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BAE SHARES SLIDE ON CARRIER REPORT

17 Apr 03. Reuters reports that shares in BAE Systems fell 3.5 percent today after The Times said that the CVF carrier project with Thales (Paris:TCFP.PA – News) of France could be delayed.

By 0842 GMT the shares were down 4-1/4 pence to 116-3/4p on turnover of
1.8 million, underperforming the FTSE 100 index (London:^FTSE – News)
which was down 0.4 percent.

The Times newspaper said that BAE and Thales had given notice that their venture to build two aircraft carriers for Britain’s Royal Navy could be running 12 months late. It cited sources talking about squabbling over the extent of Thales’ involvement and BAE pressing Britain’s Ministry of Defence to move away
from a fixed-price contract towards a more flexible Target Cost Incentive Fee (TCIF).

BAE was not immediately available to comment while the Ministry of Defence said the contract dates would be met.

Britain in January awarded the £2.9bn ($4.6bn) contract to BAE as prime contractor but chose Thales to lead the design.

Comment: At the time the contract was awarded to both parties with BAE as prime and Thales and the MoD as partners, the first words on every observer’s lips were ‘cost’. It was inevitable that for BAE to work with a Thales design there would be significant costs involved as another tier of contractor would be involved.

There is also the pressing question of how much U.S. F-35 JSF technology BAE is able to pass onto the French company. This has become increasingly difficult following French obstructions to the US war on Iraq a point the US is not going to forgive easily (See ROW OVER FRENCH ACCESS TO CVF TECHNOLOGY). BATTLESPACE will feature a report on the US backlash to France following the Iraq war obstructions in next month’s issue). Thales will require access to this technology to finalise the design features for CVF.

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