BAE Systems rating affirmed at A- as Fitch cites backlog and cash flow strength

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BAE Systems rating affirmed

Highlights

Fitch affirms BAE Systems' A- rating, citing an order backlog rising to GBP84 billion at end-2025, nearly three years' revenue visibility.
Fitch projects BAE's free cash flow margins to reach at least 3.5% in 2026 and sustain above 5% from 2027, aligning with A rating criteria.
Fitch forecasts BAE's EBITDA margin approaching 14% medium term, with leverage falling to 1.8x (gross) and 1.1x (net) by end-2026.

Backlog and cash flow underpin rating view

As reported by Fitch Ratings, the affirmation is based on BAE's strong business profile, high revenue visibility and expectations for gradual but sustainable improvement in profitability over the short to medium term. The agency says structural gains in cash flow and margins are supported by robust sector conditions, a stable financial policy and a solid capital structure.

Fitch says BAE's order backlog rises to GBP84 billion at the end of 2025 from GBP78 billion a year earlier, equivalent to nearly three years of revenue. The ratings agency links that visibility to BAE's position in long-term defence programmes across the U.S., UK, EU, Saudi Arabia and Australia, as well as to broader growth in global defence spending.

Fitch expects free cash flow margins to reach at least 3.5% in 2026, up from 3% in 2025, despite contract-related cash outflows outweighing prepayments on new orders. It then forecasts margins above 5% on a sustained basis, with free cash flow performance moving into line with an A rating from 2027 onward.

Defence sector demand supports medium-term outlook

Fitch expects BAE's EBITDA margin to climb gradually to nearly 14% over the medium term as the company executes its order book and improves operating efficiency. It sees stronger profitability in electronic systems, air, platforms and services, with more modest expansion in cyber and intelligence and maritime.

The agency also points to BAE's role in major defence programmes including F-35 Lightning II, F-15, EA-37B, M-Code GPS upgrades, and contributions to MBDA and GCAP. That exposure reinforces the company's position in the global defence sector at a time when NATO members are targeting defence spending of 3.5% of GDP by 2035 amid heightened geopolitical uncertainty.

On balance sheet metrics, Fitch expects EBITDA gross leverage and net leverage to stand at around 1.8x and 1.1x respectively at the end of 2026, helped by stronger earnings and repayment of the 2025 bond. It assumes no large debt-funded acquisitions in the medium term, while saying any material shift away from BAE's prudent capital allocation strategy could affect the rating.

Our earlier coverage of Fitch’s rating action on New York’s Triborough Bridge and Tunnel Authority (TBTA) focused on the agency’s 'AA-' rating with a Stable Outlook for its upcoming general revenue bond sale. We noted that Fitch highlighted the essential nature of TBTA’s toll assets, its ability to raise tolls, and solid debt service coverage, while also flagging liquidity pressure tied to required surplus transfers and future borrowing needs.

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