BAE Systems, Saudi Arabia agree pricing on Eurofighter jets

British defense firm says agreement reached in long-running Salam deal

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British defense contractor BAE Systems has agreed pricing with Saudi Arabia over a long-running Eurofighter jet deal with the Gulf state, it said on Wednesday, capping years of talks which had repeatedly forced it to defer earnings.

BAE has had to trim its full-year earnings forecasts for the last two years as it failed to settle on price over the so-called Salam deal. The Gulf state agreed to buy 72 Eurofighter jets in 2007 for 4.43 billion pounds at the time.

The company, which reports full-year results on Thursday, said that the British and Saudi government had agreed price escalation terms relating to the Typhoon aircraft, and that these had been reflected in contractual agreements between the British government and BAE Systems.

“This is an equitable outcome for all parties, I am pleased that we have been able to conclude this negotiation which builds on our long standing relationship with this much valued customer,” Chief Executive Ian King said.

Shares in the company opened up 4 percent at 455 pence on Wednesday.

It said the terms of the agreement were broadly consistent with the company’s prior trading outlook for 2013. Cash settlement is expected to follow the pricing agreement, commencing in the early part of 2014.

The company said in August that it was confident of reaching agreement this year but warned on October 10 that its earnings could be hit by 6-7 pence per share - or by about 750 million pounds - should it fail to do so.

With the Salam deal price finalized, BAE and Saudi Arabia are now likely to begin talks on a second batch of Eurofighter aircraft, which could see the Saudi airforce order 48 to 72 planes.

The announcement also bodes well for the 1 billion pound share repurchase program BAE launched in February, the full implementation of which was contingent on the finalization of the Salam deal.

BAE builds the Eurofighter alongside European aerospace group Airbus and Italian defense contractor Finmeccanica.