UPDATE 3-BAE sees key Saudi jet deal agreed in second half

Thu Aug 1, 2013 6:13am EDT

* H1 EBITA down 6 pct at 865 mln stg vs f'cast 885.67 mln

* Ups interim dividend 3 percent to 8 pence/share

* Says will submit bid for UAE 60-jet deal soon

* Shares up 2.8 percent, highest in nearly 5 years (Add details on exports, analyst comment, writes through)

By Brenda Goh

LONDON, Aug 1 (Reuters) - BAE Systems Plc said it expects a long-awaited multi-billion dollar Saudi fighter deal to complete in the second half of this year, enabling it to forecast a more than 10 percent lift to yearly underlying earnings.

Shares in BAE, whose $45 billion attempt to merge with Franco-German EADS collapsed last year after government opposition, were up 2.8 percent at 458.2 pence by 0919 GMT, their highest in nearly five years.

BAE has been locked in pricing negotiations with Saudi Arabia over the purchase of 72 Eurofighter Typhoon jets, previously said to be worth some 4.5 billion pounds ($6.8 billion), since the so-called Salam deal was first signed in 2007.

BAE builds the Eurofighter alongside EADS, which is changing its name to Airbus, and Italian arms maker Finmeccanica . It said a year ago it expected the deal to close in the following six months and has now repeated its optimistic view.

"In terms of Salam, we do expect that we will close this out in the second half," Chief Executive Ian King told reporters.

"There is ... quite increasing appetite to talk about the next batch of aircraft," King added, noting the two sides needed to finalise the pricing of the first batch before moving on to discussing any subsequent order. He said the Saudi airforce could order a further 48 to 72 planes.

BAE is also chasing a 60-aircraft order from the United Arab Emirates, which King described as potentially a "major game changer" for the company. He said BAE would be submitting its bid very soon.

A BAE executive had told Reuters in June the company was hopeful of a UAE decision this year.

King said that if the company clinched the additional Saudi and UAE orders, its Typhoon production line - at Warton in northwest England - could stretch out by four years to 2022 at a rate of 30 planes a year.

Malaysia, Korea and Qatar were also potential customers, he said.

International sales to countries such as Saudi Arabia have become increasingly important to BAE, which has made exports and niche markets such as cyber security its priority as defence budgets shrink in the United States and Europe. Non-U.S. and UK orders totaled 4.8 billion pounds over the six months.

SAUDI DEAL

BAE has continued to develop its Saudi business as talks over Salam went on and in June signed a 1.8 billion pound contract for follow-on support for the Salam programme.

Some analysts said the Salam deal looked as good as sealed.

"Consider it done," analysts at brokerage Jefferies said. "We see much in the first-half 2013 result that should lend credibility and solidity to earnings in full-year 2013 and ... 2014."

Yet Edison Investment Research analyst Roger Johnson said the delays showed it was a buyer's market, cautioning this was "a fact that will not go unnoticed by those with money to spend."

Britain's largest defence contractor, which previously said it had only expected "modest growth" in earnings, has repeatedly said its profits and sales have been weighed down by the deal's delayed conclusion.

The company said the slightly revised outlook also took into account a 1 billion pound share repurchase programme it had launched in February, along with the impact of U.S. budget cuts.

BAE said earnings before interest, taxes and amortization (EBITA) fell 6 percent over the first half of the year to 865 million pounds, on a 1 percent rise in sales to 8.45 billion. Its underlying earnings per share fell 4 percent.

Analysts on average were expecting first-half EBITA of 885.67 million pounds, Thomson Reuters data showed. BAE also raised its interim dividend by 3 percent to 8 pence per share. Its order book rose to 43.1 billion pounds from 42.2 billion at the end of last year.

The United States, which accounts for about 40 percent of BAE's sales, began reducing its spending by $37 billion for the fiscal 2013 year in March and its budget is set to shrink by $50 billion annually over the next nine years, unless Congress acts to avoid these cuts.

BAE said it expected U.S. trading to remain tough but manageable, while the UK would remain stable. Orders from international customers and the UK were helping make up for poorer U.S. demand, it said. ($1 = 0.6596 British pounds) (Editing by Kate Holton and David Holmes)

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