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SAUDIS AGREE EUROFIGHTER DEAL

17 Aug 06. This morning, the BBC confirmed the story first covered by the FT yesterday that Britain and Saudi Arabia have reached agreement on a £10bn ($19bn) deal to replace the kingdom’s fleet of Tornado aircraft with new Eurofighter Typhoons, a contract that will extend the UK’s biggest export deal for the next 25 years. The agreement, a boost to BAE Systems, Britain’s biggest weapons manufacturer, comes 20 years after the UK first signed the controversial Al Yamamah arms deal with Saudi Arabia.

The MoD confirmed that, ‘The Governments of the Kingdom of Saudi Arabia and United Kingdom of Great Britain and Northern Ireland signed an Understanding Document, intended to establish a greater partnership in modernising the Saudi Arabian Armed Forces. The required commercial principles have now been agreed which has initiated the purchase of Typhoon aircraft and the associated commitment to the industrial plan to be launched.’

BAE Systems welcomed today’s announcement that the Governments of the Kingdom of Saudi Arabia and the United Kingdom of Great Britain and Northern Ireland have agreed the required commercial principles which will effectively initiate the purchase of Typhoon aircraft and the associated commitment to the industrial plan to be launched.

Des Browne, UK defence secretary, signed up to the agreement, which will see Saudi Arabia acquire 72 Eurofighter jets, four weeks ago. His Saudi counterpart, Prince Sultan bin Abdul-Aziz, signed up in the last week. The Saudi Finance Ministry is authorising the first payment on the new agreement, which could come as early as next week, though people close to the talks cautioned that it could be delayed. Once the payment is confirmed, BAE will be required to make an announcement to the London Stock Exchange confirming the details.

A final contract is expected by the end of the year.

In December 2005, the Governments of the Kingdom of Saudi Arabia and United Kingdom of Great Britain and Northern Ireland signed an Understanding Document, intended to establish a greater partnership in modernising the Saudi Arabian Armed Forces.

The latest agreement could be worth as much as £20bn across its 25-year life, as in the past original contracts have supplements with lucrative maintenance and upgrade work.

The UK will also be keen to pursue other potential deals, including the sale of new Hawk training jets built by BAE.

The Eurofighters will cost the Saudis about $10bn (£5.4bn, €8bn), with an additional £5bn expected for on-board missiles, other parts and initial support. The original 1986 Al Yamamah deal has been worth more than £40bn in revenues to
BAE and its partners.

The new deal is the biggest export deal by far for the long delayed and hugely
over-budget Eurofighter, and a boost for the consortium of four nations – Britain, Germany, Italy and Spain – building the jets.

BAE’s industrial partners in Eurofighter, EADS, the Franco-German aerospace group, and Italy’s Finmeccanica, will also benefit.

However, Scott Babka, aerospace analyst at Morgan Stanley, said BAE would be the biggest beneficiary by far, as it would be “prime contractor” on the Saudi-bound Eurofighters. He estimated BAE could receive two-thirds of the revenues from the Saudi deal. An understanding agreement was reached between UK and Saudi ministers in December, but King Abdullah was eager that the deal should be amended to remove
the Al Yamamah name.

That original “oil for arms” deal has been surrounded by allegations of unethical practices and King Abdullah has embarked on an anti-corruption campaign. The new Eurofighters will be paid for in cash, not barrels of oil. The deal will be a disappointment to France, which still hopes to sell its own Rafale fighter jets, built by Dassault, to the Saudis.

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