this month submitted a fiscal 2016
spending plan to Congress that busts budget caps for the
Pentagon
The U.S. budget request "is more positive than people thought,"
Mr. King said, though he cautioned that Congress still needs to
enact the spending plan. He said it was a "first sign" of modest
growth returning.
Mr. King said the Pentagon's planned increase in purchases of
Lockheed Martin Corp. F-35 Joint Strike Fighters were encouraging.
BAE Systems is a major partner on the Pentagon's largest weapons
program.
General elections in the U.K. due in May could also impact BAE
Systems plans. Mr. King said "public spending in the U.K. is going
to come under pressure." Having clarity on spending plans is the
priority for BAE Systems so it can adapt its plans, he said.
Results this year should not be impacted by elections, Mr. King
said.
Write to Robert Wall at robert.wall@wsj.com
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