Trading Update

BAE SYSTEMS PLC
27 November 2001



                               BAE SYSTEMS plc

                     Revised commercial aerospace outlook


Introduction

BAE SYSTEMS has completed a review of the trading outlook reflecting recent
changes in the commercial aerospace market.

  * 2001 group trading performance continues as planned.
  * Plans for 2002 adjusted to reflect the following:
  * Airbus:

                Deliveries reduced to 300 aircraft in 2002

                Airbus is expected to remain profitable at this revised level
                of output and additional actions underway to further safeguard
                profitability.

  * RJ programme

                RJ and RJX manufacturing programmes will close

                exceptional charge of £250m in 2001

                cash costs of closure £210m, £145m after tax

  * Other commercial aerospace activities:


                £150m restructuring and support costs
                of which approximately £120m to be provided in 2001
                cash cost £125m, £90m after tax

John Weston, Chief Executive, said:

' We have now completed a detailed assessment of the probable impact on our
business of the recent severe downturn in the commercial aerospace market.

Since September, the trading outlook in these markets has changed
substantially. In particular, operating profit expectations for Airbus next
year have been reduced significantly and the outlook for regional aircraft has
deteriorated sharply. Regrettably it has been concluded that our regional jet
business is no longer viable in this environment. The company has a number of
smaller commercial aerospace activities in aerostructures, avionics and
equipments and in aircraft maintenance and conversion. The outlook for these
other activities has also reduced.

Today's announcement draws a line under the company's exposure to regional
aircraft manufacturing and secures the company's financial exposure in this
market. While the impact of the changes in trading expectations for Airbus
will postpone the company's return to growth, the core defence businesses are
progressing well.'

Trading background

BAE SYSTEMS is one of the world's leading systems defence and aerospace
companies.

In the half year to 30 June 2001, 70% of group sales and 77% of operating
profit before goodwill amortisation and exceptional items was derived from
defence activities, and these businesses are expected to make good progress
next year.

A number of recent successes have further enhanced the outlook over the medium
term. The agreement over the build strategy for the UK's Type 45 destroyer and
a contract for two ALSL ships have strengthened the naval activities.
Agreement has been reached on the next phase of the competition for the UK's
next generation aircraft carriers and the company has been awarded a sole
source contract for the UK MoD's Indirect Fire Precision Attack programme.

In airborne systems the company's position has been further strengthened with
the DoD's recent selection of the Lockheed Martin JSF, where BAE SYSTEMS is a
full partner with an approximately15% programme participation. This important
win is a valuable new addition to the company's forward plan and enhances the
longer-term growth potential of the defence business.

In contrast, the events of 11 September have led to a significant
deterioration in the outlook for civil aerospace related businesses. These
businesses principally comprise the company's 20% interest in Airbus and the
Aircraft Services Group (ASG) that together form the Commercial Aerospace
business group. ASG includes the RJ and RJX regional jet programmes, the Asset
Management activity responsible for managing a portfolio of regional jet and
turbo prop aircraft and the Aviation Services freighter conversion and
maintenance business for Airbus aircraft. BAE SYSTEMS has commercial aerospace
involvement in other areas of its business, notably Operations, Avionics and
in the North America business group. The company has now completed a review of
the impact of the changed outlook on prospects for all its commercial
aerospace businesses and activities.

2001 Update

The trading outlook for the group for the current year, including the
contribution from the commercial aerospace related activities, remains broadly
in line with earlier plans.

For some years, BAE SYSTEMS has been reducing its exposure to the regional
aircraft market: turbo prop programmes have been progressively exited and the
regional jet (RJ) programme has run at progressively lower volumes. In 2000,
regional aircraft contributed £10m operating profit. The closure of the RJ and
RJX will incur cash costs of £145m net of tax, primarily expended in 2002.
This decision will result in an exceptional charge, before tax, of £250m in
the 2001 accounts. Rationalisation of employment resulting from this decision
will be partly offset by transfers to other programmes at the Woodford, UK,
facility.

 The operating performance of the Commercial Aerospace business group has
previously included certain costs to support the in-service fleet of regional
aircraft, including costs associated with aircraft types no longer in
production. BAE SYSTEMS remains committed to the continued support of these
aircraft including their continued re-marketing within the Asset Management
activity. The cost of these support services is covered in the above £250m
charge. With the closure of the RJ / RJX programme the engineering and support
activities are to be restructured, creating a unified support function for all
the company's, now discontinued, regional aircraft.

The company's Aerostructures activity is involved in the sub-contract
manufacturing of aerostructure assemblies for both Airbus and Boeing. A
rationalisation of this activity is planned in response to the anticipated
reduced volume throughput.

Aviation Services is engaged in the conversion of Airbus wide-body aircraft
into freighters and the heavy maintenance of Airbus aircraft. The order book
for this activity has declined and some rationalisation of the business is
anticipated. The options available for this business are under review.

In 1998 the company announced a Financial Risk Insurance Programme (FRIP) that
substantially insure income receivable from the fleet of regional aircraft to
which the company retained financial exposure at that time. The FRIP provides
a valuable insulation against all but the first £30m of lease income exposure
on a net present value basis, not otherwise provided, relating to the insured
fleet. As a consequence of the deteriorated regional aircraft market it has
been decided that it would be appropriate to provide for this exposure with a
charge to the 2001 accounts.

In addition to the closure of the RJ / RJX programme, the combination of the
above restructuring and the FRIP provision will result in an exceptional
charge of £150m of which approximately £120m will be taken in the 2001
accounts. The cash costs of these actions will be £125m, £90m after tax.

Together these charges represent the end of the company's financial exposure
to regional aircraft manufacture and secure the company's financial exposure
to that market.

2002 commercial aerospace outlook

Airbus deliveries are currently expected to reduce from some 320 aircraft this
year to around 300 in 2002. Flexibility in the manufacturing system, including
substantial use of contract labour to accommodate prior increases in programme
volume, will enable costs to be reduced to match lower demand. In addition,
and whilst the A380 development programme is expected to continue as planned,
scope remains for R&D spend to be reduced from earlier plans, partially
mitigating reduced profitability. As a result, Airbus is expected to continue
to make a positive contribution to BAE SYSTEMS' operating results, albeit much
reduced from earlier plans.

In addition to the Airbus and Aircraft Services Group activities in the
Commercial Aerospace business group and the Aerostructures activity in its
Operations business group, the company has relatively minor commercial
aircraft related activity in its Avionics, and North America business groups.

Avionics is a minor supplier of avionics equipment to the commercial aircraft
market. The Control Systems division of the North America business group is a
supplier of digital flight control equipment to both Airbus and Boeing and
digital engine controls to GE aero engines.

Reduced throughput in these Aerostructures, Avionics and North America
activities resulting from the weakened commercial aerospace market is expected
to reduce operating results by approximately £25m in 2002.

Longer term group outlook

The implications of 11 September are expected to have a significant impact on
the civil aerospace activities of BAE SYSTEMS and to delay the resumption of
growth that was previously envisaged next year.

Airbus deliveries in 2002 are expected to be slightly down on the current year
at some 300 aircraft. The business is expected to continue to trade profitably
at this level of throughput and additional actions are underway to further
safeguard profitability.

In the longer term, prospects for Airbus remain excellent. The outlook for the
defence businesses remains good with a number of important new programmes set
to contribute and further enhanced over the medium term by the recent JSF
selection.

-ends-