BAE Expects Closing Saudi Typhoon Deal in Second Half

BAE Systems said it expects a long-awaited multi-billion dollar Saudi jet deal to complete in the second half of this year, enabling it to forecast a more than 10% lift to yearly underlying earnings.

BAE, part of the consortium alongside Airbus and Finmeccanica which builds the Typhoon or Eurofighter jet, has been locked in pricing negotiations with Saudi Arabia over the country's order of 72 jets, which both parties first signed in 2007.

The so-called Salam order was previously said to be worth around 4.5 billion pounds ($6.8 billion).

“In terms of Salam, we do expect that we will close this out in the second half,” Chief Executive Ian King told reporters.

“There is ... quite increasing appetite to talk about the next batch of aircraft,” King said, noting the two sides needed to finalize the pricing of the first batch before moving on to discussing any subsequent order.

King said the Saudi Air Force could order a further 48 to 72 planes. The company has continued to develop its Saudi business as the talks went on and in June signed a 1.8 billion pound contract for follow-on support for the Salam program.

International sales to countries such as Saudi Arabia have become increasingly important to BAE, which has made exports and niche markets such as cyber security its priority as defense budgets shrink in the United States and Europe.

Some analysts said the Salam deal looked as good as sealed. “Consider it done,” analysts at brokerage Jefferies said. “We see much in the first-half 2013 result that should lend credibility and solidity to earnings in full-year 2013 and ... 2014.”

Britain's largest defense company, which previously said it had only expected “modest growth” in earnings, has repeatedly said its profits and sales have been weighed down by the deal's delayed conclusion. Last year it expected the talks to be completed by end of 2012.
The company said the slightly improved outlook also took into account a 1 billion pound share repurchase program it had launched in February, along with the impact of US budget cuts.

It said earnings before interest, taxes and amortization (EBITA) fell 6% over the first half of the year to 865 million pounds, on a 1% rise in sales to 8.45 billion. Its underlying earnings per share fell 4%.

Analysts on average were expecting first-half EBITA of 885.67 million pounds, Thomson Reuters data showed.

BAE also raised its interim dividend by 3% to 8 pence per share. Its order book rose to 43.1 billion pounds from 42.2 billion at the end of last year.

The US, which accounts for about 40% of BAE's sales, began reducing its spending by $37 billion for the fiscal 2013 year in March and its budget is set to shrink by $50 billion annually over the next nine years, unless Congress acts to avoid these cuts.

BAE said it expected US trading to remain tough but manageable, while the UK would remain stable. Orders from international customers, which totaled 4.8 billion pounds over the six months, and from the UK were helping make up for poorer US demand, it said.

Source: Reuters

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