BAE to extend Al-Yamamah deal

08 September 2003
The UK's BAE Systemsis in negotiations to extend its multi-billion-dollar Al-Yamamah defence contract to supply the kingdom with Tornado, Hawk and PC-9 aircraft. The new deal will involve extending the operational service life of a number of the early Tornados supplied under the deal to beyond 2015. This may include the supply and installation of elements of the aircraft's GR4 upgrade.

Since the government-to-government deal was signed in 1985, BAE has delivered 120 of the Tornado's ground attack and air superiority variants and 90 Hawk jet trainers. The total value of the deal is estimated to have exceeded $4,000 million - paid for by a fixed volume of crude oil sales - and also included the supply of minesweepers, helicopters and training.

In addition to delivering equipment, BAE is understood to have earned up to $1,000 million a year from servicing and maintenance support. Extending the term of this element of the contract is understood to account for a significant element of the new proposed deal (Saudi Arabia, MEED Special Report, 16:3:01, pages 40-41).

The company was thought to be winding down the scope of the Al-Yamamah programme, including its significant economic offset element. Its position in the kingdom was strained by the recent killing of an employee shot dead in Riyadh. BAE has about 5,500 workers in Saudi Arabia, of which 2,500 are foreign expatriates (MEED 21:2:03).

Extending the deal is expected to act as a springboard for the marketing of the Eurofighter Typhoon in the region. Exporting the aircraft, which is designed to fulfil a number of frontline roles until well into the 21st century, is a major target for BAE and its European partners. The kingdom is considered a prime market for the fighter, which could replace its obsolete fleet of F-5s.

BAE has diversified its portfolio in recent years to encompass all elements of defence equipment. It is one of a number of international defence contractors pursuing an estimated $2,500 million deal to supply the kingdom with an integrated command, control, communications, computers and intelligence (C4I) system.

In Kuwait, BAE, in partnership with Lockheed Martinof the US, is in the final stages of negotiating an estimated $1,500 million contract to supply C4I. It is also bidding on its own for a similar contract to supply C4I systems to Qatar (MEED 5:5:01).

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