BAE to get $780m cash boost from Saudi order

BAE Systems, Europe’s largest defense company, is poised to receive a cash boost of about £500m ($780m) once an agreement is reached with Saudi Arabia on pricing for Eurofighter aircraft, UBS analysts said in a note.

While failing to meet a year-end deadline to wrap up negotiations with Saudi Arabia, BAE will get a “flying start to 2012” when the extra payment from upgrading the Salam jet contract comes through, analysts Charles Armitage and Rami Myerson wrote in a note.

“We believe we will see the bulk of Saudi contracts agreed in the first half and that this gives upside to 2012 forecasts,” the analysts said.

BAE has delivered 24 Typhoon jets to Saudi Arabia so far, and the arms maker is negotiating the price of another 48 after amendments to the original contract. Saudi Arabia may also place an order for more BAE Hawk jets, worth as much as £1.5bn, after it gave the go-ahead to a pilot training program, according to UBS.

For 2011, the delay in reaching an agreement with Saudi Arabia will probably result in earnings before interest, tax and amortization missing estimates by about £80m, according to a note by JP Morgan. Net debt may be £300m higher, it said.

An increase in the value of a Brazilian order for three Offshore Patrol Vessels will offset the 2011 Saudi profit shortfall, said UBS, which left its profit estimates for last year intact. The bank is one of BAE’s house brokers.

BAE, in a statement yesterday, said the boost to the Brazilian vessel order is expected to “largely mitigate” the earnings impact from the deferred Salam payment.