BAE in new £20bn Saudi arms deal

[tigershark]

BAE in new £20bn Saudi arms deal
Contract for more warplanes to follow Lords’ support for closure of bribery inquiry

By
Dominic O’Connell

BAE Systems is in talks to sell dozens more Eurofighter Typhoon aircraft to Saudi Arabia in a deal that will reawaken bribery allegations made over earlier arms sales to the Gulf kingdom.

Senior defence-industry sources said last week the negotiations, which have been under way for some months, have been given added impetus by a controversial House of Lords decision last month.

The Lords said the Serious Fraud Office had been right to suspend a probe into alleged bribery, reversing an earlier Court of Appeal decision.

BAE, Britain’s largest defence contractor, may provide as many as 70 extra combat aircraft to the Saudis, although some defence industry executives say the contract is likely to be for 48.

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Saudi Arabia has already bought 72 Eurofighters, the first of which are being built by BAE. The first Eurofighter deal was worth £4.3 billion for the aircraft, with the contract value likely to grow to £20 billion once support and maintenance are included. The new deal will be of a similar size.

Saudi Arabia buys arms from Britain under government-to-government deals, the largest of which, Al-Yamamah, was negotiated with the help of Margaret Thatcher. BAE has acted as the main contractor, providing, first, Tornado aircraft and then billions of pounds worth of support, training and other military equipment.

The Serious Fraud Office probe, which was shut down in December 2006, related to the Al-Yamamah agreement. It investigated whether BAE offered sweeteners to officials from Saudi Arabia in return for lucrative contracts. BAE has always denied any wrongdoing, and recently adopted the recommendations of an independent inquiry into its ethical standards by Lord Woolf, the former Lord chief justice.

BAE said yesterday the Ministry of Defence would take the lead in negotiating any follow-on Eurofighter contract, though a spokesman for the MoD said it was “not aware of any requirement from Saudi Arabia of that nature”.

However, it is understood that senior staff from the department recently visited Saudi Arabia to discuss the deal.

The export of more Eurofighters could help to ease the MoD’s budget problems. The department is scheduled to take delivery of another 88 Typhoons under the “Tranche 3” contract with the four-nation consortium that makes the aircraft.

Budget constraints mean the MoD is eager not to buy the aircraft, but the financial penalties for not doing so are prohibitive. If some of the Tranche 3 aircraft were diverted to Saudi Arabia, it could get the MoD off the hook.

BAE is keen to expand its presence in Saudi Arabia. It is close to a deal with a local company to build a factory that will assemble some of the Eurofighters already ordered.

Defence ministers from the four partner nations – Britain, Germany, Italy and Spain – have recently held talks in an attempt to resolve the impasse over Tranche 3. Construction of this batch of aircraft, which will be more capable than the current Typhoon, is set to start in 2012.

Mike Turner, BAE’s outgoing chief executive, told The Sunday Times in an interview this year that Saudi Arabia should become an important market for the company.

“If defence spending in America should ever turn down, and there is absolutely no sign of that happening, then Saudi is a huge opportunity,” he said in February.

Source
http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article4493237.ece