BAe targets Middle East to capitalise on oil prices

BAe Systems is launching a drive to win new defence orders in the Middle East following the huge economic boost to the region from the surge in oil prices.

BAe Systems is launching a drive to win new defence orders in the Middle East following the huge economic boost to the region from the surge in oil prices.

John Weston, BAe's chief executive, said yesterday: "Rising oil prices are good news for us. The low oil price has been a retardant but the increase in prices gives us hope of doing more business."

Discussions are going on with Saudi Arabia, BAe's biggest overseas customer, about a further Al Yamamah arms-for-oil deal. BAe marketing teams have also been told to target the United Arab Emirates, Oman and Kuwait in the hope of picking up orders for Hawk and Grippen fighter aircraft, guided weapons and naval systems.

News of the Middle East sales drive came as BAe posted a 34 per cent rise in underlying first-half profits to £480m and said it had a war chest of up to £3bn to spend on further acquisitions if opportunities arose, particularly in the US.

BAe expects to complete the $2.2bn purchase of Lockheed Martin's controls and electronic systems divisions by December. Although Mr Weston said it would take most of next year to integrate the two businesses, BAe was ready to add to its US defence interests if other businesses came up for sale.

Despite the profit rise and an increase in the order book to £37bn, the market reacted badly to a 27 per cent decline in earnings per share. BAe issued more than one billion new shares to fund the £7bn acquisition of Marconi Electronic Systems last year.

BAe blamed the sharp fall in earnings on the cost of integrating Marconi, low Hawk sales and timing of payments on the Eurofighter programme. BAe's chairman, Sir Dick Evans, stood by his forecast that the Marconi deal would result in a "modest dilution" in earnings for the full year and said BAe was on course to achieve merger savings of £55m this year and at least £275m by the end of 2002.