BAE Systems warns of Covid-19 profits hit but strong recovery ahead

Defence giant BAE Systems has warned of a Covid-19 hit to first-half profits, but said trading will be “much stronger” over the final six months as it gets back up to full capacity.

The group said half-year profits are expected to be around 15% lower as the pandemic takes its toll on the business.

It said the coronavirus impact largely affected its second quarter to the end of June, with the UK-based air and maritime sectors and US commercial avionics business worst hit.

The company, which makes Typhoon fighter jets and warships, said some manufacturing lines had been disrupted by the pandemic due to supply chain issues and some delays in its own operations as it sought to put in place social distancing measures.

But it said it now has “well over” 90% of staff in its defence businesses working again, with productivity improving this month within the division, which accounts for the vast majority of group revenues – at around 90%.

BAE added that, despite the first-half impact of the crisis, order intake is in line with original expectations and revenues are broadly stable.

It said: “As we return towards full operational tempo, we expect the business performance in the second half to be much stronger than in the first half, assuming no new significant Covid-19-related disruptions.”

Sandy Morris, an analyst at Jeffries, said BAE’s trading update looked fine, but that “attention must turn to how government budget deficits are addressed”.

He added: “We are naturally wary of adverse sentiment about the future paths of defence spending in Australia, the Middle East, the UK, and the USA.

“We are also wary that the US Presidential and Congressional elections on November 3 may generate some uncertainty.

“We struggle, however, to picture BAE’s revenue falling significantly, although it could decline a bit when Hawk and Typhoon deliveries to Qatar complete.”