BAE close to signing £1bn deal to upgrade Saudi jets

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The Independent Online

BAE Systems, Britain's biggest defence contractor, is close to signing a £1bn deal to upgrade Saudi Arabia's fleet of Tornado ground attack aircraft.

BAE Systems, Britain's biggest defence contractor, is close to signing a £1bn deal to upgrade Saudi Arabia's fleet of Tornado ground attack aircraft.

The agreement, expected to be sealed in the next few months, will keep BAE's revenues under the Al Yamamah arms-for-oil deal at about £1.5bn for the next five years. This will continue to make Saudi Arabia one of BAE's biggest single customers.

The Saudis have 96 ground attack variants of the Tornado, armed with cannons, bombs and Skyflash air-to-air missiles, which have been in service since the late 1980s and are due a midlife update.

Ian King, the managing director of BAE's customer solutions and support division, said: "We have the requirement for the Saudi aircraft and it should only be a short time to getting it agreed. We are very close to deciding the scope of the programme in terms of capability and timing.''

With the oil price at its current high level above $33 a barrel the Saudis can afford to update their Tornados, although they are very sensitive to it being called an upgrade for fear of upsetting the delicate geo-politics of the Middle East.

BAE refused to comment on the value or the specification of the upgrade or the weaponry that the Saudis might deploy on their Tornados.

In addition to the 96 ground attack Tornados BAE has supplied the Saudis with 24 air defence variants of the aircraft, 50 Hawk trainer jets, 50 PC-9 aircraft and three mine hunter vessels.

Ultimately BAE hopes the Al Yamamah deal, signed in two stages in 1986 and 1988, will lead to an order from the Saudis for Eurofighter Typhoon jets to replace the Tornados when they come to the end of their service lives in 10 to 15 years.

Last year BAE completed a £1.2bn midlife upgrade of the 148 ground attack Tornados in service with the RAF. It has now embarked on an upgrade of the remaining 100 or so Tornados in operation. Under the deal with the Ministry of Defence BAE is aiming to cut the support and maintenance costs of the Tornado fleet by about £100m a year. This could generate savings of up to £1bn by the time the Tornado is phased out in about 2020. In return BAE will take a cut of the savings.

In contrast to the heavy losses BAE has run up on MOD equipment programmes such as Nimrod and the Astute nuclear powered submarine, the customer solutions and support division had proved one of its most profitable businesses, earning £411m last year on revenues of £2.2bn.

Mr King said the support programmes were operating much more smoothly than other dealings with the MOD . "The relationship is maturing because we have agreed milestones with the customer and we are hitting them,'' he said.

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