BAE Systems is seeking a new Eurofighter warplane order from Saudi Arabia after announcing a deal to support previous aircraft worth an estimated $10 billion.
With the final four of 72 Eurofighter Typhoons already acquired by the Arab kingdom due to be delivered this year, BAE is deepening efforts to secure a follow-on purchase, the London-based company said Thursday.
There is also talk of European states taking forward commitments for some planes from a final batch of 124 put on hold in the wake of the global economic slump, according to Chief Executive Officer Ian King. Further Eurofighter orders would come as a boost for the region’s biggest arms maker after 2016 profit rose 13 per cent, spurred by revived US defense budgets and higher utilisation of its warplanes in Mideast wars.
“Although there can be no certainty as to the timing of orders, discussions with current and prospective Typhoon operators continue to support expectations for additional contract awards,” King said in a presentation to analysts.
Shares of BAE rose as much as 3.3 per cent and were trading 2.1 per cent higher at 618 pence as of 11:11 a.m. in London.
BAE slowed Eurofighter build rates last year in order to stretch production toward the end of 2018, when construction of 28 planes bought by Kuwait via Italian program partner Leonardo is due to begin. With existing European and Saudi backlogs now largely filled, output this year will include the first planes for Oman from a 12-aircraft order.
King, who will be succeeded as CEO by Chief Operating Officer Charles Woodburn this summer, confirmed the signing of a maintenance and support contract for existing Saudi planes, saying the value is in line with projections. Deutsche Bank earlier this month suggested the work could be worth $10 billion to $12 billion.
“The key thing in 2016 was making sure that the support packages were up and running,” the CEO said. “We will then get on and talk to them about Saudi batch two.” Discussions will include Eurofighters that would replace a fleet of Panavia Tornado ground-attack planes that BAE supplied via a 1980s deal in which jets were paid for in barrels of oil.
Complicating matters is a judicial review of the process followed by the British government in granting defense export licenses to Saudi Arabia, with a judgment expected in the “near future,” according to BAE. King said that UK has very strong export controls and that the review, which resulted from concern about the deployment of BAE weaponry in the war in Yemen, is “not something that we need to panic on.”
King said he is aware of “rumors” concerning the progression of so-called Tranche IIIB Typhoon orders in Europe after Tom Enders, CEO of Eurofighter partner Airbus Group, said this week that Britain, Germany and Spain could revive stalled commitments. The third batch of deliveries was split into two in 2009 as governments sought to pare capital outlay amid austerity programs.
“We’re not hearing anything and it’s not in our planning assumptions,” King added. “If it comes in, great.”
The decision this month to walk away from a bid for the US T-X jet-trainer program with Northrop Grumman reflected the limited return for shareholders, King said, adding that BAE has still benefited from developing new wings and an advanced cockpit for its aging Hawk model.
BAE’s underlying earnings before interest, tax, and amortisation rose to 1.91 billion pounds ($2.4 billion) in 2016 from 1.68 billion pounds a year earlier, after analysts predicted a 1.89 billion-pound profit. The company said earnings per share should increase 5 to 10 per cent in 2017 following a 7 per cent gain last year that was in line with previous guidance.
US outlook remains “positive,” with President Donald Trump “clearly committed to having a strong American defense force,” King said, adding that he welcomes pressure on North Atlantic Treaty Organization members to meet commitments to spend 2 per cent of gross domestic product on defense. “I think that is good and right and proper,” he said.
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