September 7, 2007 / 6:31 AM / 13 years ago

BAE jumps on Saudi fighter deal hopes

LONDON (Reuters) - Shares in BAE Systems BA.L climbed as much as 4.4 percent on Friday after a newspaper reported it will clinch a 20 billion pound deal to supply fighter jets to Saudi Arabia next week.

Typhoon jets fly over RAF Coningsby, central England, July 11, 2007. BAE Systems will clinch a 20-billion pound deal to supply 72 Eurofighter Typhoon jets to Saudi Arabia next week, the Times newspaper said on Friday. REUTERS/Darren Staples

The Times, without citing sources, said the British government had sent the contract to supply 72 Eurofighter Typhoon jets to Saudi King Abdullah bin Abdul Aziz two days ago and that he was expected to sign it next week.

A government source told Reuters that a deal, which was first outlined in a preliminary agreement in December 2005, was likely sooner rather than later. But another person familiar with the situation said the timing was still fluid.

“It could happen in the next few weeks, we just don’t know. It really is a case of when the Saudis decide to do something about it. It’s speculation at the moment,” that person said.

The deal became the focus of a political storm last year when the British government halted a probe of BAE by the country’s Serious Fraud Office (SFO), after Saudi Arabia warned it might cancel the order if the investigation went ahead.

The investigation concerned allegations of corruption in a previous arms deal between Britain and Saudi Arabia involving BAE, that led to Britain’s biggest ever export order, worth an estimated 43 billion pounds.

Britain’s Ministry of Defence declined to comment on the possibility of a deal being signed next week.

“Negotiations are continuing and we expect them to conclude by the end of the year,” a spokeswoman said.

Shares in BAE, Europe's biggest defence firm, were up 3 percent at 461.5 pence by 12:40 p.m., the second-biggest rise on the UK's benchmark FTSE-100 index .FTSE and valuing the maker of fighter jets, armoured vehicles and nuclear-power submarines at about 16.2 billion pounds.

Previous large arms deals between Britain and Saudi Arabia have been paid for in oil, and the government source saw no reason to assume that would not be the case again.


“This is exceptionally welcome news for BAE Systems,” Charles Stanley analysts wrote in a research note.

“The deal is estimated to be worth in the region of 60 pence per share, but is unlikely to start making any contribution to group profitability until 2011.”

The Times said the deal was expected to break down into an initial 5 billion pound contract for the fighters, 5 billion pounds for munitions and armament systems and 10 million pounds for maintenance over a contract life of at least 20 years.

“Negotiations regarding the potential procurement of Typhoon for the Royal Saudi Air Force are between the governments of the United Kingdom and Saudi Arabia and BAE Systems is unable to make any comment as to their content or timing,” a BAE spokesman said.

In June, the U.S. Department of Justice also launched an investigation into BAE over its compliance with anti-bribery laws, including its dealings with Saudi Arabia.

British media reports have accused BAE of paying 1 billion pounds over a decade to Saudi Prince Bandar bin Sultan in connection with a previous fighter plane deal.

Bandar, a former Saudi ambassador to the United States, has denied the sums involved represented secret commissions to him. BAE has also denied making any wrongful payments in its dealings with Saudi Arabia.

Eurofighter jets are built by a consortium of European defence companies in Britain, Germany, Italy and Spain. Eurofighter is owned by EADS EAD.PA, BAE and Finmeccanica SIFI.MI.

Additional reporting by Sumeet Desai and Jason Neely

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