BAE sees growth in foreign, commercial electronic systems
* Electronic systems sales dipped slightly in first half
* Growth in commercial airplane market boosting demand
* Electronic warfare seen expanding 5-8 percent
By Andrea Shalal-Esa
HUDSON, New Hampshire, Aug 12 (Reuters) - Britain's BAE Systems is gearing up for strong growth in commercial and international orders for its wide range of electronic systems, and expects that to help offset declining military spending in the United States and Europe.
Paul Markwardt, deputy general manager of the electronic systems division of the company's U.S. unit, BAE Systems Inc., said he expected foreign and commercial sales to expand, accounting for half or more of the division's annual revenues within the next five years, up from about 35 percent currently.
"We're setting up to exceed that 50 percent. We believe that it's possible to go beyond that," he told reporters at the company's facility in Hudson, New Hampshire.
The division, which makes everything from flight controls for commercial airplanes to precision guided weapons and advanced electronic warfare equipment, posted $3.9 billion in revenues in 2012. That accounted for about a third of the U.S. unit's overall revenues of $12.75 billion in 2012, and nearly 14 percent of the British parent's overall revenues of $28.2 billion.
BAE reported earlier this month that the electronic systems division saw a 1-percent drop in revenues in the first half of 2013, and said full year sales would be marginally lower. But it said the division's commercial sales rose 10 percent in the first half and margins would remain strong.
Strong results in the electronic systems division mark a contrast to the company's ground vehicle division, which has seen big declines in recent years, given the end of the war in Iraq and the planned U.S. drawdown of forces from Afghanistan.
Markwardt said the company saw good opportunities in the commercial sector, where airplane orders are expected to drive demand for flight, engine and cabin control systems, and internationally, where buyers across the Middle East and Asia are rapidly replacing aging equipment.
"We see growth on the commercial side, we see growth in the EW (electronic warfare) part of the market," Markwardt told reporters. "As we take a look at the changing defense market, we have the ability to focus our investment to follow the growth that we're seeing."
BAE has said that its work on Boeing's next 737-MAX alone could be worth about $1 billion over the life of the aircraft.
The company has also developed an airplane cabin management system called "IntelliCabin" that it says could help save power, reduce weight and operating expenses, and improve customer comfort on commercial airliners. It expects to find a launch customer for the system by the end of 2104.
Markwardt said the electronic warfare segment was expected to generate growth of 5 to 8 percent, giving escalating threats, even as overall defense spending went down.
He said the division's portfolio was well diversified with thousands of contracts and hundreds of customers, including the U.S. military services and many bigger contractors like Lockheed Martin Corp and Boeing Co.
The division's single largest contract was for work on the F-35 fighter jet built by Lockheed, but that accounted for just 6 percent of annual revenues, he said.
BAE is bidding for several large contracts, including a new U.S. Army vehicle radio deal expected in September or October that it says could be worth over $2 billion over time.
The U.S. Army is also expected to launch the next phase of a competition for a new infrared countermeasures program next year that could generate significant orders in coming years.
Army officials are conducting a preliminary design review of BAE's technology demonstration work on the system. Northrop Grumman Corp is also working on a similar demonstration project.
In addition to its work on satellites, aircraft and surveillance sensors, BAE has developed hybrid propulsion and power systems for buses, trucks and other vehicles. That is a relatively small, but growing market, Markwardt said.
BAE has also filed a formal protest about a U.S. Navy contract it lost to Raytheon Co to develop a next-generation electronic jammer. Brian Walters, general manager of the electronic combat solutions business, said company officials had concerns about how the Navy evaluated its proposal.
The U.S. Government Accountability Office is expected to rule on the protest in October.
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