The ratings on Farnborough, U.K.-based BAE Systems PLC reflect its strong competitive positions in the global defense market, an industry with generally favorable credit characteristics, and good liquidity, offset partly by modest, albeit improving, profitability and a sizable, although reduced, pension deficit. The ratings also incorporate expectations that BAE Systems will restore its credit protection measures by reducing debt following the 2005 acquisition of U.S.-based United Defense Industries Inc. and by strengthening overall financial performance. BAE Systems recently sold its 20% stake in Airbus SAS (now 100% owned by France-based European Aeronautic Defence and Space Co. N.V., EADS; A-/Watch Neg/A-2), one of two dominant manufacturers of commercial airplanes, to EADS for £1.2 billion, net of Airbus' cash held by BAE
