BAE looks to conclude key Saudi deal in second half

BAE Systems Plc said it expected a long-awaited multi-billion dollar Saudi jet deal for completion in the second half of this year, enabling it to forecast an over 10 per cent increase to annual underlying earnings.

BAE, part of the consortium alongside Airbus and Finmeccanica, which builds the Typhoon or Eurofighter jet, has been in negotiations with Saudi Arabia over the order of 72 jets by the Gulf states, which was signed by both parties in 2007.

The so-called Salam order was earlier said to be worth around £4.5 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. The two sides needed to finalise the pricing of the first batch before they got round to discussing the subsequent order, he added.

According to King, the Saudi air force could order a further 48 to 72 planes. The company had continued on the development of Saudi business as the talks went on and in June signed a £1.8 billion contract for follow-on support to the Salam programme.

International sales to countries such as Saudi Arabia had become increasingly important to BAE, which made exports and niche markets such as cyber security its priority, with the shrinking of defence budgets in the US and Europe.

BAE, which is also the maker of Eurofighter Typhoon jets and aircraft carriers, said the full implementation of a £1 billion share buy-back programme also depended on the ''satisfactory resolution'' of the Salam talks. The group had thus far bought back about £90 million worth of shares.

For the six months to the end of June, BAE reported underlying pre-tax profits of £865 million, down from £922 million a year earlier, on sales 1 per cent higher at £8.4 billion. The company's order backlog grew to £43.1 billion, from £40 billion a year ago.

According to the group, headed by chief executive Ian King, including both the benefit from the share repurchase programme and downside arising from reductions to US defence budgets, double-digit growth in underlying earnings per share was expected for 2013.

This outlook assumed the satisfactory conclusion to Salam pricing negotiations this year, he added.

Though there was a dip in profits, BAE upped its interim dividend by 3 per cent to 8p a share.