Profits down at BAE on weak Eurofighter Typhoon demand

Company says it expects "good momentum" in the second half of 2018

BAE Systems said in its first-half report that profits had fallen nearly one-fifth on weak demand for Eurofighter Typhoon fighter jets.

Sales fell seven percent to £8.8 billion ($11.5 billion) from £9.467 billion “as a result of reduced Typhoon production activity,” BAE said in its half-yearly report released on Wednesday, August 1.

The company reported an order intake of £9.701 billion, down from £10.650 billion for the same period last year. Earnings after tax dropped to £471 million, down 17 percent from a year earlier.

Order backlog increased to £39.7 billion, with a total of £9.7 billion of orders in the first half of the year. The backlog does not include the contract for sale of Typhoon fighters and Hawk aircraft to Qatar, which is expected in the second half of this year.

In December, BAE and Qatar signed a contract for 24 Eurofighter Typhoon aircraft along with a support and training package that includes nine Hawk trainers. The £6 billion contract was subject to financing conditions and a first payment.

“Financing discussions are in progress and, when successfully concluded, it is anticipated first payment would be received in the third quarter of 2018,” the company said.

Earlier this year, BAE reported a drop in annual net profit for 2017 but said it expected government defense spending to remain a priority.

UK market

BAE said it was addressing “challenges” in the U.K. maritime sector as a result of pressure on the Royal Navy’s near-term budget, including the ramping-up of work on the Dreadnought submarine and Type 26 frigate, delivery of the Astute submarine program and HMS Prince of Wales aircraft carrier along with the remaining Offshore Patrol Vessels.

Despite the drop in profit, the company said it expects the group’s underlying earnings for share for 2018 to be in line for the full-year underlying earnings per share for 2017. Issues encountered in the Platforms & Services and Maritime programs should be covered by higher earnings in Electronic Systems and Cyber & Intelligence, the company added.

Additionally, BAE said it expects “good momentum in the second half and beyond” due to the U.K. government’s air combat strategy which includes a £2-billion program for a next-generation fighter jet called Tempest.

BAE is a member of the Tempest consortium alongside the U.K. government, Leonardo, MBDA and Rolls-Royce.

International market

BAE said prospects were good for the Air, Land, Cyber & Intelligence and Maritime products in the international market.

Typhoon and Hawk aircraft orders are in the works for Saudi Arabia and Oman, although “there can be no certainty as to the timing of these orders,” the company said. In March, Saudi Arabia signed a Memorandum of Intent for 48 Typhoon jets from the U.K. government.

Last month Australia ordered nine Type 26 Global Combat Ships at a cost of Au$35 billion (£19.7 billion) to replace its Anzac-class frigates.

Furthermore, the company said its U.S.-based combat vehicles business is well-positioned for growth, “underpinned by the Armored Multi-Purpose Vehicle, M109A7 self-propelled howitzer and Bradley upgrade [programs], which are all ramping up production.”

UK submits final offer for 34 Eurofighter Typhoons to Belgium

With reporting from AFP

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