Following the
events of September 11, 2001 in the United States, BAE SYSTEMS has
completed a review of the trading outlook reflecting recent changes in
the commercial aerospace market and the impact on its commercial
businesses.
1) 2001 trading performance continues as planned.
2) Plans for 2002 adjusted to reflect the following:
a) Airbus:
- Deliveries reduced to 300 aircraft in 2002
- Airbus is expected to remain profitable at this revised level of
output and additional actions underway to further safeguard
profitability.
- For the avoidance of doubt, the employment consequences of this
announcement relate solely to BAE SYSTEMS' wholly owned businesses and
exclude any impacts of 11 September falling within the Airbus integrated
company.
b) RJ programme
- We will close the RJX programme
- We will finish the four RJ aircraft currently in build for sale, and
build no more
- We will continue to support in service Avro RJ and out-of-production
regional aircraft
- We will review consolidating Aircraft Services Group's (ASG) In
Service Support and In Service Engineering
- Aircraft Services Group operations in Toulouse, Sydney, and Washington
will be reviewed
- We will take an exceptional charge of £250m in 2001
- Cash costs of this are £210m, £145m after tax
- Currently 36 people at Brough are engaged on activities associated
with the RJ programme. As a result of this announcement we will begin
the process of redeployment. Therefore, this negates the need for a
further reduction in their headcount at this time.
c) Other commercial aerospace activities:
- £150m restructuring and support costs
- of which approximately £120m to be provided in 2001
- cash cost £125m, £90m after tax
d) We will now not move the Nimrod work to Chadderton as previously
announced in July 2001
e) Our defence businesses are unaffected by this, except that the Nimrod
work will not be moved to Chadderton
The re-structuring that follows from the actions on the RJ and RJX
manufacturing programmes and the impact of aerostructures work levels
from Boeing, Airbus, and Raytheon mean the loss of the following numbers
of job posts from the sites indicated:
ASG Aerostructures Programmes Total
Chadderton 0 299 0 299
Prestwick 0 219 0 219
Samlesbury 0 87 53 140
Woodford 993 0 0 993
Filton 18 0 0 18
Total 1011 605 53 1669
John Weston, Chief Executive, BAE SYSTEMS, said:
"We have now completed a detailed assessment of the probable impact on
our business of the recent severe downturn in the commercial aerospace
market.
Since September, the trading outlook in these markets has changed
substantially. In particular, operating profit expectations for Airbus
next year have been reduced significantly and the outlook for regional
aircraft has deteriorated sharply. Regrettably it has been concluded
that our regional jet business is no longer viable in this environment.
The company has a number of smaller commercial aerospace activities in
aerostructures, avionics and equipments and in aircraft maintenance and
conversion. The outlook for these other activities has also reduced.
Today's announcement draws a line under the company's exposure to
regional aircraft manufacturing and secures the company's financial
exposure in this market. While the impact of the changes in trading
expectations for Airbus will postpone the company's return to growth,
the core defence businesses are progressing well."
Trading background
BAE SYSTEMS is one of the world's leading systems defence and aerospace
companies.
In the half year to 30 June 2001, 70% of group sales and 77% of
operating profit before goodwill amortisation and exceptional items was
derived from defence activities, and these businesses are expected to
make good progress next year.
A number of recent successes have further enhanced the outlook over the
medium term. The agreement over the build strategy for the UK's Type 45
destroyer and a contract for two ALSL ships have strengthened the naval
activities. Agreement has been reached on the next phase of the
competition for the UK's next generation aircraft carriers and the
company has been awarded a sole source contract for the UK MoD's
Indirect Fire Precision Attack programme.
In airborne systems the company's position has been further strengthened
with the DoD's recent selection of the Lockheed Martin JSF, where BAE
SYSTEMS is a full partner with an approximately15% programme
participation. This important win is a valuable new addition to the
company's forward plan and enhances the longer-term growth potential of
the defence business.
In contrast, the events of 11 September have led to a significant
deterioration in the outlook for civil aerospace related businesses.
These businesses principally comprise the company's 20% interest in
Airbus and the Aircraft Services Group (ASG) that together form the
Commercial Aerospace business group. ASG includes the RJ and RJX
regional jet programmes, the Asset Management activity responsible for
managing a portfolio of regional jet and turbo prop aircraft and the
Aviation Services freighter conversion and maintenance business for
Airbus aircraft. BAE SYSTEMS has commercial aerospace involvement in
other areas of its business, notably Operations, Avionics and in the
North America business group. The company has now completed a review of
the impact of the changed outlook on prospects for all its commercial
aerospace businesses and activities.
2001 Update
The trading outlook for the group for the current year, including the
contribution from the commercial aerospace related activities, remains
broadly in line with earlier plans.
For some years, BAE SYSTEMS has been reducing its exposure to the
regional aircraft market: turbo prop programmes have been progressively
exited and the regional jet (RJ) programme has run at progressively
lower volumes. In 2000, regional aircraft contributed £10m operating
profit. The closure of manufacture and development of the RJ and RJX
will incur cash costs of £145m net of tax, primarily expended in 2002.
This decision will result in an exceptional charge, before tax, of £250m
in the 2001 accounts. Rationalisation of employment resulting from this
decision will be partly offset by transfers to other programmes at the
Woodford, UK, facility.
The operating performance of the Commercial Aerospace business group has
previously included certain costs to support the in-service fleet of
regional aircraft, including costs associated with aircraft types no
longer in production. BAE SYSTEMS remains committed to the continued
support of these aircraft including their continued re-marketing within
the Asset Management activity. The cost of these support services is
covered in the above £250m charge. With the closure of the RJ / RJX
programme the engineering and support activities are to be restructured,
creating a unified support function for all the company's, now
discontinued, regional aircraft.
The company's Aerostructures activity is involved in the sub-contract
manufacturing of aerostructure assemblies for both Airbus and Boeing. A
rationalisation of this activity is planned in response to the
anticipated reduced volume throughput.
Aviation Services is engaged in the conversion of Airbus wide-body
aircraft into freighters and the heavy maintenance of Airbus aircraft.
The order book for this activity has declined and some rationalisation
of the business is anticipated. The options available for this business
are under review.
In 1998 the company announced a Financial Risk Insurance Programme
(FRIP) that substantially insure income receivable from the fleet of
regional aircraft to which the company retained financial exposure at
that time. The FRIP provides a valuable insulation against all but the
first £30m of lease income exposure on a net present value basis, not
otherwise provided, relating to the insured fleet. As a consequence of
the deteriorated regional aircraft market it has been decided that it
would be appropriate to provide for this exposure with a charge to the
2001 accounts.
In addition to the closure of the RJ / RJX programme, the combination of
the above restructuring and the FRIP provision will result in an
exceptional charge of £150m of which approximately £120m will be taken
in the 2001 accounts. The cash costs of these actions will be £125m,
£90m after tax.
Together these charges represent the end of the company's financial
exposure to regional aircraft manufacture and secure the company's
financial exposure to that market.
2002 commercial aerospace outlook
Airbus deliveries are currently expected to reduce from some 320
aircraft this year to around 300 in 2002. Flexibility in the
manufacturing system, including substantial use of contract labour to
accommodate prior increases in programme volume, will enable costs to be
reduced to match lower demand. In addition, and whilst the A380
development programme is expected to continue as planned, scope remains
for R&D spend to be reduced from earlier plans, partially mitigating
reduced profitability. As a result, Airbus is expected to continue to
make a positive contribution to BAE SYSTEMS' operating results, albeit
much reduced from earlier plans.
In addition to the Airbus and Aircraft Services Group activities in the
Commercial Aerospace business group and the Aerostructures activity in
its Operations business group, the company has relatively minor
commercial aircraft related activity in its Avionics, and North America
business groups.
Avionics is a minor supplier of avionics equipment to the commercial
aircraft market. The Control Systems division of the North America
business group is a supplier of digital flight control equipment to both
Airbus and Boeing and digital engine controls to GE aero engines.
Reduced throughput in these Aerostructures, Avionics and North America
activities resulting from the weakened commercial aerospace market is
expected to reduce operating results by approximately £25m in 2002.
Longer term group outlook
The implications of 11 September are expected to have a significant
impact on the civil aerospace activities of BAE SYSTEMS and to delay the
resumption of growth that was previously envisaged next year.
Airbus deliveries in 2002 are expected to be slightly down on the
current year at some 300 aircraft. The business is expected to continue
to trade profitably at this level of throughput and additional actions
are underway to further safeguard profitability.
In the longer term, prospects for Airbus remain excellent. The outlook
for the defence businesses remains good with a number of important new
programmes set to contribute and further enhanced over the medium term
by the recent JSF selection.
About BAE SYSTEMS:
BAE SYSTEMS is the truly global systems, defence and aerospace company.
BAE SYSTEMS employs some 100,000 people and has annual sales of around
£12 billion. The company offers a global capability in air, sea, land
and space with a world-class prime contracting ability supported by a
range of key skills.
BAE SYSTEMS designs and manufactures civil and military aircraft,
surface ships, submarines, space systems, radar, avionics,
communications, electronics, guided weapon systems and a range of other
defence products. |