Pre-tax profits at BAE Systems, the defence group, surged 39 per cent to £788 million during the first half, boosted by its acquisition last year of American armoured vehicle maker United Defense.

United Defense contributed sales of £777 million and pre-tax profits of £85 million to BAE during the six months to the end of June, out of total sales that jumped 21 per cent to £8.2 billion. BAE was also helped by a £63 million one-off gain related to its US pension liabilities.

BAE, led by Mike Turner, the chief executive, said it continued to make good progress taking orders to supply the American military and was reaping the rewards of working closely with the UK Ministry of Defence and the Royal Air Force.

It is confident it will do well out of the UK Government's new defence strategy, which has outlined a framework for working more effectively with the defence industry, and said it was making "good progress" with its business operations in Saudi Arabia.

"BAE Systems has delivered a good first half financial performance, with good programme schedule and cost execution right across the group," Mr Turner said.

BAE also signalled it was in the market for acquisitions after it abandoned earlier this year a potential takeover bid alongside VT Group for Babcock International. Babcock is a shipyard owner that maintains, fits and modernises British warships. BAE and VT helds talks in April about the possibility of launching a bid, but no firm offer materialised.

"Although no bid resulted from these discussions, BAE Systems continues to review the options for consolidation of the naval industry in the UK with the aim of delivering better value for its customers and enhanced returns to shareholders," BAE said.

BAE, which is preparing to offload its 20 per cent stake in Airbus, the plane-maker, said it expected there to be "some weakening" of the contribution from its struggling subsidiary during the second half, after a first-half performance it described as "good".

Airbus has been hit by delays to the production of its A380 super-jumbo and BAE is on course to pocket just £1.2 billion from the forthcoming sale, far less than had originally been expected. An independent valuation by Rothschild, the investment bank, which BAE followed, concluded that the stake was worth £1.9 billion.

Shares in BAE rose 3.75p to 389.25, a rise of just less than 1 per cent. The stock market values the defence group at £12.4 billion. For more on the shares click here

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