BAE and Saudi Arabia finalise pricing terms for Eurofighter Typhoon deal
BAE Systems has finalised a pricing deal with Saudi Arabia concerning 72 Eurofighter Typhoon jets, ending several years of uncertainty over the purchase.
The British defence giant announced yesterday that the United Kingdom and Saudi governments had agreed price escalation terms relating to buying the aircraft as part of the Salam programme, originally signed between the two governments in 2005.
Details of the price escalation agreement have not been disclosed.
Cash settlement is expected to follow the signing of the pricing agreement, starting in the early part of this year, the company said.
BAE and Saudi Arabia signed a £4.5 billion (Dh27.57bn) agreement in 2007 to supply the kingdom with 72 Typhoon jets.
The original agreement stipulated that a price escalation on the deal would be negotiated after delivery of the first 24 aircraft.
Negotiations between the two parties continued for approximately two years.
“This is an equitable outcome for all parties,” said BAE Systems’ chief executive Ian King.
“I am pleased that we have been able to conclude this negotiation which builds on our long-standing relationship with this much valued customer”.
BAE had continued to deliver the planes to Saudi Arabia during 2013 while price escalation negotiations were in process, suggesting it was confident that a deal was in reach.
More than 30 of the 72 aircraft are understood to have been delivered as part of the deal so far.
However, the company warned in October that its earnings per share for 2013 would be affected by between 6 to 7 pence if an agreement was not reached by the time it announced its results for the year.
The company also said its £1bn share buy-back scheme, launched last February, was contingent on the success of negotiations.
Analysts welcomed the news of the agreement as removing long-running uncertainty over the deal.
“Investors had responded negatively to the news of another Salam delay late in 2013,” said Robert Stallard, an analyst with RBC. “With Salam cash coming in, this should give BAE more flexibility for cash deployment moving forward.”
Mr Stallard noted that the agreement also freed up capacity in the Saudi defence ministry to work on other prospective defence agreements.
“It seems as if BAE got an agreement that was close to what they wanted, but you suspect there must have been a bit of give and take in the final reckoning,” said a London-based defence analyst.
“It means that they now can book an increase in revenue and therefore an increase in margins from Salam, which means they have a clearer position to build on.”
The news comes as a particular relief to the company after a £6 deal with the UAE for typhoons collapsed in December.
The country had expressed an interest in acquiring up to 60 Eurofighter typhoons as part of the deal. BAE Systems shares rose by 4 per cent on the news in early trading on Wednesday. The company is scheduled to reports earnings for 2013 today.
Updated: February 19, 2014 04:00 AM