The UK arms manufacturer revealed on Thursday that more than a year of talks to supply 60 Typhoon aircraft to the UAE had failed. It also said vital negotiations with the Saudi government over the pricing of an existing Typhoon contract, keenly anticipated by shareholders, will drag into next year.
The news is a serious setback for BAE as it seeks to reduce its reliance on US and British defence markets that have been hit by government spending cuts. BAE's search for new sources of revenue has seen it pursue a failed merger with the Airbus owner Eads and launch a major push into emerging defence markets such as the UAE and India.
In its statement, BAE said: "BAE Systems and the UK Government have been in discussions with the Government of the United Arab Emirates regarding a range of defence and security capabilities including the potential supply of Typhoon aircraft. The UAE have advised that they have elected not to proceed with these proposals at this time."
The news is a blow not only to BAE but also to the prime minister, who intervened personally last month to try to secure a deal that would have represented a significant boost for British exports. During a visit to the UAE, Cameron urged Sheikh Mohammed bin Zayed Al Nahyan, the crown prince of Abu Dhabi, to opt for the Typhoon over a rival fighter produced by France's Dassault Systemes. Analysts thought the prime minister's move could have swung the deal for BAE, raising hopes that the UK will meet George Osborne's target of doubling exports to £1tn by 2020.
Analysts at JP Morgan had estimated that a deal to supply fighters and other equipment to the UAE could have been worth 45p a share to BAE, which closed at 442p. The company said yesterday it had not built the prospect of a successful outcome into its financial plans.
"BAE Systems stands ready to work with the UAE to address any future requirements," the company said.
BAE also said that it was still in talks with the Saudi government about the terms of its contract to supply 72 Typhoons to the country. A deal was signed in 2007 but it included provisions for renegotiation as economic conditions changed. The Saudi negotiations are being followed closely by investors. The company is buying back £1bn of its shares to boost investor returns but has said completing the buyback depends on the Saudi talks being resolved.
The company said: "Whilst good progress has been made, a definitive agreement has yet to be reached. A timely agreement in the new year would be reflected in trading for 2013. The group's focus in these negotiations continues to be on agreeing appropriate terms and not the timing of such an agreement."
The company said in October that its 2013 earnings would be reduced by 6p or 7p a share if there was no agreement. It stressed that it had won major new business from Saudi Arabia this year, including £1.5bn for guided weapons and Tornado maintenance.
BAE said it had a long-standing relationship with its "much valued customer in the Kingdom of Saudi Arabia", suggesting it expected to strike a deal.¬
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