Formation of New Subsidiary

BAE SYSTEMS PLC
9 January 2002

                ESTABLISHMENT OF BAE SYSTEMS CAPITAL ANNOUNCED

BAE SYSTEMS today announced that it has established BAE SYSTEMS Capital
Limited, a wholly owned subsidiary that will provide innovative financing
options to support the Group's core businesses.

'BAE SYSTEMS Capital will allow us to build on the capabilities we have
developed in the structuring of innovative financial solutions for our
business, our partners and customers' said George Rose, BAE SYSTEMS Group
Finance Director.

In June of 2001, BAE SYSTEMS completed SYSTEMS 2001 Asset Trust, a US$2.1
billion structured bond issue backed by lease receivables from a fleet of
regional aircraft. That transaction attracted record investor interest and was
widely reported as setting a new benchmark in the structured finance market.

At that time BAE SYSTEMS signalled its intention to bring similar transactions
to the market in future as it develops a growing asset finance business.

BAE SYSTEMS Capital will concentrate on the increasing opportunities offered
in the defence sector by the move towards the procurement of services under
privately financed long term supply contracts.

In the United Kingdom alone it is estimated that up to £4 billion of defence
equipment and logistics spending a year could be transferred to industry
contractors in this way.

John Weston, CEO of BAE SYSTEMS stated: 'BAE SYSTEMS is very well positioned
to offer to customers a new range of solutions to their long term logistics
needs. The creation of BAE SYSTEMS Capital will enable us to provide those
solutions packaged together with a financing that will create a winning
combination'.

BAE SYSTEMS Capital will focus on the structuring of finance for products and
services in the systems, defence and aerospace sectors.

Commenting on the future direction of the business, Terence Black, the newly
appointed Managing Director of BAE SYSTEMS Capital said: 'SYSTEMS 2001 Asset
Trust was the first of what we intend will be a series of asset backed
portfolios, bringing to the market high quality cash flows enhanced by the
servicing capabilities of BAE SYSTEMS as a global leader in its industry'.

BAE SYSTEMS Capital is intended to maximise the return from the Group's
investment in the growing global market for private finance projects and to
ensure effective co-ordination of financial engineering activities throughout
the Group. BAE SYSTEMS Capital is expected to operate as a business and to
contribute to the Group's profits. BAE SYSTEMS Capital will be located in
London and Farnborough.