BAE secures deal with Saudi Arabia on Typhoon jet pricing

Feb. 21, 2014 at 3:02 PM
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RIYADH, Saudi Arabia, Feb. 21 (UPI) -- BAE, the world's third-largest defense company, has secured an agreement with Saudi Arabia over the pricing of 72 Eurofighter Typhoon strike jets, after two years of fraught negotiations and unsuccessful efforts to export the aircraft elsewhere.

The deal is a major boost for BAE at a critical time, even though it's not expected to make significant financial gains from the agreement in Riyadh.

BAE warned Thursday that with the U.S. administration seeking defense cuts of $450 billion over the next decade, the company's American business could be slashed by around 15 percent by the end of this year.

BAE reported full-year sales for 2013 were up 2 percent at $22.1 billion, with underlying earnings before interest, taxation and amortization at $3.2 billion, an increase of 3.3 percent on 2012.

Those results were unveiled a week after another major British defense contractor, aero engine maker Rolls-Rover, said its defense orders had slumped 21 percent to $6.78 billion in 2013 and warned this year's revenues and earnings will stagnate.

However, some defense analysts believe finally nailing down the Typhoon price with Riyadh opens up other prospects in the Middle East for BAE, which builds the fighter with the European Airbus Group and Finmeccanica of Italy.

BAE signed the original Typhoon contract in 2007, but had to negotiate a new pricing deal because of the advanced weapons systems and other equipment that was being installed in the jets. Saudi Arabia is Typhoon's most important export customer.

"There's considerable relief that this long-running problem has been resolved," British defense analyst Howard Wheeldon told The Guardian newspaper of London. "It does open some very interesting doors, not only in Saudi Arabia, but across the Arabian Peninsula."

Bahrain and Qatar -- along with Malaysia -- are considering buying the jet rather than Lockheed Martin's problem-plagued F-35 Joint Strike Fighter and the Rafale multirole aircraft built by Dassault Aviation of France.

BAE Chief Executive Officer Ian King said in 2013 Saudi Arabia was considering buying another 72 Typhoons.

Analysts said the new pricing agreement will remove one obstacle to a new Eurofighter buy, although that remains a medium-term prospect.

"Obviously until the price escalation issue was resolved, it was an impediment to negotiating for further Saudi aircraft," said Doug Barrie, senior air analyst with the International Institute for Strategic Studies, a London think tank. "It may also have an impact on Bahrain's interest in buying Typhoon."

BAE declined to specify what the new price arrangement with the Saudis is on the Typhoons, but said it expects a "cash settlement" within the next few months.

Thirty of the 72 jets have been delivered to the kingdom.

"This is an equitable outcome for all parties," King said. "I am pleased that we have been able to conclude this negotiation which builds on our longstanding relationship with this much-valued customer."

The Saudi deal was badly needed by BAE after the United Arab Emirates called off negotiations for 60 Typhoons under a $10 billion contract to replace its aging Dassault Mirage F-2000-9s purchased in the early 1990s, despite the personal intervention of British Prime Minister David Cameron.

That was particularly damaging to BAE, because it had seen the oil-rich Arab monarchies of the Persian Gulf as its best bet to offset the deep defense budget cuts in the United States, and Europe as well.

The Emirates decision came hard on the heels of an earlier shock in January 2012, when India chose Dassault's Rafale over the Eurofighter in a mammoth $11 billion contract for 126 fighters.

The sultanate of Oman, however, agreed in December to buy 12 Typhoons under a $4.07 contract. Kuwait is seen as a prospect, but its air force invariably buys U.S. jets.

Peter Antiss, BAE's business development director for military aircraft, told reporters recently his focus is on securing a sizable chunk of the $150 billion global market for combat aircraft, with his eyes firmly on the Middle East and Asia.

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