The rating of Europe's largest defense and aerospace firm BAE Systems has taken a blow this week with Thursday's shooting of another of the company’s employees in Saudi Arabia. Financial analysts have hastened to downgrade BAE’s shares, reflecting concern over the company’s financial performance and the effects of regional instability on the longer-term deals of the British defense contractor.
BAe is the prime contractor of the eight billion dollar Al-Yamamah project, Britain's largest ever defense export contract. Signed in 1985, the deal provides for the sale of British aircraft and other systems to the Royal Saudi Air Force.
Robert Dent, a British citizen aged 37, was shot and killed Thursday, February 20, while driving his car in Riyadh. A Saudi man arrested soon after is allegedly linked to the Al-Qa'eda terror network. This was the third attack on BAE employees in the kingdom this month. Since 2000, five foreigners have died in the Kingdom.
Amid “increasing regional tension and the risk of terrorist action” the British Foreign Office warned Britons last week against non-essential travel to Bahrain, Jordan, Qatar and Saudi Arabia. The warning came three weeks after similar advice was offered to US citizens by the United States government
On Friday, international rating agency Fitch Ratings, has downgraded the Senior Unsecured rating of BAE Systems Plc (BAE) to 'BBB+' from 'A-' and the Short-term rating to ‘F2’ from ‘F1’. Both ratings have also been placed on Rating Watch Negative. “The rating actions reflect the deterioration of BAE's financial profile,” a Fitch statement read.
“A difficult trading environment during 2002 as well as substantial cost overruns and delays, mainly on the Nimrod maritime patrol plane and Astute nuclear powered submarine contracts, have put pressure on the company's cash flow generation capability.”
Moody's Investors Service downgraded the long- and short-term debt ratings of BAE Systems plc (BAE) to Baa1 and Prime-2 from A2 and Prime-1, respectively. The rating outlook is Negative.
“The downgrade reflects BAE's weak operating and cash flow outlook, the challenges it faces in improving core profitability in a difficult contract negotiating environment with its major customers, and the expected significant cash outlays related to two troubled programs, the Astute attack submarine and the Nimrod MRA4 aircraft,” a Moody’s release stated.
The rating cut considers that BAE's financial performance remains weak, due to the significant pressures on its cash flows, and that any additional operating problems from existing or new development programs could exacerbate the company's already negative free cash flow.
Headquartered in Farnborough, England, BAE is currently rated the fourth-largest defense company in the world a shareholder in aircraft manufacturer Airbus SAS. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
