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, offset by low profitability and a sizable pension deficit. BAE Systems is a major supplier of military aircraft, defense electronics, submarines and surface combatants for the Royal Navy, support services, information technology, and aerostructures. The company's portfolio is diverse and includes a number of high-priority programs. On June 30, 2004, contractual backlog of £45 billion was substantial, equaling several times annual revenues. International defense outlays for procurement and R&D are expected to have modest growth prospects over the next few years, with the best opportunities in the U.S., the world's
