Double blow for BAE fighter sales

BAE Systems suffered a bruising setback after Britain's negotiations to supply 60 Typhoon fighter jets to the UAE collapsed and pricing talks on a separate deal with Saudi Arabia stalled.

It is a double blow for Britain and Europe's biggest defence company which had hoped a win in the UAE would solidify its position as one of the biggest suppliers of combat aircraft to the Gulf region. BAE already has contracts for Typhoons with Saudi Arabia and Oman, and is in talks with Bahrain. A win in the UAE would have been worth $6bn-$10bn, according to analysts' estimates.

BAE shares fell 4.8 per cent to 420.7p in early trading on Friday.

The news is a big embarrassment for David Cameron, who has not only put the UK's trade policy at the heart of his efforts to stimulate the economy, but has made two separate trips to try to persuade the Emiratis to sign the deal with BAE.

Only last month Mr Cameron met Sheikh Mohammed bin Zayed Al Nahyan, crown prince of Abu Dhabi, to plead the case for the British defence company. Number 10 said at that stage the talks were "progressing well" and the meeting had been "positive and productive".

Although BAE says it never priced the UAE deal into its expectations, investors had grown hopeful following Mr Cameron's efforts last month, analysts said.

"It's a hell of a reversal from the Dubai air show. The prime minister's office has been pushing it very hard indeed," said one seasoned defence analyst. "But there's one thing about the UAE; they are incredibly tough negotiators."

The analyst added that Abu Dhabi may have used its negotiations with BAE to extract a lower price from Dassault of France, maker of the Rafale fighter, and with which it had been in negotiations for several years before inviting Typhoon to compete.

However, one UAE-based person familiar with the discussions said that in the end it had been a commercial decision. "The two parties [UAE and BAE] were too far apart on commercial terms," he said.

Robert Stallard, an analyst at RBC, said t he difficult discussions with Saudi Arabia "could potentially prove the more worrying piece of news". Its continued delay "may spook investors into worrying that negotiations are not achieving any real progress," he said. "Unlike Typhoon, future consensus earnings actually depend on a [Saudi deal] reaching a satisfactory conclusion."

Under the Salam contract, Saudi Arabia had already agreed to buy 72 fighters. But after expanding the deal to include upgraded aircraft and support, BAE and the oil-rich kingdom have struggled to agree a new price.

BAE repeated its warning from October that a delay beyond the early days of next year would knock 6p to 7p, about 15 per cent, off its earnings per share.

The UK defence group began a £1bn share buyback programme this year, but has warned it would only be able to implement this fully once the Saudi negotiations were concluded.

Ακολουθήστε το Euro2day.gr στο Google News!Παρακολουθήστε τις εξελίξεις με την υπογραφη εγκυρότητας του Euro2day.gr

FOLLOW USΑκολουθήστε τη σελίδα του Euro2day.gr στο Linkedin

Despite the stand-off, BAE continues to deliver Typhoons to Saudi Arabia.

Typhoon is made by the Eurofighter consortium, which includes pan-European EADS, BAE and Finmeccanica of Italy.

Last year, Dassault's Rafale beat Typhoon, marketed by Germany and EADS, in a heavily contested tender in India. Analysts suggested the news would be welcome in Dassault headquarters and shares in the French group rose 1.9 per cent to €910 early on Wednesday.

"It would be a very important contract for Dassault as the planes are of a very high specification and therefore very expensive," said Olivier Brochet, an analyst at Exane BNP Paribas.

© The Financial Times Limited 2013. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation