Contracts worth £4,8bn could change

London - BAE Systems’ share price plunged as much as 25% to an almost nine-year low after Europe’s No 1 defence contractor said it faced cost overruns and delays on UK contracts for nuclear-powered submarines and aircraft.

BAE is in talks with the UK’s defence ministry about possible changes in contracts worth £4,8bn for Astute attack submarines and Nimrod marine patrol aircraft.

The shares fell as much as 33p, or 25 %, to 98p. They traded down 24p, or 18 %, to 107p at 8.2 am in London for a 35 % two-day drop.

BAE’s earnings in the past two years have been hurt as it failed to meet deadlines for the Nimrod and Astute as well as Eurofighter combat planes. It posted a first-half net loss of £63m. BAE shares are down 65 % so far this year.

The shares dropped 25 % on January 10 last year after the company reported cost overruns and slowing orders forced it to take a £525m charge, including higher costs on the Nimrod. The contract for 18 refurbished Nimrod maritime patrol aircraft is worth £2,8bn, with deliveries expected in August 2004.

The Astute prime contract for three submarines was worth £2bn, BAE said. The first submarine was scheduled for commissioning in June 2005, according to Jane’s Fighting Ships. BAE also had options to build two more of the ships.

“I think this could have severe implications for BAE’s efforts to be the British national defence contractor”, said Richard Aboulafia, vice-president of the Teal Group, a Fairfax, Virginia-based consultancy.

“Nimrod is fundamentally flawed from the word go. Its obvious past revelations have only been the tip of the iceberg,” said Aboulafia.

BAE is competing against Thales SA of France for a £2,5bn contract to build two aircraft carriers for Britain’s Royal Navy.

BAE executives have said the UK’s industry would be weakened if it lost the contract, while Thales executives have countered that BAE’s record of delays indicate that the French company should win.

With acknowledgements to Matthew Fletcher and Business Day.