BAE sells 72 Eurofighters to Saudi Arabia
Friday, August 18, 2006, 11:10
Des Browne, UK defence secretary, signed up to the agreement, which will see Saudi Arabia acquire 72 Eurofighter jets, four weeks ago. His Saudi counterpart, Prince Sultan bin Abdul-Aziz, signed up in the last week. BAE Systems Plc, Europe's largest weapons maker, will sell Saudi Arabia 72 Eurofighter Typhoon jets, the first order for the combat planes outside Europe, under an agreement between the UK government and the Middle East kingdom. „The required commercial principles have now been agreed which has initiated the purchase of Typhoon aircraft,” the UK Ministry of Defence said in a statement today. The Eurofighters will cost the Saudis about $ 10 billion (£ 5.4 billion, € 8 billion), with an additional £ 5 billion expected for on-board missiles, other parts and initial support.
The Saudi Finance Ministry is authorising the first payment on the new agreement, which could come as early as next week, though people close to the talks cautioned that it could be delayed. Once the payment is confirmed, BAE will be required to make an announcement to the London Stock Exchange confirming the details. A final contract is expected by the end of the year. BAE said that it welcomed the deal, news of which sent the group’s shares 3% higher in early London trading. The latest agreement could be worth as much as £20bn across its 25-year life, as in the past original contracts have supplements with lucrative maintenance and upgrade work. Saudi Arabia will purchase 72 jets, the official Saudi Press Agency reported. Britain has provided Tornado fighter jets, Hawk trainer aircraft, components and air-base management to Saudi Arabia under the Al Yamamah arms-for-oil program signed by Prime Minister Margaret Thatcher in 1985.
The Eurofighters will replace the kingdom's aging Tornado squadrons. „The Saudis don't want to buy everything from the US,” said Clive Forestier-Walker, an analyst at Numis Securities with a „buy” rating on BAE. „There aren't many customers for the Eurofighter and this order will absorb the aircraft we don't want.” Eurofighter is a Munich-based joint venture between BAE, Finmeccanica SpA and European Aeronautic, Defence & Space Co. Germany, the UK, Italy and Spain are buying 620 Eurofighter planes in three batches.
The original 1986 Al Yamamah deal has been worth more than £ 40 billion in revenues to BAE and its partners. The new deal is the biggest export deal by far for the long delayed and hugely over-budget Eurofighter, and a boost for the consortium of four nations – Britain, Germany, Italy and Spain – building the jets. BAE’s industrial partners in Eurofighter, EADS, the Franco-German aerospace group, and Italy’s Finmeccanica, will also benefit. Eurofighter also has an order for 18 jets from Austria, its sole export customer until now. The UK and Saudi Arabia reached an agreement on a 10 billion-pound ($19 billion) accord to replace the Middle East kingdom's fleet of Tornado aircraft with Eurofighters, the Financial Times reported today.
Saudi Arabia is earning about $ 17 billion per month at current prices from the sale of crude, allowing the country to update its armed forces, build new infrastructure and invest overseas. The UK will also be keen to pursue other potential deals, including the sale of new Hawk training jets built by BAE. However, Scott Babka, aerospace analyst at Morgan Stanley, said BAE would be the biggest beneficiary by far, as it would be “prime contractor” on the Saudi-bound Eurofighters. He estimated BAE could receive two-thirds of the revenues from the Saudi deal. An understanding agreement was reached between UK and Saudi ministers in December, but King Abdullah was eager that the deal should be amended to remove the Al Yamamah name. That original “oil for arms” deal has been surrounded by allegations of unethical practices and King Abdullah has embarked on an anti-corruption campaign. (Bloomberg, FT.com)