The maker of Typhoon fighter jets, combat vehicles, warfare ships and Astute Class nuclear-powered attack submarines, said its defence business, which accounts for 90% of group revenues, was close to being back to pre-pandemic levels.

"We expect our defence business to respond positively and deliver a second-half earnings performance very much in line with our original expectations for 2020," Chief executive Charles Woodburn told reporters. "Reflecting this outlook we're resuming dividends."

That makes BAE Systems, which announced for the year ended December 2019 it would pay 13.8 pence per share deferred from April, plus an interim dividend of 9.4 pence per share, an outlier at a time when many other British companies have axed or cut their payouts.

Shares in the company, which have fallen 22% over the last six months, climbed 5.4% to 502 pence at 0752 GMT.

For 2020, however, BAE forecast annual underlying earnings per share would be a mid-single digit percentage lower than last year's result of 45.8 pence, hurt by the 15% drop in underlying earnings per share to 18.7 pence for its first-half.

U.S.-CHINA TENSIONS

The first-half result was affected by the cost of disruption and new working practices to combat COVID-19 as well as falling demand for the products and services it sells to commercial customers in the aviation, transport and cyber security markets.

Jefferies analyst Sandy Morris said the combination of BAE's healthy order intake, satisfactory guidance and dividend payout would "help to steady nerves", adding that the outlook for defence spending would be helped by the belligerent tone that exists between China and the United States.

The outcome of the presidential election in the United States, which is BAE's biggest market accounting for 43% of it sales, should not affect BAE.

"Our view is that defence budgets are in fact well supported on both sides of the aisle at this point," Woodburn said.

By Sarah Young