As manufacturer BAE Systems Plc struggles to pin down a follow-on order from Saudi Arabia, the biggest export customer for the Mach 2 jet, U.K. output of the Eurofighter Typhoon warplane may be cut.
With final assembly at Warton in northwest England, the cornerstone of a military-aircraft business that employs 12,500 people at BAE is Eurofighter production. With the first two from an Omani deal for 12 planes already shipped, eating into the backlog was the last four aircraft from an earlier Saudi contract which were delivered in the first half.
“We obviously have to review our production demand very carefully,” Chief Executive Officer Charles Woodburn said on a conference call Wednesday. “We are confident that we will win further Typhoon orders, what we can’t be confident around is the timing.”
London-based BAE said that even if a new order was placed today it would take at least 24 months to boost production and said that build rates will be under “constant” appraisal. Woodburn said that the company could further slow output of the Typhoon to help eke out the backlog as it has done already. Some planes yet to be handed over exists with the Royal Air Force.
In addition to subcontracting work on 28 Typhoons ordered by Kuwait via its Italian partner in the consortium, Leonardo SpA, the Omani deal has buoyed the Eurofighter workload, said BAE Chief Financial Officer Peter Lynas.
“We’re not staring at a cliff edge here,” he said. “We now do as much revenue through the support of Typhoons as we do on producing Typhoons, so in that sense the production is relatively speaking somewhat de-risked.”
With 55 ship-sets produced last year, rising to 80 this year and 130 in 2018, helping to balance the warplane portfolio, also located in northwest England, is the manufacturing work on the Lockheed Martin Corp. F-35 Lightning II, including the plane’s rear fuselage and tail. “They’re different lines, but in terms of the overall activity levels within the business, similar geography,” Lynas said.
Leaving a backlog of 87 unfilled orders spread across four assembly lines at BAE, Leonardo and Airbus SE, is the multinational Typhoon program which has received 599 orders from eight customers with 512 aircraft delivered. Airbus has said that scheduled for closure at the end of next year are lines in Germany and Spain.
As Europe’s biggest defense company benefited from increased global defense spending, BAE’s first-half profit rose 11 percent. And reporting better than the 907 million pounds estimated by analysts was the underlying earnings before interest, tax and amortization which increased to 945 million pounds ($1.25 billion).
As the company faces a currency headwind from a change in the pound-dollar exchange rate, and its cyber security division will take a restructuring charge, it expects to see “some softening” in sales.
(Adapted from Bloomberg)