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BAE fights the good fight

www.breakingviews.com

BAE Systems' fight with the British government might look like a disaster. But it isn't. Not only does the defence contractor need to have the row; it might pay dividends in future. That certainly seems to be the verdict of the stock market. BAE's shares have actually risen by a quarter this year. They are also up by 5% over the past month.

The row concerns a £2.9 billion ($5.3 billion) order for two aircraft carriers. At first glance, BAE's demands look extravagant. The group isn't just trying to sweeten the terms of the order; it is trying to get the government to rewrite its whole policy on defence procurement. That means the state underwriting more of the risk on all big weapons development projects, and BAE getting a bigger share of such work without the tiresome chore of competing for it.

If it doesn't get its way, BAE hasn't just threatened to pull out of the carrier contract; it has threatened to withdraw from the whole warship-building business. That would look cheeky at the best of times. It looks unbelievably brass-necked from a company that incurred nearly £1 billion of cost overruns on two big projects over just a year or two.

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