July 30 (Bloomberg) -- BAE Systems Plc, Europe’s biggest weapons maker, posted a first-half loss after it wrote down the value of a U.S. acquisition.

BAE took a charge of 256 million pounds related to the purchase of Armor Holdings Inc., the biggest maker of protection for Humvee troop transports. Revenue growth in the Land & Armaments division trailed the company average as BAE sold fewer Mine-Resistant, Ambush-Protected vehicles to the U.S. military.

The net loss was 82 million pounds ($135 million), or 2.3 pence a share, compared with profit of 586 million pounds, or 16.6 pence, a year earlier, London-based BAE said today in a statement. That missed the average estimate of net income of 635.7 million pounds from six analysts surveyed by Bloomberg.

“We recognize that these are difficult times in the wider economies in which we operate and we are not complacent,” Chief Executive Officer Ian King said on a conference call. “BAE Systems is a broadly based and robust business, with a larger 45 billion-pound order book, and we are able to maintain realistically based plans of future growth.”

BAE declined 16 pence, or 4.9 percent, to 312 pence in London trading, the lowest price since Nov. 21. The stock has dropped 17 percent this year, valuing the company at 11 billion pounds.

MRAP Reduction

A “significant reduction” in deliveries of Mine- Resistant, Ambush-Protected, or MRAP, vehicles won’t be completely offset this year by other land programs such as the Bradley Fighting Vehicle, BAE said.

Part of Armor Holdings had “a reduction in its outlook,” Finance Director George Rose said in an interview. BAE said accounting for loans among divisions also contributed to the first-half loss.

Land & Armaments sales rose 24 percent to 3.2 billion pounds, trailing the 28 percent increase in first-half revenue, which advanced to 9.94 billion pounds.

“There were some impairment charges in the first half,” Avi Hoddes, an analyst at UBS AG in London who recommends buying BAE shares, wrote today in a note. “However, investors should not draw negative inferences about the performance of the larger business units, which we believe are trading well.”

The manufacturer increased its dividend 10 percent and said full-year results will benefit from a weaker pound, which boosts the value of sales from companies acquired in the U.S.

Pension Deficit

CEO King said he has implemented a pension deficit reduction plan after BAE’s shortfall rose to 4.5 billion pounds from 3.3 billion pounds at the end of last year.

“The group continues to expect good growth for 2009 as a whole, despite a lower level of land vehicle sales,” BAE said in the statement.

BAE announced in May that the volume of land vehicle sales would decline this year from 2008 levels. BAE lost a $1.06 billion contract to build all-terrain trucks that would protect troops in Afghanistan from roadside bombs, to Oshkosh Corp. at the end of June.

The U.S. division, based in Rockville, Maryland, generated 58 percent of BAE’s 18.5 billion pounds in revenue in 2008. BAE was the Pentagon’s fourth-largest supplier last year after Lockheed Martin Corp., Boeing Co. and Northrop Grumman Corp., and its biggest maker of armored combat vehicles, according to federal government data.

Acquisitions

BAE has focused on the world’s two biggest defense markets, the U.S. and the U.K., while also expanding in countries such as India, South Africa and Australia, where it purchased Tenix Defense in 2008. Recent U.S. acquisitions include United Defense Industries Inc., producer of the Bradley Fighting Vehicle.

“The weaknesses in the U.S. businesses are due in part to seasonal impacts and we would expect the second half to be better,” said Rupinder Vig, an analyst at Morgan Stanley in London.

The U.S. Senate approved a defense spending measure on July 24 that includes most of the weapons-program reductions sought by Defense Secretary Robert Gates. The $679.8 billion bill allots $130 billion for wars in Iraq and Afghanistan during the fiscal year beginning Oct. 1.

The Senate voted to cap purchases of Lockheed Martin’s F-22 fighter jets at 187, eliminating $1.75 billion from the budget measure, and canceled the company’s VH-71 presidential helicopter. The Senate plans to buy 30 Lockheed F-35s in the 2010 budget compared with 14 this year, and its budget would curtail Boeing Co.’s Future Combat System and slow down anti- missile programs.

U.S. Budget

BAE participates in elements of the Future Combat System, and the F-22 and F-35 warplanes. The proposed changes made by the Senate, if accepted, won’t have a material impact on earnings, BAE said in May.

“We see further growth from the rising of activity on the Typhoon program, with participation on the F-35 Joint Strike Fighter following close behind,” King said. The Eurofighter Typhoon is manufactured by BAE, Airbus-parent European Aeronautic, Defence & Space Co. and Italy’s Finmeccanica SpA.

Numis Securities reiterated a “buy” recommendation on BAE shares, saying “the underlying operating business remains extremely robust.” The increased pension deficit results from more conservative inflation accounting assumptions, Allan Smylie, a London-based analyst, said in a note to investors.

In the U.K., BAE’s businesses include the BVT Surface Fleet joint venture that is developing two aircraft carriers for Britain. The shipbuilding division also makes Type 45 destroyers for the U.K., ocean patrol vessels for countries including Oman and fast-attack craft for Greece.

BAE bought Detica Group Plc in July 2008, acquiring a maker of software for U.K. counter-terrorism operations and tax-fraud detection systems used by the U.S. Internal Revenue Service.

To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net

Last Updated: July 30, 2009 13:37 EDT