BAE Systems rejects union with US rivals
BAE Systems ruled out the prospect of taking part in 'top tier consolidation' with a rival US giant for the moment, but is on the prowl for smaller deals in the nascent intelligence and security sector.
Mine-resistant truck: BAE is a major supplier to the US military
Chief executive Ian King said there was currently no appetite from the US Department of Defence for mega-mergers between its biggest suppliers - BAE, Lockheed Martin, Raytheon, General Dynamics, Boeing and Northrop Grumman.
But BAE's US president Linda Hudson said: 'What we are doing is looking for opportunities to consolidate in fast-moving spaces like security and intelligence. It's a very fragmented market with a lot of niche players.'
Currently, intelligence and cyber security accounts for just 6% of BAE's group revenues. But Mr King indicated this would rise.
Ms Hudson also sought to calm any nerves about the group's pipeline of new business in the US, saying it was starting to see some delays to the start of bidding for new programmes.
She said there had been some slippage in the award of larger contracts, such as the Grand Combat Vehicle Programme to replace armoured vehicles for the US Army, and the Joint Light Tactical Vehicle - a non-combat truck designed for a range of uses, such as personnel carriers or ambulances.
Ms Hudson added: 'On US ground combat vehicles, there is a re-look at requirements going on - that will be delayed by six to nine months.
'We will see the start of big, new US projects stretch out and slow.'
Mr King was keen to stress though that the group (up 10.9p at 359.4p) had not been hit by order delays in the US, unlike some rivals, adding: 'Third quarter sales grew in the US and we're still doing very nicely there.'
British rival Cobham warned earlier this month that US defence contract delays would hit full-year sales. And QinetiQ has also highlighted uncertainty created by possible Pentagon cutbacks.
Mr King claimed Britain's recent strategic defence review was generally positive for the group because it gave some long-awaited clarity on the country's defence priorities. Despite losing the Nimrod programme, the aircraft carriers were spared cuts.
He said: 'It confirmed our plans and now we can get on with doing it.'
Andrew Gollan, analyst at Investec, welcomed the update, adding: 'For the first time in a long time, management is talking in terms of growing the top line across its broad portfolio, despite slowing defence budgets in the UK and US.'
Ms Hudson also said BAE was looking to sell its US 'platform solutions' business, which makes hybrid electric engines for buses and trucks as well as flight controls used by Airbus and Boeing.
She said the division needs investment that BAE can't provide, adding: 'When we looked at the investment required to take that business to where it can go, we decided the business would thrive much better in the hands of a company that has a more commercial business model.'
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