BAE Systems To Take GBP592 Million Write-Down For Contract Failure

U.K. defense giant BAE Systems PLC (BA.LN) Monday said it will book a GBP592 million write-down in its 2009 accounts after U.S. authorities confirmed that it hadn't been awarded a follow-on contract for producing cargo trucks for the U.S. Army.

The U.S. Army on Friday upheld a $3 billion cargo-truck contract awarded to Oshkosh Corp. (OSK) following a review of protests filed over the Army's evaluation of bids for the contract by BAE Systems, the incumbent contractor for the trucks, and Navistar International Corp (NAV).

Oshkosh was awarded the five-year contract to supply up to 12,415 trucks and 10,926 trailers in August last year, but in December, the U.S. Government Accountability Office upheld two protest issues of limited scope dealing with Oshkosh's production capacity and Navistar's past performance as a defense contractor. The GAO recommended that Army re-evaluate those parts of the companies' bids.

The GAO, however, dismissed the majority of the issues raised in the protests, including complaints that Oshkosh's price for the trucks is unrealistic and exposes the Army to production disruption if the company is unable to cover its production costs.

The trucks are part of the Army's long-running Family of Medium Tactical Vehicles, or FMTV, program. The FMTV series features up to 17 different truck models for a variety of uses with payloads from 2.5 tons to five tons.

BAE's Texas-based Land & Armaments Group and Stewart & Stevenson Services--a company acquired by BAE--have built more than 56,000 FMTV trucks since 1991. The company has said as many as 3,200 workers in Texas, Michigan and Ohio could lose their jobs when BAE quits building the trucks.

BAE said the GBP592 million write-down would cover impairment of goodwill and other intangible assets relating specifically to the FMTV contract.

At 1049 GMT, BAE's shares were flat in London and 342 pence, underperforming a 1% rise in the FTSE 100.

-By Steve McGrath, Dow Jones Newswires; 44-20-7842-9284; [e-mail]

(Bob Tita in Chicago contributed to this article.)