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HAS EUROFIGHTER AND TANKER DELAYS LEFT COBHAM VULNERABLE

HAS EUROFIGHTER AND TANKER DELAYS LEFT COBHAM VULNERABLE TO A BID APPROACH?

15 Sep 04. The FT reported that the government’s delay in signing up to the second batch of Eurofighter Typhoon combat jets was the primary driver behind 140 job losses at Cobham, the defence and aerospace supplier said yesterday.

The admission that British jobs are suffering because of the slow pace of contract negotiations will raise pressure on the government. The Eurofighter consortium, which is supplying Britain, Germany, Spain and Italy with the Typhoon, warned in July that failure by the UK to join the other three partners in confirming the financing for the second batch of aircraft would hurt the supply chain. Cobham’s statement yesterday is the first public admission by a leading supplier that the delay is hitting jobs.

The aerospace and defence equipment maker’s full-year results are expected to rise, although they will be tempered by the translation effect of dollar earnings and £4m bid costs for the Future Strategic Air Tanker project. Orders for the period were almost 35 per cent higher at £528m and Cobham said second-half profits would exceed those of the first half, as is customary. The company spent over £30m on acquisitions in the first half and will continue expansion through acquisitions and organic growth, it said on Tuesday.The interim dividend of 9.2p was a 10 per cent rise on the same time last year.

The aerospace systems division saw revenues rise 24 per cent to over £171m but was hit by delays in the Eurofighter project and higher expenditure on the A380 civil aircraft programme. Full-year margins for the division are expected to be at the lower end of the historic 16 per cent to 20 per cent margin. First-half revenues at Chelton, the avionics division, were up 31 per cent at £217m but the operating margin was reduced by the dilution effect of acquisitions and the costs of exiting a project related to training aircraft. Military action in Iraq and Afghanistan boosted demand for antennae. Space-related activity picked up after a lacklustre 2003. Homeland security continued to grow in importance for Chelton. Full-year margins are seen at around the historic level of 17.5 per cent. Revenues at the third major division, flight operations and services, were boosted by extensions of the Australian coastwatch contract. They were 59 per cent higher at £113m.

The Ministry of Defence and BAE Systems, the UK industrial partner in Eurofighter, have signalled that talks are progressing but have refused to commit themselves to a deadline.

Allan Cook, chief executive of Cobham, said yesterday that he hoped negotiations would be finalised by the end of the year.The company supplies about £800,000 of equipment for each of the £60m aircraft, including fuel systems and antennas.Mr Cook said the job losses were largely due to “reduced volumes on Eurofighter”.

Separately, Mr Cook warned that negotiations with the MoD over a £13bn PFI contract to supply air-to-air refuelling services to the Royal Air Force were “complicated”. The financing package has threatened to scupper the selection of the AirTanker consortium, in which Cobham has a 25 per cent stake, as preferred bidder. Mr Cook said he hoped this would be awarded by the end of the
year. His comments came as Cobham unveiled another set of strong results with profit before goodwill and exceptionals for the first half up (£46.5m). Turnover was up from £399m to £462.6m. A dividend of 9.2p (8.36p) is payable from earnings of 30.8p (31.2p).Cobham’s shares closed down 74p at £13.78.

FT Comment. Cobham continues to deliver strong figures underscoring its position in niche markets, such as its core air-to-air refuelling business. But analysts are worried about the impact on margins of the strung-out bid for the UK tanker programme as well as the cost of covering for the delays on Eurofighter. Expectations

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