BAE Systems Has One Contract End And Another Start

The advantage that the large defense contractors have over many of the mid-sized and small ones is that their business lines are diverse enough that a major change in defense spending may be cushioned. This is true of BAE Systems as well who also have the advantage that they due to their market outside the United States will also be able to adjust for changes in many different nation’s spending patterns.

BAE Systems (BA.L) manufactures a missile warning and defensive system for helicopters designated the Common Missile Warning System (CMWS). This utilizes different sensors to detect and classify threats and uses flares to decoy the missiles. The small, hand held Surface-to-Air-Missile (SAM) is priority threat to helicopters flying in Afghanistan and Iraq with a few having been shot down. BAE Systems now has a contract to produce the newer Advanced Threat Infrared Countermeasures (ATICM) system which is different in that it uses lasers to confuse the targeting system of missiles.

BAE is announcing an expansion of a plant in New Hampshire to produce these systems. This is after laying off over a hundred workers earlier this year due to changes in the U.S. defense spending. Perhaps some of the old workers will get rehired as part of this. Unfortunately the way defense contracting works is that most people work only if they have a direct charge — some contract that they can bill to. Overhead and indirect workers are limited to senior management and support such as accounting and HR. This limits companies when it comes to keeping workers when a contract ends or is lost.

BAE Systems through acquisitions and investments has established a presence in southern New Hampshire that this plant only expands. As long as the defense budget continues some consistent level of spending BAE should be able to maintain this investment. If there are cuts or spending declines then parts of the company will see reductions. Ideally there will be other work to make up for the losses.