BAE share price: Company strikes $1 billion deal to upgrade South Korean F-16 jets

on Jan 2, 2014
Updated: May 24, 2024
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BAE share price tumbles on double blow from the Middle East) now hopes to secure orders for F16 upgrades in other countries in Asia and continental Europe.

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BAE will hire 300 staff at its plant in Fort Worth, Texas, to install new cockpit electronics systems, after receiving the green light from South Korea and the United States government, which licenses the sale of the aircraft.

BAE beat the F16 manufacturer, US defence group Lockheed Martin Corporation (NYSE:LMT), for the contract to upgrade the computers, displays, sensors and weapons of the South Korean jets.

Historically, the manufacturers of combat aircraft have also serviced and upgraded them, but tighter military budgets in the United States and Europe have spurred defence contractors to look for business in new areas, such as upgrades because there are fewer major new acquisition programmes.

BAE has said it sees a potential market of more than 3,000 F16s that could eventually need upgrades.

Erin Moseley, president of BAE Systems’ Support Solutions sector, told Reuters last month that the South Korean deal marked a significant expansion of BAE’s F16 modernisation business.

She added the UK defence contractor was in talks with other countries in Europe and Asia about similar work and added that she expected BAE to land another F-16 upgrade deal this year.

The F16 aircraft, first built in 1976, is one of the main combat jets of the US Air Force. Besides South Korea, more than two dozen other countries use the aircraft, including Belgium, Taiwan, Israel, Iraq and Venezuela.

“The options are endless, or close to it,” Moseley said. “We believe F-16s are going to be there for quite some time. It’s going to be a great chance for a franchise.”

In a separate development, BAE Systems last month won two Pentagon contracts worth a combined $34.5 million (£20.8 million). One of them, worth $21.7 million, involves the supply of 200 Advanced Identify Friend or Foe, or IFF, combined interrogator/transponder devices for installation in F-16s operated by the air forces of Belgium, Denmark, Portugal, the Netherlands, and Norway.

An IFF transmits an aircraft’s identity on a frequency that enables friendly forces to determine whether a plane is a threat, thus minimising the potential of an allied aircraft to be accidentally fired upon.

The other contract worth $12.8 million involves the supply, installation and testing of six interrogator units for French E-2C airborne early warning aircraft. BAE will develop new AN/APX-122A IFF Mode 5/S interrogators compatible with the French E-2Cs, and make software modifications to ensure compatibility.

BAE Systems, which has seen its revenue shrink since 2009 as a result of continuing uncertainty over defence budgets in its biggest markets, the UK and the US, is £134 million through a £1 billion share repurchase programme aimed at helping prop up investor returns.

In a recent third-quarter update, the directors said that benefit from the share-repurchase programme should lead to double-digit growth in underlying earnings per share for 2013, despite a fall in revenue due to US defence budget cuts.

As of 10:39 UTC buy BAE shares at 434.50p.

As of 10:39 UTC sell BAE shares at 434.20p.

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