The ratings on Farnborough, U.K.-based BAE Systems PLC are based on its strong competitive positions in the global defense market, an industry with generally favorable credit characteristics, and good liquidity, partly offset by weak profitability and a sizable pension deficit. BAE Systems is a major supplier of military aircraft, defense electronics, military and commercial avionics and aerostructures, submarines and surface combatants for the Royal Navy, and support services and information technology. The company's portfolio is diverse and includes a number of high-priority programs. On Dec. 31, 2003, contractual backlog of £46 billion was substantial, equaling several times annual revenues. Defense sector outlays for procurement and R&D should rise meaningfully over the next few years, mainly in the U.S., the world's
