Wealth Manager - Essential news for investment professionals

Register to get unlimited access to all of Citywire’s Fund Manager database. Registration is free and only takes a minute.

BAE bags carrier contract

BAE Systems may have won the battle for prime contractor status on the MoD's two new aircraft carriers, but as its share price suggests, it has by no means yet won the war.

The company today confirmed yesterday's speculation that it has been appointed prime contractor on the £10 billion project to build two new state-of-the-art aircraft carriers for the Royal Navy, beating French company and one-time favourite Thales to the post.

However, the deal - initially worth £2.9 billion - is that BAE (BA.) must agree to use Thales' designs (about a third of the work) and to cooperate with the French company to an extent and under terms that have yet to be thrashed out.

The MoD and BAE have been at loggerheads over the severe delays and cost overruns £5.5 billion worth of contracts for the Astute attack submarines and Nimrod surveillance aircraft.

Last month defence officials forced the company to tell investors its problems, a move which devastated its share price.

News that BAE will now have to work with Thales on the contract has led some industry watchers to suggest there could be a greater chance of delays and going over budget as a result.

Hence the reason perhaps that although the shares were boosted yesterday on rumours that BAE had won the bid, they fell again today and are currently down 4.75p at 113.5p, not far off their lowest levels for five years.

Citywire Verdict:

The Government's decision to give BAE the lead role on this contract is bizarre. The fact is that whether BAE or Thales won, British jobs were not at stake as the ships would be built here whatever the nationality of the management.

BAE's appalling record on the Astute and Nimrod contracts means it should have lost out. The fact that it has been entrusted with around two-thirds of the work may help keep it afloat, but the joint venture approach is bound to be messy.

Investors will also worry that the political intervention clouds the financial picture. With no sign that its operations are improving and with a growing pension scheme deficit investors are right to be unimpressed.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Sarasin’s Boucher: why I like salmon with chocolate

Sarasin’s Boucher: why I like salmon with chocolate

Henry Boucher, manager of the £129 million Sarasin Food & Agriculture Opportunities fund, explains why he is gobbling up salmon and chocolate stocks.

Play Alibaba hype, the UK slowdown and opportunities in European sovereign bonds

Alibaba hype, the UK slowdown and opportunities in European sovereign bonds

Libby Ashby and leading wealth managers analyse what the Alibaba IPO hype means for Chinese equities, slowing growth of the UK economy and whether there’s anything left to play for in the European sovereign bond market.

Play Tesco, Japan and the rise of the central banker

Tesco, Japan and the rise of the central banker

 Libby Ashby and leading wealth managers scrutinise the food retail sector, Japan’s consumption tax hike and political risk in the markets.

Your Business: Cover Star Club

Veteran banker boosts Sanlam’s stockbroking team

Veteran banker boosts Sanlam’s stockbroking team

A veteran private banker has been recruited by Sanlam Private Investments to strengthen its advisory stockbroking team.

Wealth Manager on Twitter