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. These factors are offset partly by modest, albeit improving, profitability and a sizable, although reduced, pension deficit. The ratings also incorporate expectations that BAE Systems will continue to pursue a moderate financial policy and balanced capital allocation. BAE Systems is a major supplier of military aircraft; land combat vehicles and armaments; defense electronics, submarines and surface combatants for the Royal Navy; and a variety of support services. The company's portfolio is diverse and includes a number of high-priority programs. On Dec. 31, 2006, the contractual backlog of £32 billion was substantial, equaling
