Re Agreement

BAE SYSTEMS PLC
06 December 2004


    Progress on Eurofighter Typhoon agreement underpins BAE Systems outlook


                                                                 6 December 2004

BAE Systems has made good progress towards securing a way forward for the
Eurofighter Typhoon programme.

The company has reached an agreement in principle with the UK MOD on variations
in the UK's share of the currently contracted Eurofighter Typhoon tranche 1
activity to reflect programme changes. Agreements have also been reached in
principle covering the UK's share of further development of future capabilities
and for the UK share of production of the second tranche of 236 aircraft. These
agreements bring a balanced overall improvement to the Typhoon programme for BAE
Systems and support delivery of an outstandingly capable system to the UK MOD
and the air forces of the partner nations.

These agreements will become legally binding only when the necessary four
partner nations approvals are in place and contractual agreements are finalised
between NETMA (the agency representing the four government customers) and
Eurofighter GmbH (the four nation industrial group). Negotiations are at an
advanced stage and it is hoped that the Tranche 2 order, and associated
contractual terms and conditions, can be agreed by the governments of the four
partner nations in the near future. The agreements reached for the Eurofighter
Typhoon programme will have no bearing on the company's 2004 results, the
outlook for which remains as previously indicated.

This agreement between UK MOD and BAES is fair and equitable and will underpin
the company's business plan assumptions. It is also consistent with the current
expectations for some modest improvement in a contribution from the Programmes
business group next year.

In addition to an improved contribution from the programmes business group in
2005, the company's North America business group continues to perform well and
the good contribution from Airbus is expected to continue, along with further
improvements from International Partnerships, particularly in MBDA.

BAE Systems has for some time signalled a progressive reduction in margin for
its Customer Solutions & Support business group. This anticipated margin
reduction is a consequence of both a higher volume of lower margin UK MoD
support activity and a reduction in margin within its Al Yamamah support
operations in Saudi Arabia as the programme embraces greater local content in
Kingdom. An anticipated increased pace of indigenous Saudi content in the Al
Yamamah programme, including greater in-Kingdom repair and overhaul work, is
expected to bring forward that margin reduction resulting in a lower CS&S
contribution in 2005. Al Yamamah support margins are expected to stabilise from
2005.

Overall, the result of these developments across the company is expected to
underpin modest performance improvement for BAE Systems in 2005.


Issued by:

BAE Systems plc

London

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