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UK-Saudi Eurofighter deal is boost for BAE
Agreement could be worth £10bn
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Saudis in $19bn Eurofighter deal
By James Boxell in London

Published: August 17 2006 22:05 | Last updated: August 17 2006 22:05

Britain and Saudi Arabia have reached agreement on a £10bn ($19bn) deal to replace the kingdom’s fleet of Tornado aircraft with new Eurofighter Typhoons, a contract that will extend the UK’s biggest export deal for the next 25 years.

The agreement, a boost to BAE Systems, Britain’s biggest weapons manufacturer, comes 20 years after the UK first signed the controversial Al Yamamah arms deal with Saudi Arabia.


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Des Browne, UK defence secretary, signed up to the agreement, which will see Saudi Arabia acquire 72 Eurofighter jets, four weeks ago. His Saudi counterpart, Prince Sultan bin Abdul-Aziz, signed up in the last week.

The Saudi Finance Ministry is authorising the first payment on the new agreement, which could come as early as next week, though people close to the talks cautioned that it could be delayed. Once the payment is confirmed, BAE will be required to make an announcement to the London Stock Exchange confirming the details.

A final contract is expected by the end of the year.

BAE and the Ministry of Defence declined to comment on the deal.

The latest agreement could be worth as much as £20bn across its 25-year life, as in the past original contracts have supplements with lucrative maintenance and upgrade work.

The UK will also be keen to pursue other potential deals, including the sale of new Hawk training jets built by BAE.

The Eurofighters will cost the Saudis about $10bn (£5.4bn, €8bn), with an additional £5bn expected for on-board missiles, other parts and initial support.

The original 1986 Al Yamamah deal has been worth more than £40bn in revenues to BAE and its partners.

The new deal is the biggest export deal by far for the long delayed and hugely over-budget Eurofighter, and a boost for the consortium of four nations – Britain, Germany, Italy and Spain – building the jets.

BAE’s industrial partners in Eurofighter, EADS, the Franco-German aerospace group, and Italy’s Finmeccanica, will also benefit.

However, Scott Babka, aerospace analyst at Morgan Stanley, said BAE would be the biggest beneficiary by far, as it would be “prime contractor” on the Saudi-bound Eurofighters.

He estimated BAE could receive two-thirds of the revenues from the Saudi deal.

An understanding agreement was reached between UK and Saudi ministers in December, but King Abdullah was eager that the deal should be amended to remove the Al Yamamah name.

That original “oil for arms” deal has been surrounded by allegations of unethical practices and King Abdullah has embarked on an anti-corruption campaign. The new Eurofighters will be paid for in cash, not barrels of oil.

The deal will be a disappointment to France, which still hopes to sell its own Rafale fighter jets, built by Dassault, to the Saudis.