LONDON — BAE Systems has flagged continuing uncertainties over U.S. defense spending as its major concern as it reported a 10 percent fall in first half revenue Aug 2.
Europe’s largest defense contractor said spending next year in the United States could be impacted by sequestration and delays to the approval of the budget in the wake of presidential and congressional elections set for November.
With U.S. government debt-reduction measures still to be determined, the British-based company said it was possible a continuing resolution could be voted for the last quarter of this year. The previous time the U.S. government used the continuing-resolution process it disrupted the award of defense contracts.
Over the six-month period to the end of June, BAE reported sales down to 8.33 billion pounds ($13.02 billion) from 9.22 billion pounds the previous year. Operating profit rose slightly to 786 million pounds from 757 million pounds during the same period last year.
The United States accounted for 43 percent of sales during the period, with the U.K. followed by Saudi Arabia being the other prime markets.
Some 53 percent of company revenues are now accounted for by services work.
The order backlog rose slightly to 40 billion pounds from 39.1 billion last year.
Ongoing reductions in land systems revenues and a hold on deliveries of Typhoon fighter jets to Saudi Arabia while the two sides thrash out the details of a price increase to reflect assembly changes and other issues are the prime causes of the revenue reductions, said BAE.
Negotiations with the Saudis on the Typhoon price escalation should be completed by the end of this year, said BAE. Completion of the negotiations should boost second-half revenues.
BAE is part way through delivering 72 Typhoons to the Saudi Air Force. The company said it also hoped to secure a deal for the sale of 12 Typhoons to Oman by the end of the year.
Other negotiations with the Saudis have seen work cease on a command, control, communications, computers and intelligence program BAE has been conducting. The company said it was seeking to establish an acceptable closure of the contract.
Business prospects in the U.K. were clearer in the wake of the strategic defense and security review and government efforts to balance the budget.
BAE said the British budget environment was “difficult but stable.”