These areas were selected for further study during Phase 1 to explore additional organic growth potential

Missiles & Weapons Market in PerspectiveJeff RyderBAE Systems, Inc.January 23, 2008IntroductionUS defense budget outlook1– Scenarios– Drivers• Missiles & Weapons budget outlook2– Missiles, PGW, munitions and ordnance– Market forecast• Trends to reorient capabilities3– Capability gaps– Future scenariosApproach– GEIA: interview based, cross-industry analysis– Defense budget analysis1The defense budget is approaching record-breaking levelsDoD Budget AuthorityCurrent and Constant FY08 $B700WWIIFY08 budget approaching WWII peakKorea600Reagan BuildupVietnam500400300200Current $100Constant $0FY1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008Source: DoD Greenbook2$BThe budget is currently “off cycle” – a return to historical cyclicality would suggest a decline is imminentDoD Budget AuthorityFY08Constant FY08 $B700600500400300200Constant $100Mean Spend 1951-2008Historical Budget Cycle01948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018FYSource: DoD Greenbook3Constant FY08 $B$A number of factors shape the budget outlook – threat perception, politics and economics matter mostPrimary budget-shaping factors:• Threat• Politics• Economics$Factors that pressure the budget: Factors that buoy the budget:• Withdrawal from Iraq • High Optempo• Increase in mandatory spending • Rising Operations & Support (O&S) costs• Popular ...