(Recasts, adds analyst comments, background)
By Brenda Goh
LONDON Feb 19 British defence contractor BAE
Systems has finally agreed pricing with Saudi Arabia on
its long-delayed Eurofighter Typhoon jet deal with the Gulf
state, potentially leading to more contracts across the region.
Sales to countries such as Saudi Arabia have become
increasingly important to BAE as it contends with shrinking
defence budgets in the United States and Europe, but the
company's profits have been held back by years of talks over the
2007 deal to supply Saudi with 72 Eurofighters for 4.43 billion
pounds ($7.4 billion).
The original contract, known as the Salam deal, had to be
renegotiated after Saudi requested more advanced weaponry and
equipment for the Typhoon fleet.
The saga has been watched closely by countries such as
Bahrain, Qatar and Malaysia as they weigh up the Typhoon against
competitors including Lockheed Martin's F-35, Dassault
Aviation's Rafale fighter and the Gripen made by
"There is considerable relief that this long-running problem
has been resolved," independent defence analyst Howard Wheeldon
said. "It does open up some very interesting doors, not only in
Saudi Arabia, but across the Arabian Peninsula."
BAE, which reports 2013 results on Thursday, said that a
price has now been agreed between the British and Saudi
governments. Though it did not disclose full details, BAE said
the terms were broadly consistent with guidance the company gave
in October for 2013 earnings, when it warned that failure to
complete the deal could hit full-year profit by 6-7 pence per
"This is an equitable outcome for all parties," Chief
Executive Ian King said, adding that the agreement builds on the
company's relationship with a "much-valued customer".
Shares in BAE, which builds the Eurofighter alongside
European aerospace group Airbus and Italian defence
contractor Finmeccanica, were up 0.3 percent at 1036
GMT, having jumped by 4 percent in early trade to a
two-month-high of 455 pence.
BAE had continued Eurofighter deliveries to Saudi during the
negotiations, prompting investor concern over rising amounts of
cash being committed to the programme without being able to book
profits. It also suffered a blow in December, when United Arab
Emirates withdrew from talks over a potential $9.8 billion deal
to buy 60 jets.
Wednesday's announcement, however, removes much of the
uncertainty for BAE, which said it will start receiving cash
from the Salam deal in the first-half of this year.
"With Salam cash coming in, this should give BAE more
flexibility for cash deployment moving forward," RBC Capital
Markets analyst Robert Stallard said. "It also allows the
(Kingdom of Saudi Arabia) to move on to other potential
With the Salam price finalised, BAE and Saudi Arabia are now
likely to begin talks on a second batch of Eurofighters, which
could bring an order for up to 72 more aircraft.
The announcement also bodes well for the 1 billion pound
share repurchase programme BAE launched in February, the full
implementation of which was contingent on finalisation of the
($1 = 0.5989 British pounds)
(Editing by David Goodman)