The Telegraph, BAE Systems appears set to expand its controversial defence contract with the Saudi Arabian government, as strong world oil prices swell defence spending in the Middle East.
BAE could win new business as early as next year through an expansion of its 15-year-old Al Yamamah contract, according to broker UBS. In a research report, UBS has tipped BAE as likely to be asked to upgrade the Saudi Air Force's fleet of 85 Tornado fighter aircraft in the near future.
The Saudi government, which has a large defence budget, could also potentially order Hawk jet trainer and Eurofighter aircraft from BAE, the broker said. A BAE Systems spokesman refused to comment directly about an expansion of Al Yamamah, but said the rolling contract allowed for “insertions” to aircraft or other elements of BAE's work.
UBS said the surge in world oil prices this year, which stemmed from the conflict in Iraq, would bolster government spending on defence. “The higher-than-expected oil price since the start of 2003 has enabled the Saudis to build up a financial reserve that should enable BAE to win new contract work,” the report said.
An expansion of the Saudi business, along with a completion of the deal to sell 66 Hawk jet trainer aircraft to the Indian Air Force, has prompted UBS to lift its earnings forecast for the group. The completion of the Indian Hawk deal is likely to bring an immediate pre-payment to BAE worth up to
