...Change in Outlook: The Negative Outlook placed on the Long-Term IDR on 2 April 2015 reflects a weakening of certain financial ratios in recent years with the company's free cash- flow (FCF) margin and gross leverage moving outside the parameters expected of a `BBB+' rating. While Fitch believes these metrics may improve in the short term, should they remain at present levels, the credit profile of the company may no longer be in line with the `BBB+' rating. Weak Free Cash Flow: Whilst BAE has relatively stable EBITDAR margins as a consequence of a flexible cost structure, both funds from operations (FFO) and FCF generation (post pension deficit funding) in recent years have been weak for the rating. FCF has been negative in three out of the past four years, and is likely to be so again in 2015, driven by large negative working- capital swings and the relatively high dividend payments. Solid but Vulnerable Capital Structure: BAE's leverage, liquidity and financial flexibility remain at levels...
