BAE Systems Wins Saudi Arabia Typhoon Combat Jet Price Pact

BAE Systems Plc said the U.K. and Saudi Arabia agreed on pricing for Eurofighter Typhoon combat jets, providing Europe’s largest defense company with a boost to last year’s earnings after protracted talks.

The accord covers the cost of 72 planes, with a cash payment due early this year for the more than 30 jets already handed over. The terms are “broadly consistent” with a trading outlook in which BAE said an accord would bolster earnings per share by 6 pence to 7 pence, BAE said today.

Saudi Arabia is the largest export customer for the Typhoon combat jet, and the accord announced today removes uncertainty over the company’s relationship with the kingdom as it seeks to boost business in the region. BAE, which is leaning on exports to drive growth, suffered setbacks abroad last year after talks with the United Arab Emirates over the purchase of Typhoon jets ended and Poland opted for a rival jet trainer.

“This is an equitable outcome for all parties,” BAE Chief Executive Officer Ian King said in the statement.

BAE gained as much as 4.2 percent in London and was trading 15.40 pence higher at 453 pence as of 8:19 a.m. The company reports reports earnings tomorrow.

More Flexibility

The contract for the Typhooon aircraft, which costs about $100 million each, was valued at about 4.5 billion pounds at the time of signing.

BAE, which began a 1 billion pound ($1.7 billion) share repurchase program a year ago, said at the time its full completion was contingent on concluding the so-called Salam pact with Saudi Arabia. Talks, originally set to be wrapped up in 2012, weighed on last year’s earnings after the failure to come to terms.

“With Salam cash coming in, this should give BAE more flexibility for cash deployment moving forward,” Robert Stallard, a London-based analyst at RBC Capital, said in a note today. “It also allows the Kingdom of Saudia Arabia to move on to other potential agreements.”

The two governments had originally signed a document in 2005 whereby provision for the purchase of the aircraft should be in line with economic conditions at the time.

The deal became politically controversial in the U.K. after the government of Tony Blair dropped a fraud inquiry in 2006 into a prior sale of Tornado combat jets after Saudi Arabia indicated the probe could derail Typhoon talks. Kuwait, Qatar and Bahrain are among the countries considering Typhoon purchases. Oman agreed in 2012 to buy 12 of the jets.

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