14 BAE Systems Annual Report 2017 Chief Executive’s review continued Competitiveness Our US electronics business delivered good UK Good progress has been made in making operational performance across our core Defence and security remains a priority for the organisation more efficient over the franchise positions in the high-technology the UK government. We expect this to be last few years, and there are further areas of electronic warfare, precision-guided reaffirmed in the National Security Capability opportunities with procurement and munitions, Intelligence, Surveillance and Review, and in the Modernising Defence enhanced collaboration at the forefront. Reconnaissance, and electro-optics. Programme, which was announced in Technological innovation BAE Systems has sustained its leadership January 2018 by the Defence Secretary. We have a long heritage of developing position in the US electronic warfare market Transition arrangements after March 2019 and integrating cutting-edge technologies and production is ramping up to execute orders will be important to enable companies to to create complex systems that give our across a number of programmes, some of prepare for potential changes in the regulatory customers a capability advantage. The which are classified. As the electronic warfare environment. As there is relatively limited accelerating pace of technological change system supplier on the F-35 Lightning II UK-EU trading and movement of EU nationals is a disruptive force and a key driver of combat aircraft programme, we are increasing into and out of BAE Systems’ UK businesses, competitive advantage and, increasingly, production and are well positioned to meet the resulting Brexit impact on the business is a determinant for our customers in further increases in output rates over the likely to be limited, depending on the terms awarding new business. coming years to meet the requirements of any transition and final agreements for Driving performance in these three areas of both US and international customers. the UK’s future relationship with the will be key for the development of the On F-15, upgrade programmes are contracted European Union. business as we execute on our strategy and progressing for the US Air Force and We will support the government in achieving in 2018 and beyond. international customers. its aim to ensure that the UK maintains its key 2017 performance The Group’s US-based combat vehicles role in European security and defence business is underpinned by programmes for post-Brexit, and to strengthen bilateral US the manufacture of Armored Multi-Purpose relationships with key partners in Europe. This After seven months under a Continuing Vehicles and M109A7 self-propelled will be important for ongoing collaboration in Resolution that maintained funding at the howitzers, and Bradley upgrades which all the development of defence capabilities. prior year’s level, the fiscal year 2017 defence progressed in the year. In the amphibious budget ultimately rose by approximately vehicle market, 16 prototypes have been In December, BAE Systems and the 4%. Similarly, fiscal year 2018 has begun delivered to the US Marine Corps under the Government of Qatar entered into a contract, under multiple Continuing Resolutions. Amphibious Combat Vehicle 1.1 programme. valued at approximately £5bn, for the supply On 9 February 2018, Congress passed, and We are one of two competitors for this of 24 Typhoon aircraft. Alongside supplying the President signed, a budget agreement programme, with final down-selection the aircraft, the agreement provides for the that supports the medium-term planning expected in 2018. supply of ground support to the Qatar assumptions for our US businesses. This Armed Forces and delivery of technical and budget agreement increases the budget BAE Systems is a leading supplier of ship pilot training in Qatar. The contract is subject caps for two years, and extends the current repair services to the US Navy and continues to financing conditions and receipt by the Continuing Resolution to 23 March 2018 to adjust its workforce and facilities to meet Group of first payment which are expected to allow lawmakers to pass a fiscal year evolving demand. Additional dry dock capacity to be fulfilled no later than mid-2018. 2018 omnibus appropriations bill. at our San Diego shipyard became operational Discussions with current and prospective in February 2017 and accepted its first ship operators of the Typhoon aircraft continue We see continued support for increased during the year. defence spending in the President’s to support the Group’s expectations for recently-released fiscal year 2019 budget Whilst market conditions remain highly additional Typhoon contract awards. However, request. This request maintains positive competitive and continue to evolve, our there can be no certainty as to the timing of momentum in funding for military readiness US-based Intelligence & Security business these orders. and modernisation, and provides greater is focused on delivering on its contracts As a result of reducing production activity near-term certainty. Our US-based portfolio and maintaining a high level of bid activity. on Typhoon and Hawk, and also taking into remains well aligned with customer account the changes to support requirements priorities and growth areas, such as the as the Royal Air Force transitions from Tornado ramp-up of production on a number of to F-35 Lightning II, the business announced our long-term programmes. in October a total proposed headcount reduction of up to 1,400 roles over the next three years.