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BAE Systems Investor Brief - October 2007

01 Nov 2007

In This Month’s Brief:

GENERAL NEWS

MAJOR PROGRAMMES UPDATE

CONTRACT AWARDS THIS MONTH

GENERAL NEWS

Royal Visit
His Royal Highness Prince William visited Surface Fleet Solutions’ Scotstoun yard in Glasgow on Thursday 18 October. The Prince toured HMS Daring and observed demonstrations of equipment and facilities. Whilst on board he met with a number of employees and Royal Navy crew members.

Chief of Staff for U.S. Army visits Santa Clara facility
Gen. George Casey, Chief of Staff for the U.S. Army, visited BAE Systems’ Santa Clara facility on September. 28 to see the progress that is being made on the Future Combat Systems (FCS) programme, specifically the hybrid electric drive system for the manned ground vehicle.

Gen. Casey also visited the Combat Simulation and Integration Lab where he was able to view the ongoing development of the FCS manned ground Vehicles in a 3D environment.

BAE Systems wins Sun Microsystems’ Supplier Award
BAE Systems was named Meritorious Performance Supplier in Sun Microsystems’ 2007 Supplier Awards program. The Supplier Awards recognize companies that make outstanding contributions to Sun’s record of delivering superior technology, quality service and excellent value to its customers.

UK Association for Project Management Awards
ATTAC (the Availability Transformation Tornado Aircraft Contract) was announced as ‘Project of the Year’ at the 2007 UK Association for Project Management (APM) awards dinner on Tuesday 30 October. ATTAC beat stiff competition across a wide range of UK Projects to win this prestigious award.

The project is built on a new relationship in which both BAE Systems and the UK MOD have transformed their processes and behaviours in order to reflect the move to an entirely different business model, risk profile, roles and responsibilities. In making the award, the APM assessment panel were highly complementary of the ATTAC project, and the benefits it has achieved for the customer. This benefit was also recognised in the recent independent report by the UK National Audit Office.

In addition, Stuart Godden Astute First of Class Project Director with BAE Systems Submarine Solutions was runner up in the Project Manager of the Year award.

Harrier CDM commendation
The joint BAE Systems/MoD Harrier Sniper Advanced Targeting Pod team was presented with a Chief of Defence Materiel (CDM) Commendation in recognition of the exceptional achievement in delivering the new capability in record time. The Chief of Defence Materiel, General Sir Kevin O'Donoghue - the head of the MoD's Defence Equipment and Support organisation - presented the Commendation to representatives of the team at an award ceremony in London.

Despite very demanding timescales, the team's commitment ensured that the advanced targeting pod was available for use in theatre ahead of the Urgent Operational Requirement (UOR) schedule. The Commendation acknowledges this effort and the significant enhancement that the sniper pod has delivered to Joint Operations.

Change of responsibilities for Guy Griffiths
Guy Griffiths, Managing Director of Insyte is appointed Managing Director Businesses effective 1 January 2008. In addition to his responsibility for Insyte, Guy will take over responsibility for BAE Systems Australia, Underwater Systems (UWS) and MBDA and will report to Ian King, COO UK/RoW as a member of the UK/RoW Board. Guy will also take over from Chris Geoghegan as Chairman of the JV MBDA Board.

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MAJOR PROGRAMMES UPDATE

E&IS delivers first F-35 electronic warfare system
Electronics & Integrated Solutions (E&IS) met all contractual requirements by Lockheed Martin during acceptance testing for the F-35 Lightning II electronic warfare (EW) suite spiral release 2. The final electronic warfare suite will detect, analyze, evaluate, and react to electronic warfare threats fielded by potential adversaries.

F-35 Lightning II Carrier Variant starts manufacture
Military Air Solutions has started manufacture of the first F-35 Carrier variant aircraft, and for the first time, the team is producing all three F-35 variants concurrently. The first titanium and aluminium frames, which will form part of the aft fuselage, are currently in work at Samlesbury's Advanced Machining Centre.

As production rates in the system development and demonstration phase increase, the team is starting a new aircraft in assembly every four weeks - a significant achievement for this stage of a development programme.

UAE Air Force withdraw Hawk from AJT competition
On Monday 29 October official confirmation was received from the UAE that the Hawk Mk 128 has been withdrawn, by the UAE Air Force, from their Advanced Jet Trainer competition. This decision was made on the grounds that the Hawk Mk 128 did not meet the precise training requirements of the UAE Air Force.

Thailand selects Gripen and Erieye
The Thai government has announced the down-selection of the Saab Gripen new generation fighter, and the Saab Erieye Airborne Early Warning (AEW) system to meet its national defence needs. The Thai Cabinet has approved a budget of 34,400 billion baht (US$ 1.1 billion) for the Royal Thai Air Force (RTAF) to procure 12 Gripen multi-role fighters, to replace its ageing fleet of F-5 B/E aircraft, and 2 Saab Erieye AEW aircraft, together with associated equipment and services.

Sweden has also offered a 2 year maintenance and spare parts support package and it is planned that the Gripen fighters will be delivered into operational service in 2010. Negotiations between Thai and Swedish government officials will now commence in order to conclude a formal agreement.

Sweden commits to Gripen’s future
In a clear commitment to the future of Gripen, Sweden’s Defence Material Administration (FMV) has placed a SEK 3.9 billion ($US 600 million) contract on Saab. The contract covers the upgrading of 31 Swedish Air Force Gripen A/B aircraft to the very latest C/D standard now being delivered to export customers, and also gives the go ahead for the Gripen demonstrator (Demo) programme for the future development of Gripen.

BAE Systems teams with Navistar International
BAE Systems Ground Systems and Navistar International Corporation, will team to produce a platform for the Joint Light Tactical Vehicle (JLTV) programme. Separately, former Armor Holdings is teamed with Lockheed Martin also on this programme.

The JLTV programme is a multi-service initiative for a family of future light tactical vehicles being developed as a joint system between the U.S. Army and the US Marine Corps.

Public-Private Partnership for M109 Family of Vehicles
BAE Systems and the U.S. Army signed a memorandum of understanding that will establish a Public-Private Partnership (P3) to develop and sustain the Army's M109 Family of Vehicles throughout their lifecycle.

Parties to the memorandum signing include BAE Systems leaders, the U.S. Army Tank Automotive & Armaments Command (TACOM), the Program Executive Office for Ground Combat Systems, the U.S. Army's Project Manager – Heavy Brigade Combat Team (PM-HBCT), and the Anniston Army Depot (ANAD). The memorandum was signed during the Annual Symposium and Exhibition for the Association of the U.S. Army in Washington , D.C.

VT Group Joint Venture
European Regulatory Clearance has now been received for the proposed Joint Venture between BAE Systems and VT Group’s Surface Warship Design, Build and Support Businesses. Significant progress has been made towards completion of the Joint Venture.

Third Type 45 launch takes shape
Diamond, the third Type 45 destroyer, will look markedly different from her predecessors when, on Tuesday 27 November, she becomes the second ship to be launched by Surface Fleet Solutions this year. As the efficiency gains between each of the Type 45 destroyers continue to increase, Diamond will have the greatest level of outfit so far and she will also have her distinctive long range radar mast installed.

Successor submarine
Contracts have been awarded to cover the first four months of a two year concept design phase for the next generation of nuclear deterrent submarine. Submarine Solutions is working in partnership with the newly formed Future Submarines Integrated Project Team, Rolls-Royce and Babcock to produce a concept design for the successor to the Vanguard class.

Audacious off to a flyer
Audacious, the fourth Astute class submarine, has got off to a flying start, with seven out of eight milestones, which make up the first year of funding for the programme, achieved ahead of contracted date. The project is also undergoing a design “chill” review of the boat’s design baseline, pending design freeze next April. This includes significant savings over the first three Astute submarines identified through a dedicated “design for cost reduction” programme.

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CONTRACT AWARDS THIS MONTH

U.S. Department of Labor contract
BAE Systems IT has been awarded a five-year contract by the U.S. Department of Labor to provide IT application development for the Bureau of Labor Statistics (BLS). BAE Systems IT has been providing application development services to the BLS since 1992. The agreement brings a potential value of more than US$120 million.

Under this contract, BAE Systems will continue to provide development, sustainment and operation of highly sophisticated systems. More than 200 technical staff with capabilities in system architecture, software engineering, databases, business intelligence, and statistical applications are employed on the contract.

U.S. Navy submarine maintenance capability upgrade
BAE Systems has won a US$19 million contract from the U.S. Navy’s Southwest Regional Maintenance Center to refurbish and upgrade the ARCO (ARDM-5) floating drydock so it can service the Navy’s new Virginia-class nuclear-powered fast attack submarines. The company will perform drydocking and pierside work on the ARCO at both Naval Base Point Loma and BAE Systems San Diego Ship Repair.

Work on the ARCO includes painting the drydock’s underwater hull, sides and tanks, reinforcing structural bulkheads, replacing and renewing switchboards, and upgrading the automated docking and centering system. All work is scheduled for completion in June 2008.

Surveillance sensors for U.S. Navy will detect unseen targets
Under a US$49 million contract from the U.S. Navy, Electronics & Integrated Solutions (E&IS) will develop aircraft sensors that enable passive, non-intrusive detection of submerged and concealed targets. The Joint Multi-Mission Electro-Optical System (JMMES) will detect, classify, identify, and track otherwise hard-to-find objects to support a variety of tactical operations and homeland security missions.

Defense Avionics grabs active inceptor contract
Sikorsky Aircraft Corporation awarded a multi-million dollar contract to Electronics & Integrated Solutions (E&IS) in Rochester, U.K., to develop an active inceptor system (AIS) for the CH-53K helicopter. The AIS replaces mechanical pilot controls with technology that saves weight and provides pilots with cues for easier handling and reduced workload.

E&IS secures helmet production contract
Electronics & Integrated Solutions (E&IS) in Rochester, U.K., received US$135 million in subcontract orders for Eurofighter Typhoon Helmet Equipment Assembly (HEA) production work from Military Air Solutions at Warton, which assembles the fighters. The HEA technology plugs into the platform’s computer system to allow the pilot to direct sensors and weapons with a simple turn of the head.

Navy prowlers get more jammers
The U.S. Navy has awarded Electronics & Integrated Solutions (E&IS) a US$52.5 million contract to produce low-band transmitter-antenna groups for its EA-6B Prowler electronics countermeasures aircraft.

Armament Systems wins U.S. Army mortar contract
BAE Systems Bofors has been awarded a contract from the Swedish Armed Forces for the next step in developing the next generation of the artillery system called “Archer,” a 155 mm self propelled wheeled howitzer. The Company delivered two prototypes of the Archer in 2006 and the new contract worth nearly US$60 million is for the last development preparations before the serial production contract expected in 2008.

Bofors receives Archer contract
BAE Systems Bofors has been awarded a contract from the Swedish Armed Forces for the next step in developing the next generation of the artillery system called “Archer,” a 155 mm self propelled wheeled howitzer. The Company delivered two prototypes of the Archer in 2006 and the new contract worth nearly US$60 million is for the last development preparations before the serial production contract expected in 2008.

Ground Systems medium vehicle recovery reset order
Anniston Army Depot has awarded BAE Systems a US$23.5M follow-on order for 70 M88A1 systems in order to partner the depot level overhaul of these medium recovery vehicles. Land and Armaments inducts and disassembles the vehicles, performs weld repairs and paints the hulls which are then delivered to the Depot.

Armored personnel carrier reset order
Anniston Army Depot has awarded BAE Systems an US$8.1M order to perform the overhaul of 65 M113A3 armored personnel carriers. These tracked vehicles will be overhauled to a zero miles, zero hours condition, will have the latest engineering changes to include armor protection and nuclear, biological and chemical warfare equipment and will be delivered by December 2007.

Land 121 Project
BAE Systems has been selected by the Australian Government as the preferred bidder for one of the largest Australian Army projects for decades, the next generation of medium and heavy tactical trucks and modular payloads. The Land 121 Project will replace over 3000 of the Australian Defence Force’s tactical trucks over a six year period, commencing 2009.

The contract is expected to have a total value of A$1-1.5 billion (approx US$880m – 1.3bn). In addition to equipment, the contract includes payload modules, technical services and spare parts for the life of the equipment.

Sweden orders Helmet-Mounted Display
Swedish Air Force Gripen fighters will be equipped with the latest version of Saab's helmet mounted display (HMD) system, in a new SEK 345 million ($US 54 million) deal between FMV, Sweden's Defence Material Administration, and Saab.

The agreement will enable the HMD system to be integrated into Swedish Air Force Gripen fighters and be delivered to Sweden progressively.

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