BAE hit by delay on Saudi jet deal

BAE Systems is to reveal that 2012 was a weaker-than-expected year in profit terms as a result of delays in agreeing a price with Saudi Arabia for its Typhoon fighter jets.

The defence giant will publish full-year results for 2012 on Thursday, and analysts are forecasting a rise in revenue to around £18.7bn from £17.8bn.

Pre-tax profit is forecast to rise to £1.63bn from £1.47bn.

However, The Sunday Telegraph understands results will come in below City expectations as BAE continues negotiations on the pricing of a contract to supply 72 jets to the Royal Saudi Air Force. It is a government-to-government deal known as “Salam” and worth roughly £4.5bn in total.

Last year was eventful for the FTSE 100 company, not least because it was forced to abandon plans to merge with European aerospace company EADS in October, after Angela Merkel, the German chancellor, intervened to block the deal. A deal would have afforded BAE a lesser reliance on the defence market at a time of shrinking budgets.

BAE is expected to close one of its shipyards, with industry insiders believing Portsmouth to be most at risk with the loss of up to 1,500 jobs. The Navy base at Portsmouth, where BAE does repairs, is not at risk. Other shipyards in the spotlight are two in Glasgow, at Govan and Scotstoun.

While an announcement is not expected with the results this week, it is understood that BAE has submitted its preference to the Ministry of Defence for consideration. An announcement is likely this month or early next.

The decision will depend on future workload in the shipbuilding industry, with a gap in the British programme expec­ted once the two Queen Elizabeth-class aircraft carriers are completed but before the Type 26 Global Combat Ship programme begins.
A spokesman for the MoD said: “The Government is continuing to explore a number of options with BAE Systems about how best to deliver the future shipbuilding programme in a way that sustains key skills to complete the build of the Queen Elizabeth Class and transition to the Type 26 programme. No decisions have been taken.”
BAE warned in December that if an agreement with Saudi had not been reached by the time it published results, the group’s underlying earnings per share would be about 3p per share lower than previously expected.
Analysts are expecting earnings per share of around 39p, and a dividend of around 19.6p for the full year.
The company is likely to say the defence industry remains stable in the UK with greater uncertainty in the US, the biggest defence market. It will also highlight its strategy of targeting more business outside the UK and the US.
In December, BAE won a £2.5bn contract to provide Oman with 12 Typhoon and eight Hawk aircraft.