BAE Systems profit growth hinges on Saudi jet deal

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British defence group BAE Systems said its chances of delivering profit growth in 2012 hinged on talks to finalize a fighter jet deal with Saudi Arabia, in a year marked by tight government defence budgets.
“Whilst little sales growth can be expected for the group in 2012 in the current market conditions, modest growth in underlying earnings per share is anticipated, assuming a satisfactory conclusion to Salam negotiations (with Saudi Arabia) in 2012,” BAE, Europe’s biggest defence contractor, said on Wednesday.

In 2007 Saudi Arabia signed a contract with BAE to buy 72 Typhoon aircraft, 24 of which have been delivered to the Royal Saudi Air Force. The Salam deal, as it is known, is worth around 4.5 billion pounds (US$7.3 billion), Reuters reports.

Earlier this month BAE said the contract to build the remaining 48 jets in Britain had been signed but changes to the price of the deal had yet to be agreed.
“Salam trading … remains deferred until ongoing negotiations have been concluded,” BAE said.

BAE, which is involved in the production of F-35 fighter jets and Astute class submarines systems, said the approval of the United States’ 2012 defence budget had resulted in less disruption to the award of contracts than in 2011 but that delays to the approval of 2013 budgets were likely.
“Saudi contract negotiations must be successfully concluded given the importance of this to BAE as both an offset to declining U.S. land revenues and management’s ability to do further buybacks,” said Morgan Stanley analyst Rupinder Vig.

Shares in BAE were down 1.2 percent at 292.9 pence by 0810 GMT, valuing the group at 9.6 billion pounds.

BAE shares have fallen 10 percent in the last year, underperforming the FTSE All Share Aerospace & Defence Index by almost 18.5 percent.

BAE’s rivals across the Atlantic last week reported improving earnings. U.S. peers Northrop Grumman, Boeing and Lockheed Martin reported better than expected first quarter results and made bullish noises about the year ahead.

Analysts expect BAE to post flat earnings before interest, tax and amortization for 2012. The company reported EBITA of 2.02 billion pounds for 2011, a 7 percent fall on 2010.

EUROFIGHTER FIGHT

Earlier this year BAE’s Eurofighter consortium lost out in the deal to supply 126 fighter jets to India, which chose France’s Dassault Aviation which makes Rafale jets, as preferred bidder. The setback came after Japan chose to buy 42 Lockheed Martin F-35 jets instead of the Eurofighter.

This leaves Oman and the UAE as the largest potential markets for the Eurofighter, both of which are significantly smaller than India and less certain to move forward.

The British arms maker said it had submitted a proposal to the government of Oman to sell it 12 Eurofighter jets with a five-year support, pilot and ground crew training package.

BAE last year launched a review into its shipbuilding operations, which could lead to the closure of one or more of its British dockyards. It cut 3,000 UK jobs last year, having shed 15,000 positions globally over the previous two years.



Hundreds of BAE workers are to stage a protest outside the company’s annual shareholder meeting in London later on Wednesday as part of their campaign to save jobs.