BAE shrugs off dip and raises outlook on sealing Saudi deal

BAE Systems today said it is close to wrapping up key talks with the Saudi government over a multi-billion pound jets deal as cuts in US military spending dented its profits during the first half of 2013.

Europe’s largest defence contractor, which failed to complete a £30 billion merger with EADS last year, said it was nearing the end of discussions over the so-called Salam contract for 72 Saudi Typhoon fighter jets, previous said to be valued at roughly £4.5 billion.

BAE has so far delivered 28 aircraft but has been locked in talks over a change in prices since the contract was first agreed in 2007.

Boss Ian King said the Saudis could even increase their order beyond the initial 72 jets. If the talks are concluded BAE expects a “double-digit growth in underlying earnings” for the full year.

Countries such as Saudi Arabia have become increasingly important to BAE as state spending falls in others such as the UK and US. Other growth areas for the company include UAE and Malaysia.

Progression in the talks boosted shares in the company up almost 3% to 458p, making it one of the biggest risers in the FTSE 100. 

This came despite pre-tax profits falling 8% to £529 million, although the group did increase its dividend — regarded as one of the most reliable in the blue-chip index — by 3% to 8p.

“This is a challenging environment but we continue to take the necessary actions to manage the business for the benefit of both our customers and our share-holders,” King said. “We have received £4.8 billion of orders outside the UK and US in the first six months, a continued sign of the momentum in international activity.”

BAE and EADS — which is changing its name to Airbus — were forced to scrap their merger last October after the tie-up became embroiled in a political deadlock between the UK, French and German governments.

Last night, BAE said it had won a long-term contract worth $535 million to maintain part of the US nuclear missile arsenal.