BAE-Saudi Typhoon talks ‘stuck on price’

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Price continues to be the key hurdle in BAE Systems' bid to sell 72 Eurofighter Typhoons to Saudi Arabia, according to a negotiations update from the UK defence contractor.

The so-called Salam deal, contracted in 2007, has so far delivered 24 aircraft. BAE today said that further aircraft are being built at its facility in Warton in the UK for delivery in 2013, and that outstanding issues relate to price rather than timing. The original contract prices were based on 2005 economic conditions, but a re-pricing of the 12-year contract for aircraft, support, maintenance, upgrades and training has been under discussion for two years.

The sides are also discussing a Saudi request to have the last 24 examples adapted "for subsequent insertion of Tranche 3 capability", which could include introduction of equipment such as a developmental active electronically scanned array radar and advanced air-launched weapons.

 Katsuhiko Tokunaga/Eurofighter

BAE has not put a figure on the likely value of continuing work linked with the Typhoon, but said in 2012 that a wider five-year agreement related to other in-service equipment, including training and weapons, could be worth more than £7 billion ($11.3 billion).

Saudi Arabia is regarded by BAE as a "home market", and its value as a customer is increasingly important, especially in light of the failure of its bid to merge with EADS. A £1.6 billion deal signed in 2012, for example, will supply the Royal Saudi Air Force with new-generation training aircraft, including 22 BAE Hawk 165s and 55 Pilatus PC-21s.

BAE stressed today that both parties remain committed to the Salam deal, but added that should an acceptable agreement not be reached before its full year results announcement on 21 February 2013, the impact on trading guidance would be to reduce underlying earnings by approximately 3 pence per share.