BAE puts US aerospace units up for sale

The following correction was printed in the Guardian's Corrections and clarifications column, Monday 20 September 2010 "In 2007, [BAE Systems] bought American military vehicle company Armor Holdings … maker of the Humvee," the article below said. The maker of this military vehicle is Indiana-based AM General; Armor Holdings supplies some elements, including armour kits. BAE Systems has put parts of its US commercial aerospace business up for sale for $2bn (£1.3bn) as it prepares for swingeing cuts in defence spending. It has instructed JP Morgan and Wells Fargo to handle the auction, according to reports this weekend. Last week BAE, the biggest manufacturing company in Britain, said it was axing almost 1,000 jobs from its military aircraft division, which make parts for the Tornado, Harrier jump jet and Hawk trainer jets. The company blamed defence budget cuts in the UK, and it is also braced for the US to slow defence spending. The divisions put up for sale make aircraft engine controls for General Electronics and build hybrid propulsion systems for vehicles, and include a commercial avionics business, the reports said. The sale could raise up to $2bn. Initial offers are expected this week. The auction is likely to attract interest from US aerospace and component manufacturers, as well as from private equity firms. BAE Systems declined to comment. The defence industry will find out the extent of the spending cuts when the government publishes the results of its strategic defence review in the next month. Cuts of 15% are feared and there is mounting concern that the £5bn programme for BAE to build two new aircraft carriers will be radically scaled back or even scrapped altogether. BAE, along with the rest of the defence industry, is also being hit by cuts in the US, where the Obama administration has targeted savings of about $100bn in the military budget over the next five years. BAE makes more than half its profits from the US, whose government is the world's largest spender on defence. The company had identified the country as a major growth area to offset the defence spending cuts in the UK: in 2007, it bought the American military vehicle company Armor Holdings for $4.1bn, maker of the Humvee. But Goldman Sachs analysts estimate that profits at BAE's land division, which includes the Armor business, look set to halve by 2012 after the US cut funding for several vehicle programmes and as the US and Britain withdraw from Iraq and Afghanistan. It is not yet clear how BAE's business has been affected by the payment of bribery charges relating to the Saudi al-Yamamah arms contract. US and UK bribery and corruption inquiries resulted in BAE having to pay £255m in fines to the US justice department after admitting to irregularities over the sale of fighter planes to Saudi Arabia and in eastern Europe. In anticipation of the cuts, other US defence companies have begun to cut their cloth accordingly. This month Boeing said it would restructure its military aircraft business, with the loss of more than 400 jobs. Since the beginning of last year, Lockheed has cut its headcount by about 10,000 while Northrop Gruman recently announced that it would close its shipyards.