UK's Eurofighter output may be cut

Jet maker BAE to review production demand as it tries to pin down Saudi re-orders

BAE says it will review its output of the Eurofighter. Denis Balibouse / Reuters

The UK output of the Eurofighter Typhoon warplane may be cut as manufacturer BAE Systems struggles to pin down a follow-on order from Saudi Arabia, the biggest export customer for the Mach 2 jet.

Eurofighter production is the cornerstone of a military-aircraft business that employs 12,500 people at BAE, with final assembly at Warton in north-west England. The last four aircraft from an earlier Saudi contract were delivered in the first half, with the first two from an Omani deal for 12 planes already shipped, eating into the backlog.

“We obviously have to review our production demand very carefully,” said the chief executive Charles Woodburn on Wednesday. “We are confident that we will win further Typhoon orders, what we can’t be confident around is the timing.”

Build rates will be under “constant” appraisal, London-based BAE said, adding that even if a new order was placed today it would take at least 24 months to boost production. The company has already slowed output of the Typhoon to help eke out the backlog and could do so further, Mr Woodburn said. The UK's Royal Air Force also has some planes yet to be handed over.

The BAE chief financial officer Peter Lynas said that the Eurofighter workload has been buoyed by the Omani deal as well as subcontracting work on 28 Typhoons ordered by Kuwait via its Italian partner in the consortium, Leonardo.

“We’re not staring at a cliff edge here,” he said. “We now do as much revenue through the support of Typhoons as we do on producing Typhoons, so in that sense the production is relatively speaking somewhat de-risked.”

Manufacturing work on the Lockheed Martin F-35 Lightning II, including the plane’s rear fuselage and tail, is also located in north-west England, with 55 ship-sets produced last year, rising to 80 this year and 130 in 2018, helping to balance the warplane portfolio. “They’re different lines, but in terms of the overall activity levels within the business, similar geography,” Mr Lynas said.

Overall, the multinational Typhoon programme has received 599 orders from eight customers with 512 aircraft delivered, leaving a backlog of 87 unfilled orders spread across four assembly lines at BAE, Leonardo and Airbus. Lines in Germany and Spain are already scheduled for closure at the end of next year, Airbus has said.

BAE’s first-half profit rose 11 per cent as Europe’s biggest defence company benefited from increased global defense spending. Underlying earnings before interest, tax and amortization increased to £945 million (Dh4.59 billion), better than the £907m estimated by analysts.

Mr Woodburn, who took over in June as Ian King stood down after eight years as the chief executive, reiterated a forecast that full-year underlying earnings per share will rise by 5 to 10 per cent from 2016’s 40.3 pence, excluding some one-time items and financial costs.

The company expects to see “some softening” in sales at its cyber security division, which will take a restructuring charge, and faces a currency headwind from a change in the pound-dollar exchange rate, it said.

Shares of BAE rose as much as 3.3 per cent and were trading 2.8 per cent higher at 624 pence as of 8:40am in London. The stock has gained 5.5 per cent this year, valuing the company at £20bn.

* Bloomberg