Streamlined BAE aims to fly
Defence behemoth BAE (BA.) is planning to make job cuts across three divisions to improve efficiency, operational effectiveness and ‘drive competitiveness’.
The division most impacted by this streamlining programme is the military air and information business which is set to cull 1,400 roles. The company says these actions are needed as production of both its Eurofighter Typhoon jet and its Hawk training jet winds down.
While BAE recently got a lift from a letter of intent to buy 24 Typhoon jets and six Hawks by Qatar, a lack of certainty over future orders has prompted the action.
A further 375 jobs in maritime services and 150 in cyber intelligence are set to go.Berenberg analyst Charlotte Keyworth foresaw a need to address issues with Typhoon programme in a piece of research on 2 October.
Downgrading the stock from ‘buy’ to ‘hold’, she noted that in the absence of a firm export order materialising for the Typhoon, ‘we now forecast full year 2018 and 2019 delivery rates falling around 50% year-on-year from 20 in 2017 to 11 and five aircraft respectively’.
This is the first definitive cost cutting move by BAE’s chief executive Charles Woodburn, who took over in July. He reiterates guidance for underlying earnings per share for 2017 to be 5% to 10% higher than 2016’s figure of 40.3p and is also expecting a small reduction in net debt.
Commenting on the update Citibank says: ‘BAE Systems is a resilient business that we believe can weather bumps in the road (such as these redundancy/reorganization charges) and still meet expectations, supported by 3.6% dividend yield.’
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