SPY EYES

BAE Systems has reached agreement with Saudi Arabia over the pricing of 72 Eurofighter aircraft, bringing to an end almost two years of uncertainty.

Saudi Arabia agreed to buy 72 Eurofighter jets in 2007 under the so-called Salam deal, but BAE had been trying to negotiate a higher price for the jets, which are being built at its factory in Warton, Lancashire. The company declined to disclose the price.

Analysts said the agreement was a coup for Britain’s biggest defence company, which employs 88,000 people. Robert Stallard, analyst at RBC, said: “With Salam cash coming in, this should give BAE more flexibility for cash deployment moving forward.”

Shares in BAE were 1.9 per cent higher in early London trading at 445.6p.

The agreement is significant to BAE, which disappointed investors in December when it revealed that a proposed £6bn deal with the United Arab Emirates had fallen through despite successive visits to the Gulf state by Prime Minister David Cameron. Both the US and UK have been cutting defence budgets and BAE has been seeking new markets.

“Both governments have now agreed price escalation terms relating to the Typhoon aircraft under the Salam programme and these have been reflected in contractual arrangements between the UK government and BAE Systems,” BAE said on Wednesday.

The company warned last October that if agreement was not reached by results day this Thursday, it would knock 6p or 7p off 2013 earnings per share.

BAE’s search for new sources of revenue has seen it pursue a failed merger with Airbus owner EADS and launch a major push into emerging defence markets such as the UAE and India. It is also cutting shipbuilding capacity.

By Gill Plimmer in London
FINANCIAL TIMES