Britain's aerospace industry received a massive boost yesterday after the Government announced a deal worth an estimated £10bn to supply Eurofighter Typhoon fighter aircraft to Saudi Arabia.
The biggest beneficiary of the huge arms deal will be BAE Systems, which has a 37 per cent stake in the pan-European consortium that makes the Eurofighter. Other companies who will gain include Rolls-Royce, part of the Eurojet consortium which makes the plane's engines, Smiths Group and Dowty. BAE shares rose 6 per cent to 370p.
The Saudi deal will help safeguard tens of thousands of jobs in the UK defence industry but it is also likely to heighten tension in the Middle East, where the Kingdom's neighbours are fearful of its military prowess.
The Saudis are understood to have ordered a total of 72 Eurofighters to replace older aircraft, including Tornado jets bought in the 1980s and 1990s from BAE under the Al Yamamah arms-for-oil deal.
The Eurofighter order in effect amounts to the third phase of the Al Yamamah programme, and marks the first time the aircraft has been bought by any country outside Europe. The air forces of Britain, Germany, Italy and Spain are buying a total of 620 Eurofighters, with the RAF requirement standing at 232 aircraft alone. In addition to the aircraft, worth about £4bn, the deal includes a full package of training, through life support, spares and technology transfer, which will at least double the value of the deal and perhaps increase its value by 150 per cent.
As with earlier phases of the Al Yamamah deal, the Saudis will pay in oil. This is then traded on the international markets and the proceeds remitted to the Ministry of Defence, which in turn pays BAE and the other UK contractors.
The MoD said the details of the latest agreement with the Saudis were confidential, saying it was "intended to establish a greater partnership in modernising the Saudi Arabian armed forces and developing close service-to-service contacts, especially through joint training and exercises".
The statement also said the partnership recognised the key objectives the UK and Saudi governments shared with regard to combatting terrorism and highlighted the "wise leadership role" played by the Saudis in promoting regional stability.
Britain has supplied 120 Tornado jets to the Saudis along with Hawk and PC-9 trainer jets. The programme has been worth an estimated £20bn since it began in 1985.
The Saudi air force has 106 Tornados in service along with just over 160 American F-15 fighters and 93 F5-E aircraft.