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BAE Systems agrees Eurofighter Typhoon pricing with Saudi Arabia Fighter jet deal with Saudi Arabia saves BAE Systems’ full-year results
(about 14 hours later)
BAE Systems has announced it has finally agreed the pricing of a deal to sell Eurofighter Typhoon jets to Saudi Arabia after years of tortuous negotiations. BAE Systems has finally settled the pricing of a Eurofighter jet deal with Saudi Arabia, a tortuous negotiation that has been resolved just in time to rescue the defence giant’s full-year results today. 
Shares in the defence giant jumped after it revealed the ends of talks over the 72 jets, which have hurt BAE’s last two sets of annual results, ahead of the release of tomorrow’s full-year figures. Talks over the 72 jets have hurt BAE’s last two sets of annual results at a time when defence spending generally has also been tight due to governments slashing budgets.
Saudi Arabia had initially agreed to buy the jets in 2007 for more than £4.4 billion. But talks over changes to the terms of the so-called Salam deal proved fraught with pitfalls. BAE’s 2013 earnings per share would have been hit by 6p or 7p if negotiations had drifted into a fourth year, which would have seen hundreds of millions of pounds wiped off the group’s operating profit.
At a time when defence spending generally has been tight because of governments slashing budgets, BAE’s 2013 earnings per share would have been hit by 6p or 7p if negotiations had drifted into a fourth year, cutting hundreds of millions of pounds from the group’s operating profit. However, BAE’s chief executive, Ian King, has confirmed that an “equitable outcome for all parties” had been reached and sources confirmed this would be reflected in the annual results.
 The business has had to reduce its full-year earnings expectations for the past two years as discussions which involved the governments of both countries dragged on. Saudi Arabia initially agreed to the jets in 2007 for more than £4.4bn, but talks over changes to the so-called Salam deal were fraught.
However, BAE chief executive Ian King confirmed today that an “equitable outcome for all parties” had been reached and sources confirmed this would be reflected in annual results. The delays to the agreement caused earnings to fall by 7 per cent in 2011, but the timing of the resolution is welcome given that BAE’s talks over a £6bn Eurofighter contract with the United Arab Emirates collapsed only two months ago. This was seen as a blow for Britain, given that David Cameron personally intervened in an attempt to get a deal done, but Mr King insisted that the failure would not “disadvantage” BAE – a claim seemingly substantiated by finally settling the issue in Saudi Arabia.
BAE said the terms were “broadly consistent” with the trading outlook previously given for last year and that cash settlement was expected to start “in the early part of [this year]”. However, the BAE boss hinted at his relief at finally reaching a deal with a country that is expected to be issuing more juicy contracts over the next few years.
The timing of the resolution is welcome given that BAE’s talks over a £6 billion Eurofighter contract with the United Arab Emirates collapsed only two months ago. He said: “I am pleased that we have been able to conclude this negotiation which builds on our long-standing relationship with this much-valued customer.”
This was seen as a blow for Britain given that Prime Minister David Cameron had personally intervened in an attempt to get a deal done, but King insisted that the failure would not “disadvantage” BAE — a claim seemingly substantiated by finally settling the issue in Saudi Arabia. Shares in BAE slipped 0.8p to 436.8p.
King hinted today that he was relieved finally to reach a deal with a country which is expected to issue more contracts over the next few years. “I am pleased that we have been able to conclude this negotiation which builds on our long-standing relationship with this much-valued customer,” he said. The Salam programme of 72 Eurofighter Typhoon jets is the third part of one of the most pored-over arms deals of the past 30 years. Al-Yamamah, as the series of deals is known, was already worth more than £40bn to BAE by the middle of the last decade.
Investors welcomed the news, as shares rose more than 4 per cent in early trading before settling back to 442.4p, up 4.8p on the day. It was dogged by rumours of corruption, which prompted a Serious Fraud Office investigation in 2004. Two years later, the then Attorney General, Lord Goldsmith, announced that the investigation had been dropped, much to the anger of a number of MPs and the Organisation for Economic Co-operation and Development, though BAE denied any wrongdoing.
City analysts also applauded the deal: Cantor Fitzgerald’s Andy Chambers said that the end of the talks “clearly has positive ramifications for ongoing earnings with Saudi revenues likely to continue to grow on a variety of additional contracts signed over the past 24 months”. The US Department of Justice ran its own investigation, which BAE settled in 2010 by paying fines of more than £285m on both sides of the Atlantic. BAE admitted to conspiring to make false statements to the US Government, while the British fine related to accounting records in Tanzania.
The jet is built by BAE with European aerospace giant Airbus and the Italian defence firm Finmeccanica.
The contract is good news for the company’s £1 billion share buyback programme, which was announced a year ago, with the full implementation requiring negotiations with Saudi Arabia to be completed.