Relief for BAE after Saudi deal is signed

Typhoon Final Assembly hangar at BAE Systems in Warton, Lancashire:
Typhoon Final Assembly hangar at BAE Systems in Warton, Lancashire:

Fylde aircraft workers hit by a pre-Christmas blow when the UAE stepped back from a deal to buy 60 Typhoons, have been given a boost by neighbouring Saudi Arabia.

The Saudis had been negotiating with BAE Systems for the past three years over an escalation in the cost of supplying 72 Typhoons which are built at Warton.

BAE had warned that forecast earnings per share for the year would be hit by “6p-7p” – equivalent to about £250m off operating profits, if the negotiations dragged on further.

So the news that the “Salam” deal has been signed was a filip ahead of the annual results due out today.

Discussions, involving governments of both countries, hinged on how much “price escalation” needed to be factored in given that an initial understanding was signed in 2005.

The price had been reported as £4.4bn in 2007 and the newly-agreed value is likely to be more than that, though various other parts of the deal have also changed since then. BAE did not disclose price details.

Some analysts speculated that this could open the door to the Saudis, the biggest export customer of BAE Systems, buying more of the aircraft and thus safeguarding jobs on the Fylde.

In a stock market announcement today, the company said the two governments had now agreed terms that were “broadly consistent with the group’s prior trading outlook for 2013”. Cash settlement is expected to begin during the early part of this year.

Chief executive Ian King said: “This is an equitable outcome for all parties. I am pleased that we have been able to conclude this negotiation which builds on our long standing relationship with this much valued customer.”

In December, BAE revealed that a separate multi-billion pound deal to sell 60 Typhoon jets to the United Arab Emirates (UAE) had collapsed, despite Prime Minister David Cameron pressing the case for it during a Middle East visit.

Ahead of this week’s results, analysts at Deutsche Bank said they expected group sales to have increased by 5.5 per cent to £18.8bn over 2013 and pencilled in a nine per cent rise in underlying pre-tax profits to £1.8bn.

They said: “Following the December disappointment over the hoped for UAE Eurofighter contract, the market will be looking for an update on the remaining export contract pipeline.”

Meanwhile, the group announced in November that it would stop shipbuilding in Portsmouth with the loss of 940 jobs while there would be 835 redundancies in Glasgow,