August 01, 2013
Credit: BAE Systems
BAE Systems is pursuing deals for Eurofighter Typhoon jets for the UAE and a follow-up deal for the aircraft in Saudi Arabia.
The company is keen to push production of the fourth-generation fighter out beyond 2020, CEO Ian King told analysts as the company released its half-year results on Aug. 1. BAE believes there is potential for a follow-up order of between 48 and 72 Typhoons for the Royal Saudi Air Force, on top of the order for 72 aircraft currently being built for that country in the U.K. The company also is set to deliver a bid to the UAE government as it looks for a new fighter to replace its Dassault Mirage 2000 fleet.
BAE Systems is looking to export markets, particularly the Middle East, in a bid to offset waning defense budgets in its domestic U.K. and U.S. markets. It is also drawing on success in Oman following last year’s order from Muscat for 12 Typhoons and eight Hawk trainers.
“This is a challenging environment but we continue to take the necessary actions to manage the business for the benefit of both our customers and our shareholders,” King said. “We have received £4.8 billion ($7.2 billion) of orders outside the U.K. and U.S. in the first six months, a continued sign of the momentum in international activity.”
Sales in the six months that ended June 30 were up 1%, although earnings were down from £922 million in 2012 to £865 million this year.
The company said that despite pressures, its U.K. business was “stable” thanks to multi-year contracts and a small number of large programs that provide “good visibility,” such as work on the Typhoon, as well as naval ship and submarine programs. But the U.S. side of the company is being affected by issues related to sequestration. In a statement, BAE said: “Unless measures are introduced to mitigate the impact of sequestration, defense spend is expected to face continued reduction.”
Deliveries of Typhoons have been re-started under the Al-Salam program. Initially the first 24 aircraft were to be made in the U.K. with the remainder of the order for 72 to be produced in Saudi Arabia. However, the deal was re-formulated for production to continue in the U.K., resulting in an increased cost. BAE says negotiations over the price escalation for the contract change have “not yet been reached.” The company has now delivered 28 of the 72 Typhoons, with another six to be delivered before the end of the year.
The talks have not affected the company’s strong relationship with the Saudi government, however, and this year it has signed a £600 million weapons contract, awarded in March under the Saudi British Defense Co-operation Program, as well as an order in June, valued at approximately £1.8 billion, for follow-on support through to 2017 to support the Typhoon in-country.
As well as opportunities in the Middle East, BAE also is chasing Typhoon sales in South Korea and Malaysia. The company says it expects a draft request for proposals for the U.S. Air Force T-X program in 2014, for which BAE will bid its Hawk trainer, and discussions are continuing with India for another batch of 20 Hawks.