UPDATE 1-UK aerospace industry worried by investment drop

* Industry body says 2009 aerospace orders fell 10 pct

* BAE to grow services arm ahead of defence spend cuts

* BAE shares up 2.5 pct

(Adds BAE Systems comment, shares, details)

By Rhys Jones and Kylie Maclellan

LONDON, July 13 (BestGrowthStock) – Britain’s aerospace industry is
worried looming cuts in defence budgets could weaken the sector,
with BAE Systems (BAES.L: ) eyeing services sector expansion to
offset cuts.

UK aerospace revenues rose 5.4 percent to 22 billion pounds
($33 billion) last year, figures from the AeroSpace, Defence and
Security trade body ADS showed on Tuesday.

The rise was driven by growing demand for defence and
security equipment and by exports to the rest of the world,
although new orders declined 10 percent from the previous year.

“Last year was tough for the whole aerospace industry given
the wider context of the global downturn but these results
demonstrate the resilience of the UK-based part of the sector,”
said ADS Chairman Ian Godden.

Britain’s Ministry of Defence (MoD) said last month it would
seek to boost defence exports to offset possible job losses
after a sector review in the autumn that is expected to slash
spending to tackle a big budget deficit.

BAE, Europe’s largest arms contractor, aims to grow its
customer support and services business, which covers readiness,
sustainment, cyber and security, to offset expected cuts in UK
defence procurement programmes.

“Customer support and services is over 40 percent of our
business now and we anticipate that will grow,” BAE’s Chief
Executive Ian King told reporters on Tuesday.

TYPHOON ORDERS

Analysts expect Britain’s plans to buy Eurofighter Typhoon
combat jets to be scaled down or scrapped as part of the cuts.
However, under a deal struck with members of the Eurofighter
consortium — Britain, Germany, Italy and Spain — the UK can
count exports to other nations towards its order total.

Britain has ordered 160 of the 70 million pound planes,
which BAE is involved in making.

“Oman’s Typhoons could come out of the UK’s tranche,” said
King, who added that he was optimistic of winning more contracts
to sell Typhoons overseas after reaching an agreement to supply
Oman with the fighter jets.

“Japan is looking to replace fighter aircraft and we believe
we have a good chance to win a deal there and Qatar is looking
for 40 fighters,” said King.

BAE said Oman had agreed to buy an unspecified number of
Typhoons and that it was about to start detailed negotiations on
the contract, which it expects to be signed within 12 months.

BAE shares, which have fallen 13 percent in the last three
months, were up 2.5 percent at 329.2 pence by 1340 GMT, valuing
the business at around 11 billion pounds.

ADS said investment in research and development (R&D) fell 7
percent to 1.74 billion pounds as companies became more risk
averse but believes R&D spend will pick up as Britain’s economy
recovers.

Exports accounted for around 70 percent of industry turnover
last year, with exports to Europe up 10 percent and the rest of
the world up 20 percent, said ADS.
(Editing by Michael Shields and David Cowell)
($1=.6676 Pound)

UPDATE 1-UK aerospace industry worried by investment drop