Eurofighter launching long range missile

BAE Systems profits hit by defence cuts

BAE Systems has reported a 10 per cent drop in half-year revenues after cuts to military spending.

Europe's largest defence contractor, which produces Astute nuclear-powered submarines and is the largest supplier of land vehicles to the US Army, has suffered from cut-backs in transatlantic markets, while orders for Eurofighters to Saudi Arabia have been delayed.

This contributed to a fall in sales at one of the UK's biggest manufacturing employers to £8.3bn in the six months to 30 June, while underlying earnings fell 3 per cent to £939m.

However, the group said its order book grew by £900m to £40bn, driven by a £4.3bn increase in demand from outside the UK and the United States.

Shares fell as the revenues figure was worse than the City had forecast, although earnings were slightly ahead of expectations.

Its main UK manufacturing division saw earnings lift 35 per cent to £420m despite a drop in sales, helped by building a new destroyer for the Royal Navy.

The increase in profitability is welcome news for the division after its shipbuilding operations were placed under review in a move that could result in the closure of its Portsmouth dockyard, threatening up to 3,000 jobs.

BAE is expected to cut more than 600 jobs at its factory in Brough, Yorkshire, home of the Hawk jet, as part of a round of redundancies at sites across the UK.

BAE – part of the Eurofighter consortium that lost out on the sale of 126 jets to India earlier this year – said it expected to deliver "modest growth" in 2012 subject to the completion of the Saudi deal.

Saudi Arabia, the world's top oil exporter, signed a contract with BAE in 2007 to buy 72 Typhoon aircraft, 24 of which have been delivered to the Royal Saudi Air Force.

The Salam deal, as it is known, is worth around £4.5bn.

Talks between BAE and Saudi over changes to the price of the deal are expected to be completed in the coming months.

"We're making good progress in commercial discussions with Saudi, which we anticipate will close it in the second half," chief executive Ian King said.

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