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BAE Systems Investor Brief - January 2006

01 Feb 06

In This Month’s Brief:

GENERAL NEWS

MAJOR PROGRAMMES UPDATE

BAE Systems CONTRACT AWARDS THIS MONTH

GENERAL NEWS

Sara Pullen named Young Woman Engineer of the Year
At an award ceremony in London on 17 January, Air Systems' Sara Pullen was announced as the 2005 Young Woman Engineer of the Year. Sara is a Crew Systems Engineer on the Head Equipment Assembly (HEA) team at Warton and she joined the company through the modern apprenticeship scheme in 1997.

Lord Vincent appointed MC 3 Training Chairman
MC3 Training, the consortium comprising BAE Systems, VT Group and Carillion, has further strengthened its bid for the UK Defence Training Rationalisation (DTR) programme by appointing Field Marshal Lord Richard Vincent of Coleshill as Chairman.

Defence Training Rationalisation (DTR) is focused on the rationalisation of the Ministry of Defence training estate and the associated training on a tri-service basis. The programme is divided into two streams – technical and logistics. MC3 is bidding for the technical stream of DTR only.

Added Capacity in Anniston, Alabama
In December, the Steel Products Division’s expanded Alabama facility became fully operational. The added capacity is to accommodate the increased M113 Family of Vehicle conversion work and the new contract to overhaul M88A1s.

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MAJOR PROGRAMMES UPDATE

Nimrod MRA4 2005 Review
2005 was another successful year for the Nimrod MRA4. Notable milestones included the contract award in May for the assessment phase of partnered support, submission to the MOD of a production bid for 12 aircraft in mid-July, and first flight of the third development aircraft, PA03, in late August.

During the year the flight envelope was expanded to 300 knots and to 35,000ft, and by year end the three development aircraft had flown 88 times, with both PA01 and PA02 each exceeding 100 flight hours.

At Woodford, production jigs were installed for parallels and wings, thereby consolidating all MRA4 production at that site.

JSF Update
The BAE Systems produced horizontal tails have been mated to the aft fuselage of the first JSF aircraft (AA1) at Lockheed Martin's site in Ft Worth, Texas. The AA1 aircraft is now structurally complete and has been moved from the mate station to the engine install position, in preparation for control surface testing and engine fit checks.

The installation of the engine is due to take place in the coming weeks as the aircraft tracks towards first flight in the third quarter of 2006.

Tornado/AMRAAM Update
The Tornado F3 Sustainment Programme achieved a significant milestone with the UK’s first firing of the latest (C-5) variant of the Advanced Medium Range Air-to-Air Missile (AMRAAM) AIM-120.

The firing took place at the Naval Air Warfare Center range in Point Mugu, California in December using a Tornado aircraft of the RAF’s Fast Jet and Weapons Operation Evaluation Unit (FJWOEU) flown by a joint BAE Systems / RAF crew.

The F3 Sustainment Programme is delivering a number of upgrades and sustainment services as a single package. The £25m contract, primed by CS&S, was let in December 2004 and is saving £15m compared with traditional arrangements.

Brimstone Full System Acceptance
Full Operating Capability (FOC) of Brimstone, MBDA’s anti-armour weapon, on Tornado GR4 was announced on 20 December 2005. This follows on from the announcement of the In Service Date for the Brimstone Weapon System at the end of March 2005.

Brimstone is currently being integrated onto the Harrier GR9 aircraft and is expected to be integrated onto Typhoon and JSF.

SAMPSON
The SAMPSON team has achieved a major milestone with the installation of the second dual faced system on to a test tower at Cowes in line with schedule. This milestone is important as it now provides two fully operational systems in parallel to progress the test and qualification activities required before delivery of the first system in May 2006.

LSD(A)
Mounts Bay
Mounts Bay was successfully accepted off contract by the UK Defence Procurement Agency (DPA) on 15 December 2005. This was a huge achievement, given that the build started 12 months after the planned first ship, Largs Bay.

CVF
An agreement has been reached on the Roles & Responsibilities between the Alliance Partners within the Aircraft Carrier Programme which has resulted in a substantial increase in the scope of work for BAE Systems.

BAE Systems will now have the lead in ensuring delivery and integration of all aspects of the design and engineering of CVF. BAE Systems and VT Shipbuilding, will undertake Stage 2 & 3 design for their associated full blocks. Also BAE Systems will have responsibility for the Stage 1 Mission Systems design. In addition to the specific construction of the three lower blocks BAE Systems will have responsibility to ensure all aspects of the ships are constructed, tested, commissioned and accepted. BAE Systems will also support the procurement process.

Astute Update
Submarines' final Common Objective for 2005 was achieved 10 days early and represented a major advance for the third Astute class submarine Artful. This was completing fabrication of the command deck module, which will hold all the combat system and command and control equipment. Illustrating the benefit of learning as the class progresses, this was achieved four weeks earlier than on first of class Astute.

Astute Cost Reduction Strategy
Affordability is the key issue facing Submarines in securing further Astute class submarines after Boat 3. A number of major projects are underway, looking not only at internal design, build and project strategies but also initiatives involving the Ministry of Defence and suppliers.

Now, having already reduced overheads by 31 per cent over the last two years, the business has set a further 10 per cent cost reduction to the cost base as a Common Objective for 2006.

F-22A EW System Flight Tests completed
The Electronics & Integrated Solutions (E&IS) Operating Group has successfully completed the first phase of developmental flight tests of its digital electronic warfare (EW) system on the U.S. Air Force’s F-22A Raptor.

Conducted aboard Raptor “4009” at Edwards Air Force Base, California, the tests of the digital EW system were conducted as part of BAE Systems’ F-22A Product Improvement Program (PIP). The PIP is expected to result near-term production costs savings of more than US$90m.

Gripen first to flight-validate Meteor missile
Gripen achieved another ‘first’ in December 2005, by becoming the first new generation, multi-role fighter to successfully carry the Meteor avionics missile, equipped with functional sub-systems, during flight trials.

The successful completion of this flight trial marks a significant step towards the first free flight trials of Meteor during 2006, when the Air Launched Demonstrator (ALD) firings will be conducted on the Gripen aircraft from the Vidsel test facility in the north of Sweden.

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BAE Systems CONTRACT AWARDS THIS MONTH

Nulka In-Service Support contract
CS&S Australia recently signed a three year In-Service Support Contract with the Royal Australian Navy for the Nulka Active Missile Decoy System. During 2005, the Defence Materiel Organisation and the United States Navy have awarded CS&S Australia Nulka contracts totalling AUD$70m, taking the value of the Nulka business awarded to CS&S Australia to well over AUD$500m. These contracts confirm Nulka as one of Australia’s largest, most successful defence exports to the United States.

JITS
The UK Ministry of Defence (MoD) has awarded a Joint Integrated Technical Support (JITS) contract valued at some £46m to CS&S MASS in support of the UK's Joint Force Harrier fleet. The JITS solution, designed by the DLO's Harrier integrated project team and CS&S MASS, provides a technical query support service at a reduced cost to the MoD's Joint Force Harrier until 2014.

JITS is essentially an umbrella contract which rolls up existing separately-contracted technical services. Its benefits include an agreed level of service and increased flexibility by cutting out contracting bureaucracy. Under the contract the joint team will rationalise current information systems to optimise contract performance.

The JITS contract acts as a stepping stone to future availability contracts such as the Joint Availability Support Solution (JASS) project.

Supporting Navy Programs
BAE Systems Technology Solutions & Services (TSS) was successful in two efforts under its SeaPort-e Proposal for Naval Surface Warfare Center, Dahlgren Division. Under the first, BAE Systems will provide Program Management and Systems Engineering Support for the Littoral Combat Ship (LCS) Anti-Surface Warfare (SUW) Mission Package and Launching Systems. The value of the award over the term of the contract is US$22m.

Under the second effort BAE Systems will provide Systems Engineering Support for the AEGIS Ballistic Missile Defense Program and the AEGIS Weapons System, Standard Missile-3 and MK41 Vertical Launch System. The total estimated award value is US$26m.

Technical Support Services to NUWC
TSS was also part of a team awarded the first of its Keyport contract re-competes under Seaport-e for technical support services to the Maintenance Engineering and Industrial Operations Department within Naval Undersea Warfare Center (NUWC) Division Keyport. The base year value of the work is US$2.8m and the total cumulative value of the contract could reach US$12.7m if all options are exercised.

Slovak Military Communications System
E&IS has been selected by the Slovak Ministry of Defence to deliver a fully U.S., EU and NATO interoperable mobile military communications system (MOKYS) to the Slovak armed forces. The contract will be delivered through an international partnership led by BAE Systems and involving U.S., German, Swedish and Slovak companies.

Data Link Solutions chosen to modernize Canadian CF-18 Fleet
Data Link Solutions (DLS), a BAE Systems/Rockwell Collins company, has been chosen to provide Multi-Functional Information Distribution System (MIDS) Low Volume Terminals (LVT) as part of the Canadian Fleet Modernization Program, which incorporates Link 16 capability into their CF-18 Hornet aircraft fleet.

The MIDS Link 16 provides the Canadian Forces CF-18 aircraft with a significant situational awareness enhancement and ensures interoperability with NATO and other coalition forces. The US$22.7m contract runs through 2007.

St. Louis extends Geospatial Products contract
The District of St. Louis has contracted E&IS’ National Security Solutions for Photogrammetric Mapping and Aerial Photography services. This is the third consecutive contract signed by NSS which have been serving the St. Louis district for more than six years. These contracts have involved an array of services including emergency disaster area mapping after Hurricane's Frances, Ivan & Jeanne; floodplain mapping studies; and coastal mapping.

FREMM Sylver Launchers order
As part of the FREMM programme of multi-mission new generation frigates, MBDA has signed a €220m contract with DCN Naval Equipment for the development and supply of Sylver® launchers.

The FREMM programme plans for the supply of 17 FREMM frigates to France and 10 to Italy. This contract, for the French frigates, comprises a firm first tranche of launchers for eight ships, with two conditional tranches of four and five ships respectively.

Two Vertical Launching Systems contracts
BAE Systems has received a US$24.2m contract from Lockheed Martin for 36 Mk 41 VLS modules. The work will be done at the Aberdeen, South Dakota, facility and will run through April 2008.

BAE Systems also received a US$9.8m fixed price plus award fee contract modification from the Navy to refurbish 203 Mk 14 Mod 2 canisters for FY06 US Navy requirements. This work will also be performed at the Aberdeen facility with work running to the end of December 2007.

Systems Technical Support and Logistics Services contract from TACOM
On December 21, 2005, BAE Systems was awarded a US$11m modification to a cost-plus-fixed-fee contract from the U.S. Army Tank-Automotive & Armaments Command, Acquisition Center (TACOM) for systems technical support and logistics services for the Bradley Fighting Vehicle System (BFVS), Multiple Launch Rocket Systems (MLRS), and their derivative vehicles. Work will be performed in Santa Clara, CA, and is expected to be completed by November 30, 2006.

Long-Lead Materials Delivery order for the reset of Bradley Combat System Vehicles
In December, BAE Systems was awarded a US$20m delivery order by U.S. Army Tank-automotive and Armaments Command to purchase long-lead materials for the anticipated follow-on contract to reset Bradley Combat System vehicles. This contract provides for the procurement of long lead material and parts required in the reset of Bradley Combat System vehicles.

Armoured Vehicle contract
BAE Systems has won a £123m order to supply 45 CV9035 Infantry Fighting Vehicles to the Danish Army. This order brings the number of CV90 series customers to six, underlining its position as the European combat vehicle alternative.

Danish company Hydrema Export A/S will partner with BAE Systems for production of the vehicles. The two companies will jointly investigate the possibility of through-life support for both maintenance and upgrades.

Two Future Rapid Effect System Technology Demonstrator Programmes
BAE Systems has been awarded contracts by the UK Ministry of Defence for a Future Rapid Effect System (FRES) Chassis Concept Technology Demonstrator Programme (TDP) and a FRES Gap Crossing TDP as part of the FRES Integrated Technology Acquisition Programme (ITAP).

The ITAP is focused on reducing risk around the latest technologies and their integration into FRES to ensure that FRES will deliver significant capability enhancement at Initial Operating Capability (IOC).

The Future Rapid Effect System (FRES) will provide the British Army with a family of medium-weight, network-enabled, air-deployable armoured vehicles to meet up to 16 battlespace roles.

FRES will be the central pillar of a capable and highly deployable medium force which will be able to project power rapidly world-wide, complementing the UK’s existing heavy and light forces. Current estimates indicate a potential requirement of over 3,500 vehicles.

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