Blow for BAE as Eurofighter talks scrapped

The Typhoon final assembly hangar at BAE Systems in Warton, Lancashire
The Typhoon final assembly hangar at BAE Systems in Warton, Lancashire
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BAE Systems faced investor worries over its growth prospects after the United Arab Emirates pulled out of talks to buy 60 Eurofighter Typhoon combat jets, in a blow to the government which had pushed hard to land the $9.8bn deal.

The decision could boost the prospects of French company Dassault Aviation, which sells the rival Rafale plane, although that company has also suffered setbacks in a long-running and unpredictable UAE fighter contest.

The Eurofighter snub punctures Britain’s hopes of a deal underpinning thousands of jobs after Prime Minister David Cameron travelled to the UAE last month to lobby for the Eurofighter Typhoon contract, which BAE had said could be a “major game-changer”.

However, BAE said in a statement it had not factored the contract into its business plans.

Shares in Europe’s biggest defence firm fell 4.8 per cent, making BAE the biggest faller in the blue-chip FTSE 100.

The announcement came after the market close on Thursday, when they had finished up 1.8 per cent.

Fighter jet exports to regions such as the Middle East have become increasingly important to defence contractors such as BAE which are facing declining military spending from their biggest customers in the United States and Europe.

The UAE’s decision to abandon the talks was the second upset in the global fighter market in as many days after Brazil rejected offers from the United States and France and opted for Sweden’s smaller but cheaper Gripen fighter.

Investec analyst Chris Dyett said the UAE deal had been one of the largest available to BAE, which negotiates in the Middle East on behalf of other Eurofighter consortium partners EADS and Italy’s Finmeccanica.

“It’s going to be difficult for this company to grow,” he said when asked about the impact on BAE of the UAE decision.

Analysts at JP Morgan Cazenove called it a major setback for BAE Systems, noting the contract could have been worth around 45p per BAE share.