BAE Systems’ sales hurt by cuts to defence spending

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SQUEEZED military budgets in the US and the UK resulted in a 14 per cent fall in annual sales for defence giant BAE Systems.

The group, which is reported to be considering a move to close its Portsmouth dockyard, threatening up to 3,000 job losses, said sales fell more than expected to £19.2bn in 2011. Underlying profits dropped seven per cent to £2bn.

The company, which produces Astute nuclear-powered submarines and is the largest supplier of land vehicles to the US army, said its order book also declined by eight per cent to £36.2bn and warned that little sales growth can be expected in 2012.

The group said defence spending has reduced in its largest markets – the UK and the US – while it was also hit by a delay in an order for Eurofighters to Saudi Arabia.

BAE’s Eurofighter consortium also looks likely to miss out on a large contract to supply fighter jets to India after a French rival was named preferred bidder.

BAE last year signalled the end of production at its factory in Brough, East Yorkshire, as part of a round of 3,000 redundancies at sites across the UK as it adjusts to the difficult climate.

Chief executive Ian King said no decision had yet been made on the review of its warships operations, but he added that nothing could be ruled out, including the closure of Portsmouth, which employs 1,500 staff and a similar number of support roles.

He stressed the review covers its entire warships business, not just its Portsmouth yard.

With regards to its bid to supply India with Typhoons, Mr King added that BAE was in discussions with its other partners in the consortium and would consider dropping its price. But he added that they were “not going to do anything for stupid margins”.

He said the contract could be worth a total of £10bn to BAE over a number of years.