Saudi Arabia's threat to buy its Typhoon jets elsewhere is being taken very seriously, write James Boxell and Stephen Fidler
By JAMES BOXELL, STEPHEN FIDLER, PEGGY HOLLINGER, ROULA KHALAF and MICHAEL PEEL
Shares in BAE Systems lost about 3 per cent of their value in London trading yesterday as investors in Britain's biggest defence manufacturer took fright at the potential loss of a Pounds 10bn-plus deal to supply Eurofighter Typhoons to Saudi Arabia.
The Saudis are distressed about the ongoing investigation by the Serious Fraud Office into the 20-year-old Al Yamamah deal, predecessor to the Eurofighter agreement.
Calmer voices suggested scrapping such a prestigious country-to-country agreement, extending Britain's biggest export deal by at least 20 years, would be unprecedented and that Saudi threats were probably designed to force an end to the SFO probe.
But a source close to the Saudi government insisted yesterday that there was "a lot of meat in the story" that the kingdom was contemplating action on the commercial front. Their dissatisfaction had been brewing for some time, he said.
Another person with regular Saudi government contacts said the SFO decision to seek bank account information from Switzerland was "just a step too far".
BAE and the Ministry of Defence are certainly taking the threat seriously. Some officials have warned the Saudis could be poised to buy 24 or 36 Rafale fighter jets from France, calling into question the bigger Eurofighter deal. Jacques Chirac, the French president, has been desperate to seal a deal for an aircraft that has failed to win export orders. He visited Saudi Arabia earlier this year and Michele Alliot-Marie, the French defence minister, was there in September. The French are selling military equipment worth Euros 2.5bn (Pounds 1.7bn) to the kingdom and a potential Rafale order has been discussed, with Saudi pilots testing the jet.
But French defence officials yesterday played down suggestions a Rafale sale was imminent. The situation was complex and difficult, one official said, and there was no indication to suggest the Saudis planned to drop the Eurofighter.
"It would be quite a decision to switch like that," he said. "We do not really know which way the wind will go."
Andrew Brookes, aerospace analyst at the International Institute for Strategic Studies, said: "There could be an element here of trying to scare the SFO off. Will it mean they do not buy the Eurofighter? I doubt it."
BAE has a long-standing relationship with the kingdom and is an important part of its nascent aerospace industry, employing about 4,600 workers in Saudi Arabia, about half of whom are locals.
"If BAE is thrown out and the French had to produce the equivalent Al Yamamah infrastructure, that would be a massive ask," Mr Brookes said.
The Saudi airforce also wants the Eurofighter.
Among the Saudis' expressed concerns over the SFO probe is that the subject of the investigation is 20 years old and a dead issue.
The British government has come under increasing pressure, not least from the US, for having a poor record on investigating and prosecuting alleged corruption involving British multinationals overseas.
London has been criticised privately by US anti-corruption officials and in public by the all-party Africa parliamentary group and the Organisation for Economic Co-operation and Development, which is leading international work to combat corporate bribery.
Saudi sources said the kingdom was upset by the continuation of the probe, but would not threaten to cut diplomatic relations.
But the controversy comes at a sensitive time: King Abdullah, who took over only a year ago, is seeking to turn the page on past corruption and bolster the legitimacy of the royal family.
The wasteful management of Saudi Arabia's oil wealth has been a big factor behind popular resentment towards the al-Saud family. Mindful of this, the new monarch has been taking quiet steps to curb the excesses - including involving the finance ministry in all defence deals.
Additional reporting by Peggy Hollinger, Roula Khalaf and Michael Peel
