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BAE targets U.S. buys
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March 3, 2000: 11:03 a.m. ET
U.K. defense company beats profit forecasts, eyes expansion
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LONDON (CNNfn) - BAE Systems, the world's third-largest aerospace and defense company, said on Friday it was targeting the U.S. market for further acquisitions to boost its buoyant defense business.
The company, formerly known as British Aerospace, said it would be in a position to make purchases at the end of the year, taking advantage of rising U.S. military spending and the willingness to shed assets among some struggling U.S. defense companies.
However, analysts noted that it would first have to overcome continuing opposition by the U.S. authorities to further inroads by European companies into the U.S. market. While the Pentagon has made efforts to encourage transatlantic deals, some parts of the U.S. industry continue to oppose European involvement in "sensitive" military projects.
BAE chief executive John Weston outlined the expansion strategy as his company posted an 11.6 percent rise in 1999 earnings, which beat expectations but left the company's shares lagging.
Improving profitability in its core defense business from programs such as the pan-European Eurofighter aircraft offset a loss in BAE's commercial aerospace market, where the company owns 20 percent of the Airbus Industrie airliner consortium.
The company said pre-tax earnings before exceptional items rose to 790 million pounds ($1.25 billion) in 1999 from 708 million a year earlier. Profit was higher than the 747 million-pounds consensus among analysts polled by Reuters. Sales rose 3.6 percent to 8.93 billion pounds.
The defense business was the main earnings driver with a 19 percent rise in pre-tax profit to 760 million pounds even as sales fell 8 percent to 5.84 billion pounds.
 BAE (BA) shares were down 1.5 percent at 320 pence in late afternoon trade Friday, valuing the company at 9.7 billion pounds. The stock has fallen 20 percent over the past 12 months.
BAE boosted its defense business last year with the acquisition of the electronics arm of Marconi (MNI), formerly called GEC. The unit generated earnings of 28 million pounds in the latest reporting period, and BAE said the integration of the companies was progressing well.
The Marconi buy put an end to merger talks with Germany's DaimlerChrysler Aerospace (Dasa), a unit of the German-U.S. automaker which agreed last October to merge with France's Aérospatiale-Matra (PARO) to form European Aerospace, Defense and Space [Eads].
Dasa executives were reported to be furious with BAE's change of tack, adding to speculation that the U.K. company saw its future in ties and acquisitions with U.S. firms rather than counterparts in mainland Europe.
Some analysts believe BAE may seek to withdraw from the commercial aircraft business, where its Airbus interest sits alongside a loss-making regional aircraft operation.
While Airbus Industrie last year overtook Boeing in terms of commercial jet orders, intense price competition in previous years left the business nursing a loss of 10 million pounds as aircraft were delivered, compared with a 12 million profit in 1998. BAE said the result also reflected the repayment of government aid to launch new aircraft.
The acquisition of the Marconi unit boosted BAE's order book by 8.5 billion pounds to 36.6 billion. 
-- from staff and wire reports
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