Saudi budget review could make Eurofighter order less likely

  • Bloomberg News.
  • Tuesday, August 25, 2015 1:07pm
  • Business

LONDON – Saudi Arabian budget cuts in response to sliding oil receipts would make it tougher for Eurofighter to secure an order from the kingdom for a new batch of its $100 million Typhoon warplanes.

Military spending is one candidate for revisions, with a Typhoon order sought by BAE Systems, Eurofighter’s British partner, becoming a less certain prospect this year, said Harry Breach, a defense analyst at Raymond James in London.

“The probability of it slipping out has gone up, but a lot of factors come into that, including price negotiations,” said Breach. “It’s getting closer to fifty-fifty.”

The Saudi government is seeking ways to trim $102 billion dollars from investments as the plunge in crude prices weighs on oil revenue, people familiar with the review said Monday. Defense projects could still survive intact, bolstered by the country’s involvement in wars in Yemen and Syria and skepticism over a U.S.-brokered nuclear deal with regional rival Iran.

“There are other areas in the budget, not least in infrastructure, that could probably take a bit of pain for a while and do less damage,” said Sandy Morris, a London-based analyst at Jefferies Group. All the same, pricing power could suffer, he said.

For BAE, securing further Eurofighter sales is central to its ability to lift full-year underlying earnings per share, a target affirmed in a six-month results statement on July 30.

BAE Chief Executive Officer Ian King said last month that Eurofighter, in which the British company is partnered with Airbus Group and Finmeccanica, would decide by the end of this year whether to slow output to stretch production beyond 2018.

Securing a further Typhoon deal has become more pressing for BAE as it struggles to guarantee the future of a naval shipyard in Melbourne, something it has said is also a requirement for meeting full-year goals. The Australian government said this month that production will be focused on a competing state-owned facility in Adelaide.

BAE spokeswoman Kristin Gossel said the company couldn’t comment on national defense budgets or clarify what aircraft orders had been anticipated in annual earnings guidance.

A new Eurofighter order from Saudi Arabia would follow the purchase in 2007 of 72 Typhoons valued at 4.4 billion pounds ($6.9 billion), final terms for which were to be agreed by 2012 and based on economic conditions. In the event, negotiations on the so-called Salam contract dragged on until early 2014.

A follow-on deal could involve upwards of 48 Typhoons, Defense News reported June 16, when it said an order could be delayed by the death of a key Saudi Air Force commander, citing the British government’s defense and security export arm.

Saudi Arabia is also pursuing “massive requests” for U.S. defense equipment, with an order for as many as 802 Lockheed Martin Corp. Patriot missiles worth $7.15 billion awaiting approval in Congress, according to Morris. “Even if they choose to look hard at defense, they have choices,” he said.

Michael Stephens, research fellow for Middle East studies at the Royal United Services Institute in London, said seeking to anticipate Saudi intentions is “kind of like looking into a crystal ball” and that relying on a “mega-deal” from the world’s biggest oil producer every few years is unwise.

BAE still has a chance of securing Eurofighter orders from Bahrain, Qatar— which signed an outline deal in May for 24 Dassault Aviation Rafale jets— and even the United Arab Emirates, which ended talks on a purchase in 2013, he said. The Typhoon’s last export deal was with Oman in 2012, for 12 jets.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.