LONDON: The Eurofighter Typhoon jet, a key combat aircraft jointly developed by BAE Systems, Europe’s largest defence firm, is in the eye of a growing storm.
Although the multinational Eurofighter Typhoon consortium, of which BAE is a member, has already signed a deal to sell 72 Typhoons to Saudi Arabia, talks between the country and BAE have stalled amid a widening probe into BAE being carried out by Britain’s Serious Fraud Office.
If the deal is completed, Saudi Arabia would use the Typhoons, which can accelerate from brakes off to supersonic speed in less than 30 seconds, to replace British-made Tornados and other jets.
Press reports at the weekend said the Saudi government was set to kill the Typhoon deal, which analysts have said could be worth more than £6bn ($11.72bn), if the SFO opened Swiss bank accounts allegedly linked to members of the Saudi royal family.
Yesterday, Swiss legal authorities said they were working with British officials as part of the two-year probe into BAE.
“The Swiss Federal Prosecutor confirms the execution of a British request for legal assistance in connection with BAE Systems,” the prosecutor’s office said in a statement.
Amid growing analyst and media comment about the ongoing SFO inquiry, the potential loss of a major UK defence deal and talk of France’s Dassault Aviation getting to sell its Rafale jets to the Saudis, BAE’s share price has fallen around 5% in two days.
“As far as we know, no Saudi individuals are under investigation, yet press coverage of the investigation has continued to allege that UK individuals/companies bribed Saudi officials,” said Merrill Lynch analyst Charles Armitage.
“We can understand why the Saudi government might be sensitive to suggestions of this kind,” he wrote in a note.
Yesterday, shares in BAE climbed 2.8% to 397-1/2 pence, valuing the business at around £12.8bn.
The gains were underpinned, according to traders, by news of a $1.16bn deal from the US army to upgrade 610 Bradley armoured vehicles and provide spare parts. Receding fears over the Saudi Eurofighter contract also helped, they said.
Saudi officials have so far not commented on the Eurofighter negotiations, although the SFO probe was discussed during a meeting between Saudi defence minister and Crown Prince Sultan and British ambassador Sherrard Cowper-Coles during the weekend.
A Saudi source with links to the government said that the Saudis were frustrated by the widening probe into suspected accounting irregularities related to BAE.
The probe initially focused on the relationship between BAE and two small travel firms which made arrangements for Saudi Arabian officials on behalf of BAE.
“This basically is an old story that has been dealt with domestically. This is one source of annoyance. It is a surreal situation that the Kingdom is going ahead with a new contract with the British government and this has come up,” he said, referring to the Swiss-related fraud inquiry developments.
Analysts have said shareholders should expect short-term weakness amid the ongoing press comment about Saudi Arabia potentially pulling out of the Typhoon deal.
“What has changed is that (the risk of the deal not going ahead) has increased from very small to something greater,” said Merrill’s Armitage, adding that it was, however, unlikely that the deal would not go ahead.
He added that the net present value of the Eurofighter Typhoon contract is worth about £2bn - or 65 pence - on or off BAE’s share price.
The Saudi source played down suggestions that Saudi Arabia might drop its plan to buy the British-made Typhoons.
“The whole issue with France didn’t start here, it started in London. The French angle is an option but it hasn’t really been pursued,” he added.
BAE chief executive Mike Turner has made clear in a number of recent interviews he is frustrated by the duration of the SFO inquiry and lack of any sense of when the probe will end.
Yesterday, the Guardian newspaper, in a report citing unnamed legal sources, said the SFO investigation was looking into whether BAE money was channelled to members of the Saudi ruling family.
“We don’t feel the need to comment on yet another article on the SFO investigation and the allegations against our company published in the Guardian,” said a BAE spokeswoman.
BAE has repeatedly stated that it is co-operating fully with the SFO and believes that it has done nothing wrong. The SFO has said the inquiry is ongoing, but given no indication of when it would be completed.
The multinational Eurofighter consortium that makes the Typhoon jets includes BAE, European defence aerospace group Eads and Italy’s Finmeccanica. – Reuters |
