Britain's aerospace industry is worried looming cuts in defense budgets could weaken the sector, with BAE Systems eyeing services sector expansion to offset cuts. UK aerospace revenues rose 5.4 percent to 22 billion pounds ($33 billion) last year, figures from the AeroSpace, Defence and Security trade body ADS showed on Tuesday. The rise was driven by growing demand for defense and security equipment and by exports to the rest of the world, although new orders declined 10 percent from the previous year. “Last year was tough for the whole aerospace industry given the wider context of the global downturn but these results demonstrate the resilience of the UK-based part of the sector,” said ADS Chairman Ian Godden. Britain's Ministry of Defense (MoD) said last month it would seek to boost defense exports to offset possible job losses after a sector review in the autumn that is expected to slash spending to tackle a big budget deficit. BAE, Europe's largest arms contractor, aims to grow its customer support and services business, which covers readiness, sustainment, cyber and security, to offset expected cuts in UK defense procurement programs. “Customer support and services is over 40 percent of our business now and we anticipate that will grow,” BAE's Chief Executive Ian King told reporters on Tuesday. Analysts expect Britain's plans to buy Eurofighter Typhoon combat jets to be scaled down or scrapped as part of the cuts. However, under a deal struck with members of the Eurofighter consortium - Britain, Germany, Italy and Spain - the UK can count exports to other nations toward its order total. Britain has ordered 160 of the 70 million pound planes, which BAE is involved in making. “Oman's Typhoons could come out of the UK's tranche,” said King, who added that he was optimistic of winning more contracts to sell Typhoons overseas after reaching an agreement to supply Oman with the fighter jets. “Japan is looking to replace fighter aircraft and we believe we have a good chance to win a deal there and Qatar is looking for 40 fighters,” said King. BAE said Oman had agreed to buy an unspecified number of Typhoons and that it was about to start detailed negotiations on the contract, which it expects to be signed within 12 months. BAE shares, which have fallen 13 percent in the last three months, were up 2.5 percent at 329.2 pence by 1340 GMT, valuing the business at around 11 billion pounds. ADS said investment in research and development (R&D) fell 7 percent to 1.74 billion pounds as companies became more risk averse but believes R&D spend will pick up as Britain's economy recovers. Exports accounted for around 70 percent of industry turnover last year, with exports to Europe up 10 percent and the rest of the world up 20 percent, said ADS.
