Saudi places huge order for Eurofighters

The first Middle East order for the Eurofighter comes nine months after the UK Serious Fraud Office was forced by Tony Blair’s government to drop a probe of alleged corruption tied to BAE weapons sales in Saudi Arabia, on national security concerns. The US justice department is also investigating potential illegal payments. The price of each plane was similar to the cost of Eurofighters sold to Britain’s Royal Air Force, the Saudi defense ministry said yesterday. The contract will boost revenue for UK-based BAE Systems and hundreds of component and engine suppliers across Europe. The program is the continent’s largest military-aircraft project and employs about 100000 people at BAE, two other primary companies and smaller manufacturers.

“This is a very significant win for the group and should be followed by other orders from the region,” said Steve East, a Credit Suisse analyst in London who has an “outperform” recommendation on the stock. “Signing this program further extends BAE’s earnings growth,” he said. The deal might include 25 years of maintenance work, East said before the announcement. A UK defense ministry spokeswoman said negotiations were continuing and would be concluded by the year’s end.

European Aeronautic Defence & Space, with a 46% stake, is the largest shareholder in Eurofighter, based at Hallbergmoos, Germany. London-based BAE has a 33% stake and Italy’s Finmeccanica holds 21% through its Alenia Aeronautica subsidiary. Shares of BAE were trading down 10,25p, or 2,1%, at £472,75 in afternoon trade in London yesterday. The stock has added 11% this year, giving a market value of £16,6 billion ($33.43 billion) . EADS shares traded down 0,8% at € 20,25 and Finmeccanica was down 1,9% at € 20,21. “This is a government-to-government contract,” BAE spokesman Scott Hailstone said . “The company has nothing to say at this time.”


Saudi Arabia, the Middle East’s largest economy, is using higher oil revenues to modernize its military. The country agreed with the UK government in 2005 that defense improvements were necessary to promote regional stability and fight terrorism. That agreement said BAE would invest in Saudi companies, train thousands of Saudi pilots and military personnel, and maintain and repair equipment. The details of the contract were confidential, the governments said. “It’s a relationship that goes back to the 1960s,” said Anthony Harris, a former UK ambassador to the United Arab Emirates. “There is a huge tradition of British training and it would have been a tragedy if that had come to an end. I think it’s excellent news for Saudi-British relations.”

BAE has provided Tornado fighter jets, Hawk trainer aircraft, components and air-base management to Saudi Arabia since 1985. About 4600 BAE employees work in the kingdom. “I would imagine the Saudis would probably retire the Tornados from frontline service and a lot of the pilots will want to go on to the Typhoons,” said Harris, who has also served as a diplomat in Saudi Arabia.

The Eurofighter program, conceived 20 years ago during the Cold War , is jointly owned by the UK, Germany, Italy and Spain. The four countries are scheduled to buy a total of 620 aircraft, led by Britain with an order for 232 planes. The Guardian newspaper and the BBC reported in June that BAE made secret payments of £1 billion ($2 billion) to Prince Bandar bin Sultan of Saudi Arabia, citing the UK investigation. BAE denied wrongdoing and Bandar called the reports “false”. Bandar was ambassador to the US for 20 years. BAE appointed Harry Woolf, former lord chief justice o England and Wales, on June 15 to lead a panel that will investigate BAE’s ethical standards after the allegations of secret payments. While the panel would examine “policies and processes,” it would not look into Saudi arms sales because they had been “exhaustively” investigated, BAE chairman Dick Olver said.

Britain dropped its probe in December after a review by attorney-general Peter Goldsmith and intervention by Blair, then prime minister. The probe threatened to have “devastating” consequences for relations with Saudi Arabia and for national security, Blair said a month later. “Had we proceeded with this investigation it would have significantly damaged our relationship with Saudi Arabia and that relationship is of vital importance, including fighting terrorism in this country,” Blair said. In March, the Organization for Economic Co-operation and Development criticized the decision to drop the probe. “There are investigations but no prosecutions,” Mark Pieth, a spokesman for the organization, said on March 14. The first aircraft went into production in 1998 with manufacturing at four plants in the partner countries. Deliveries began in 2003 and are expected to extend until 2014. BAE is making the front and rear fuselages of the planes. (businessday.co.za)