BAE Systems in line for £500m boost from Saudi jet contract

Defence giant BAE Systems should receive a boost of around £500m this year, as it enters final negotiations with Saudi Arabia over changes to a huge aircraft contract.

The terms of the deal to build 72 Eurofighter Typhoons were altered last year as the Gulf state wanted BAE to help it develop facilities and skills to maintain and repair the aircraft. BAE was happy to accommodate as Saudi Arabia is one of the group's biggest customers, representing 14 per cent of its revenue.

In January, BAE said that "good progress" had been made on discussions over the price of the revised deal. It is understood that those talks are entering their final stages and BAE can expect a lump sum payment.

This would ease some of the pressure on Ian King, pictured, the chief executive, who could use the cash to improve the group's stock market performance through a share buyback. BAE stock is currently trading at under £3 a share, from nearly £4 a little over two years ago.

Zafar Khan, a defence analyst at Société Générale, said: "There are various disbursements at its disposal with that money: there could be bolt-on acquisitions; an increase to the dividend, though that wouldn't soak up all that cash; or a return to shareholders, perhaps by way of a share buyback."

A BAE spokesman said: "Negotiations continue on the price escalation [of the Saudi Arabian contract], and the correct settlement is key, not the timing of the settlement."