Driven by a solid outlook in its segment that provides a wide range of electronic capabilities to defense and commercial customers, BAE Systems, Inc., is expecting modest growth this year in its top line, Jerry DeMuro, president and CEO of the U.S.-based subsidiary Britain’s BAE Systems plc, said on Thursday.
Sales and operating income in the Electronic Systems segment are expected to rise in the mid-single digits in 2017, primarily on the strength of three programs, DeMuro said during a sweeping review of BAE Systems, Inc.’s, review of its core capabilities, programs, and end markets.
The primary drivers of the growth outlook at Electronic Systems are work on the F-35 Joint Strike Fighter, the Eagle Passive Active Warning Survivability System for Air Force F-15 fighters, and the Advanced Precision Kill Weapon System that provides a laser-guided capability to standard 2.75-inch Hydra rockets, DeMuro said at the subsidiary’s headquarters in Arlington, Va.
DeMuro said the growth drivers for the company are programs that have moved through the development stages and are now entering either low rate or full rate production. He said the company’s work on the F-35 will double every two years through 2020.
BAE Systems, Inc. posted $10.1 billion in sales in 2016, with Electronic Systems accounting for nearly $4.5 billion of the total. The subsidiary’s Platforms & Services segment had nearly $4 billion in sales and the Intelligence & Security segment $1.7 billion.
The forecast for the Platforms & Services Segment this year is flat although DeMuro said there are some growth opportunities depending out the defense budget spending plays out.
DeMuro highlighted both domestic and international markets as “showing signs of growth and improvement,” and he pointed to the FY ’17 omnibus appropriations bill approved by Congress last week and signed by President Donald Trump that includes more funding for defense this year as evidence of the brightening outlook. He also said the company’s portfolio is well aligned with the omnibus bill.
The Platforms & Systems segment manages a range of combat vehicle programs for U.S. and foreign militaries, naval guns, energetics for the Defense Department, and a $1.1 billion ship repair and overhaul business that is the largest for the Navy’s non-nuclear fleet, DeMuro said.
The Intelligence & Security segment grew 2 percent in 2016 over 2015 but DeMuro said the outlook is stable for 2017. He said the market space here is “very competitive” but the segment expects to maintain its margins.
The I&S segment provides information solutions, analytic services, mission support and other capabilities to the intelligence community and other customers.
DeMuro provided some statistics on the customers and end markets served by BAE Systems, Inc. The largest wedge of business is with the Navy, 21 percent, followed by the Army with 19 percent. The Air Force, Lockheed Martin [LMT], and Boeing [BA] each account for 7 percent of total sales followed by the U.S. intelligence community with 4 percent and classified work with 3 percent.
Commercial customers account for 12 percent of BAE Systems, Inc.’s sales, as the company provides a range of electronic systems for commercial aircraft, as well as hybrid drive propulsion systems for transit, marine and other transportation modes. International business makes up 15 percent of the U.S. subsidiary’s work.
Tom Arseneault, chief operating officer for BAE Systems, Inc., outlined the company’s strategy for evolving its current capability in several core areas to meet future mission needs. He highlighted electronic warfare as one these core capabilities that the company is developing next-generation capabilities, including cognitive machine learning, multi-spectral, net-centric communications, instantaneous bandwidth, and small form factors.
For small form factors, the idea is to be able to take fifth-generation capabilities that might be on a fighter jet and shrink them to be able to fit into unmanned aerial vehicles and even cruise missiles, Arseneault said.
Other core areas the company is focusing attention on to expand capabilities include precision guided munitions and weapons, the undersea environment, and providing resiliency to space products through the company’s electronic warfare know-how, he said.