Saudi Arabia Moves Toward Buying 48 BAE Eurofighter Jets

(Bloomberg) -- Saudi Arabia reaffirmed its commitment to BAE Systems Plc’s Eurofighter program, providing a much-needed boost to the aircraft and reviving prospects for a long-delayed 48-jet order.

The kingdom signed a memorandum of intent with the U.K. government confirming plans to purchase the jets, according to a statement Friday from London-based BAE. The agreement was announced during a three-day state visit by Crown Prince Mohammed bin Salman to the U.K., where the nations have agreed a goal of 65 billion pounds of mutual trade and investment in coming years.

“Today’s news is a positive step towards agreeing a contract for our valued partner,” BAE Chief Executive Officer Charles Woodburn said in the statement. “We are committed to supporting the kingdom as it modernises the Saudi armed forces and develops key industrial capabilities.”

The accord, which falls short of a formal purchase agreement, comes at a crucial time for BAE. Europe’s biggest defense contractor has cut jobs and slowed Eurofighter Typhoon production as the backlog for the warplane thins out, adding pressure on the company to lock down more sales.

A new Saudi order would follow a 72-plane deal placed in 2005. Expectations for a new order, which started mounting in 2014, have since been dropped from the company’s annual guidance, indicating no agreement was expected in the short-term.

“We have taken a vital step towards finalising another order for Typhoon jets that will increase security in the Middle East and boost British industry and jobs in our unrivalled aerospace sector,” U.K. Defense Secretary Gavin Williamson said in a statement.

Fighter-plane values aren’t publicized but with a list price of around 130 million pounds ($180 million) per aircraft and training and support expenses of 40 million pounds, a deal could be worth more than 8 billion pounds before discounts. BAE secured a deal for 24 of the aircraft from Qatar in November.

BAE closed 2.2 percent higher at 601.8 pence in London. Earlier the stock rose as much as 3.6 percent after the Sunday Times reported that an accord had been reached.

The company is forecasting earnings to be flat this year as the lower Typhoon build rate and lower rates of its Hawk training jet wipe out gains from increased U.S. military spending. BAE is cutting 1,400 jobs in its military aircraft division as a result of declining demand.

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