In a statement released on 6 August, BAE said it had been instructed by its employer, the Ministry of Defence & Aviation (MoDA), to revert to the original contracts, which had an unspecified term and paid salaries by direct transfer to bank accounts. It said that benefits and salary levels will remain unaffected.

BAE staff in July filed a number of suits against the company, arguing that it had infringed labour laws by compelling its staff to change their contracts from unspecified to fixed term. They argued that this breached clauses of the law preventing a decrease in benefits and salaries, and clauses prohibiting discrimination against national employees. BAE has consistently asserted that its request to change the contracts, originally made last autumn, came at the behest of MoDA.

However, the case throws up challenges inherent within the kingdom's labour laws. Lawyers familiar with these laws say they are frequently cited as a disincentive to employing Saudis, because of the inability to terminate contracts without paying disproportionately high damages. It is illegal to sack employees on the basis of company downsizing.

'I believe this is a big step backwards,' says a Riyadh lawyer. 'There are serious unemployment and productivity issues that are the result of structural problems in the workforce stemming from an inability to terminate Saudis' contracts. I think the government has succumbed to press pressure and ultimately it is the government that will pay for this.'

BAE employs about 1,800 Saudis and 2,300 expatriates and pursues a strong Saudisation programme. In 1994 the company employed only 800 Saudis and more than 4,000 expatriates. There are now 200 Saudis undergoing technical training by BAE, while another 60 have already graduated. The company says that since 1973 it has trained more than 1,700 RSAF aircrew and 1,600 groundstaff.

The lawyer says another by-product of the case is that the Labour Committee, headed by Interior Minister Prince Nayef, now appears willing to pursue class action cases. In the past, it has insisted that each employee engaged in a common suit against an employer file separate cases that are dealt with independently, albeit with reference to each other.