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BAE Sees Multi-Billion Dollar Saudi Jet Deal Agreed In Second Half

BAE Sees Multi-Billion Dollar Saudi Jet Deal Agreed In Second Half

BAE has been locked in pricing negotiations with Saudi Arabia over the Gulf state’s order of 72 jets since 2007.

BAE Systems said it expects a long-awaited multi-billion dollar Saudi jet deal to complete in the second half of this year, enabling it to forecast a more than 10 per cent lift to yearly underlying earnings.

BAE, part of the consortium alongside Airbus and Finmeccanica which builds the Typhoon or Eurofighter jet, has been locked in pricing negotiations with Saudi Arabia over the Gulf state’s order of 72 jets, which both parties first signed in 2007.

The so-called Salam order was previously said to be worth around 4.5 billion pounds ($6.8 billion).

“In terms of Salam, we do expect that we will close this out in the second half,” CEO Ian King told reporters.

“There is … quite increasing appetite to talk about the next batch of aircraft,” King said, noting the two sides needed to finalise the pricing of the first batch before moving on to discussing any subsequent order.

King said the Saudi airforce could order a further 48 to 72 planes. The company has continued to develop its Saudi business as the talks went on and in June signed a 1.8 billion pound contract for follow-on support for the Salam programme.

International sales to countries such as Saudi Arabia have become increasingly important to BAE, which has made exports and niche markets such as cyber security its priority as defence budgets shrink in the United States and Europe.

Shares in BAE, whose $45 billion attempt to merge with Franco-German Airbus collapsed last year after government opposition, were up 1.6 percent at 453.1 pence by 0723 GMT, among the top 10 risers on the FTSE 100 index.

The stock rose as high as 457.7p, its highest in nearly five years.


Some analysts said the Salam deal looked as good as sealed.

“Consider it done,” analysts at brokerage Jefferies said. “We see much in the first-half 2013 result that should lend credibility and solidity to earnings in full-year 2013 and … 2014.”

Britain’s largest defence contractor, which previously said it had only expected “modest growth” in earnings, has repeatedly said its profits and sales have been weighed down by the deal’s delayed conclusion. It said last year that it expected the talks to be completed by the end of 2012.

The company said the slightly improved outlook also took into account a 1 billion pound share repurchase programme it had launched in February, along with the impact of U.S. budget cuts.

It said earnings before interest, taxes and amortization (EBITA) fell six per cent over the first half of the year to 865 million pounds, on a one per cent rise in sales to 8.45 billion. Its underlying earnings per share fell four per cent.

Analysts on average were expecting first-half EBITA of 885.67 million pounds, Thomson Reuters data showed.

BAE also raised its interim dividend by three per cent to 8 pence per share. Its order book rose to 43.1 billion pounds from 42.2 billion at the end of last year.

The United States, which accounts for about 40 per cent of BAE’s sales, began reducing its spending by $37 billion for the fiscal 2013 year in March and its budget is set to shrink by $50 billion annually over the next nine years, unless Congress acts to avoid these cuts.”

BAE said it expected U.S. trading to remain tough but manageable, while the UK would remain stable. Orders from international customers, which totaled 4.8 billion pounds over the six months, and from the UK were helping make up for poorer U.S. demand, it said.


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