BAE Systems has finally settled the pricing of a Eurofighter jet deal with Saudi Arabia, a tortuous negotiation that has been resolved just in time to rescue the defence giant’s full-year results today.
Talks over the 72 jets have hurt BAE’s last two sets of annual results at a time when defence spending generally has also been tight due to governments slashing budgets.
BAE’s 2013 earnings per share would have been hit by 6p or 7p if negotiations had drifted into a fourth year, which would have seen hundreds of millions of pounds wiped off the group’s operating profit.
However, BAE’s chief executive, Ian King, has confirmed that an “equitable outcome for all parties” had been reached and sources confirmed this would be reflected in the annual results.
Saudi Arabia initially agreed to the jets in 2007 for more than £4.4bn, but talks over changes to the so-called Salam deal were fraught.
The delays to the agreement caused earnings to fall by 7 per cent in 2011, but the timing of the resolution is welcome given that BAE’s talks over a £6bn Eurofighter contract with the United Arab Emirates collapsed only two months ago. This was seen as a blow for Britain, given that David Cameron personally intervened in an attempt to get a deal done, but Mr King insisted that the failure would not “disadvantage” BAE – a claim seemingly substantiated by finally settling the issue in Saudi Arabia.
However, the BAE boss hinted at his relief at finally reaching a deal with a country that is expected to be issuing more juicy contracts over the next few years.
He said: “I am pleased that we have been able to conclude this negotiation which builds on our long-standing relationship with this much-valued customer.”
Shares in BAE slipped 0.8p to 436.8p.
Al-yamamah: dogged by corruption rumours
The Salam programme of 72 Eurofighter Typhoon jets is the third part of one of the most pored-over arms deals of the past 30 years. Al-Yamamah, as the series of deals is known, was already worth more than £40bn to BAE by the middle of the last decade.
It was dogged by rumours of corruption, which prompted a Serious Fraud Office investigation in 2004. Two years later, the then Attorney General, Lord Goldsmith, announced that the investigation had been dropped, much to the anger of a number of MPs and the Organisation for Economic Co-operation and Development, though BAE denied any wrongdoing.
The US Department of Justice ran its own investigation, which BAE settled in 2010 by paying fines of more than £285m on both sides of the Atlantic. BAE admitted to conspiring to make false statements to the US Government, while the British fine related to accounting records in Tanzania.