Grand Salaam! Eurofighter Flies Off With Saudi Contract

Gordon Zammit: Saudi Typhoon over Malta

Malta ferry flight
(click to view full)

Fleet hits 10,000 flight hours; BAE restructures its Saudi businesses.

July 9/14: 10,000 hours. The RSAF’s Eurofighter Typhoon fleet reaches 10,000 flight hours. That’s for the total fleet since 2009, of course, not for each aircraft. Fighters generally have between 6,000 – 10,000 flight hours in them, before replacement is needed. Sources: BAE, “10,000 hrs for Typhoon in Saudi Arabia”.

June 30/14: Industrial. BAE and its major Saudi partner Riyadh Wings restructure their local business activities into a single joint venture firm, OMC. BAE will retain 51% of OMC, with more to start, while Riyadh wings share will progressively acquire their way to 49%. The partnership will then control:

* 96% of Saudi Development and Training (SDT), a technical training outfit that sub-contracts to BAE.
* 90.6% of International Systems Engineering (ISE), which performs systems engineering development, I.T., and related activities.
* Just 50% of Advanced Electronics Company (AEC), which performs electronics manufacturing, systems integration and repair and maintenance. AEC works for clients in the defense, telecom, and manufacturing sectors.

Saudi businesses account for about $3 billion in BAE’s revenue per year. The new structure is expected to improve efficiencies, while deepening BAE’s local presence. Sources: BAE, “BAE Systems announces enhanced partnership with Riyadh Wings” | The Telegraph, “BAE restructures its businesses in Saudi Arabia”.

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RSAF Eurofighter(click to view full) In 2005 talks were underway for a Saudi purchase of Eurofighter Typhoon Tranche 2 advanced air superiority and strike aircraft from Britain’s BAE Systems – with an important (albeit denied) set of conditions on the Saudi side. December 2005 saw confirmation that Saudi Arabia had ordered Eurofighter Typhoons, but the 72-plane deal started sinking into the tar sands shortly thereafter. Investigations from Britain’s Serious Fraud Office swirled around a GBP 43 billion oil-for-planes deal from the 1980s called Al-Yamamah (see Appendix A); in return, the Saudis played some hardball of their own. The investigation was eventually called off at the highest levels of government, and later confirmed by the House of Lords. After a period of uncertainty, a contract was finally signed on Sept 11/07. Ironies aside, the price was a bit lower than many expected; even so, it comes with support arrangements that are likely to push the final value quite a bit higher. This DID Spotlight article covers the Saudi Eurofighter deal, its associated controversies, and related developments. Typhoons Incoming: Contracts and Key Events Final assembly, Warton(click to view full) As an August 2006 BBC article notes, the plan was for 72 Eurofighter […]
RSAF Eurofighter

RSAF Eurofighter
(click to view full)

In 2005 talks were underway for a Saudi purchase of Eurofighter Typhoon Tranche 2 advanced air superiority and strike aircraft from Britain’s BAE Systems – with an important (albeit denied) set of conditions on the Saudi side.

December 2005 saw confirmation that Saudi Arabia had ordered Eurofighter Typhoons, but the 72-plane deal started sinking into the tar sands shortly thereafter. Investigations from Britain’s Serious Fraud Office swirled around a GBP 43 billion oil-for-planes deal from the 1980s called Al-Yamamah (see Appendix A); in return, the Saudis played some hardball of their own. The investigation was eventually called off at the highest levels of government, and later confirmed by the House of Lords. After a period of uncertainty, a contract was finally signed on Sept 11/07. Ironies aside, the price was a bit lower than many expected; even so, it comes with support arrangements that are likely to push the final value quite a bit higher.

This DID Spotlight article covers the Saudi Eurofighter deal, its associated controversies, and related developments.

Typhoons Incoming: Contracts and Key Events

Eurofighter Final Assembly BAE

Final assembly, Warton
(click to view full)

As an August 2006 BBC article notes, the plan was for 72 Eurofighter Typhoon Tranche 2 planes to be assembled by BAE in Warton, UK from parts made by all the partners in the Eurofighter consortium. BAE itself makes the front and rear fuselage, while the European defence consortium EADS and Italy’s Alenia build the wings. Other British industrial winners will include jet engine manufacturer Rolls-Royce (stake in the Eurojet Turbo GmbH consortium), Smiths Group, and Dowty.

Saudi companies are also slated to benefit from the contract, as BAE Systems has committed to invest in local Saudi companies, develop an industrial technology transfer plan, and train “thousands” of Saudi nationals to help provide through-life support. BAE currently employs about 4,600 personnel in Saudi Arabia.

This new UK-Saudi cooperation program, known as “Project Salaam” involves BAE Systems investment in local Saudi companies, development of an industrial technology plan, logistics support and suitable training for thousands of Saudi nationals who will provide through-life support for the fleet. Overall support will also include substantial logistical and training packages, including the opportunity for RAF and Royal Saudi Air Force aircrews and ground technicians to train alongside each other in the UK.

The UK MoD release makes it clear that “Project Salaam” is an expansion of the Al-Yamamah accords (q.v. Appendix A), and The Guardian places its 20-year value at about GBP 20 billion. That rose slightly, as the Saudi signed an addendum in 2014 to upgrade or build their aircraft to the latest Tranche 3 multi-role standard, and set up a local maintenance & spares facility.

2014

Upgrade costs resolved at long last.

Gordon Zammit: Saudi Typhoon over Malta

Malta ferry flight
(click to view full)

July 9/14: 10,000 hours. The RSAF’s Eurofighter Typhoon fleet reaches 10,000 flight hours. That’s for the total fleet since 2009, of course, not for each aircraft. Fighters generally have between 6,000 – 10,000 flight hours in them, before replacement is needed. Sources: BAE, “10,000 hrs for Typhoon in Saudi Arabia”.

June 30/14: Industrial. BAE and its major Saudi partner Riyadh Wings restructure their local business activities into a single joint venture firm, OMC. BAE will retain 51% of OMC, with more to start, while Riyadh wings share will progressively acquire their way to 49%. The partnership will then control:

* 96% of Saudi Development and Training (SDT), a technical training outfit that sub-contracts to BAE.
* 90.6% of International Systems Engineering (ISE), which performs systems engineering development, I.T., and related activities.
* Just 50% of Advanced Electronics Company (AEC), which performs electronics manufacturing, systems integration and repair and maintenance. AEC works for clients in the defense, telecom, and manufacturing sectors.

Saudi businesses account for about $3 billion in BAE’s revenue per year. The new structure is expected to improve efficiencies, while deepening BAE’s local presence. Sources: BAE, “BAE Systems announces enhanced partnership with Riyadh Wings” | The Telegraph, “BAE restructures its businesses in Saudi Arabia”.

March 25/14: Paveway IV. Saudi Arabia is reportedly buying 500 pound Paveway IV bombs, with dual GPS and laser guidance, to equip its Tornado and Eurofighter Typhoon fleets. The GBP 150 million / $250 million purchase comes after long delays, created by American attempts to use its ITAR weapons export procedures for protectionist purposes. The 2010 request was reportedly cleared in February 2014. Deliveries are expected between 2015 – 2017.

It’s a timely order, as Britain’s replenishment buys are finishing up after about 4,000 total deliveries to the RAF. Elsewhere in the Gulf, Oman should begin receiving their Eurofighters soon, creating another potential export customer now that there’s a precedent for ITAR clearance. See also “DID’s Paveway-IV coverage“.

Feb 19/14: Finalized, finally. Saudi Arabia finalizes their contract for 72 fighters, agreeing on price escalation terms to upgrade their fighters toward Tranche 3 standard (q.v. April 3/12, Feb 21/13, Aug 1/13, Dec 19/13). BAE was very involved in the process, but because the underlying agreement is actually with the British government, the amendment must also be negotiated between the governments involved.

BAE had continued Eurofighter deliveries during the long negotiations, which meant rising amounts of cash committed without booking any profits. Clearing this issue up frees BAE to deploy its cash reserves more freely, while also removing a source of uncertainty for potential Gulf Cooperation Council customers.

The firm describes the settlement as “broadly consistent with the Group’s prior trading outlook for 2013.” That outlook (q.v. Dec 19/13) estimated a 6-7 pence earnings per share drop without any agreement, or about GBP 250 million (~ $410 million) maximum, based on total shares revealed in a recent transaction. That’s on top of the original GBP 4.43 billion pounds/ $7.4 billion. Sources: BAE Systems, “Agreement on Salam Price Escalation” and “Feb 20/14 Transaction in Own Shares” | Reuters, “UPDATE 2-BAE Systems agrees pricing on Saudi Eurofighter deal”.

Saudi finalization

2011 – 2013

Saudis want upgrades, BAE wants more money for that. no resolution yet; Support deal extended; RSAF deployment update.

RSAF Typhoons, Austria

Zeltweg Air Show,
Austria 2011
(click to view full)

Dec 19/13: A BAE investors release suggests that negotiations with the Saudis over Tranche 3 upgrades may be deadlocked:

“BAE Systems and the Government of the Kingdom of Saudi Arabia are actively engaged in negotiations regarding settlement of contractual pricing obligations under the Government to Government Salam Typhoon agreement. 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. As previously announced in October 2013, the Group’s earnings per share guidance for 2013 would be impacted by approximately 6 to 7 pence as a result of these discussions not being concluded in the near term.”

That 6-7% adds up to about GBP 250 million off operating profits. The Saudis haven’t been pleased with Britain’s failure to support the Syrian rebels. They were even less pleased when Britain’s government pushed hard for an Iranian nuclear deal that the Saudis regard as both catastrophically stupid and directly threatening. Sources: BAE, “BAE Systems – Status of prospective business in the UAE and Salam pricing discussions” | The Telegraph, “David Cameron’s Typhoon debacle a sign of Britain’s declining Arabian influence”.

Nov 27/13: Testing. Flight tests of the Storm Shadow missile (q.v. Nov 20/13) begin from Alenia Aermacchi’s Flight Test Centre at Decimomannu Air Base, in Sardinia, Italy. Sources: Eurofighter, “Eurofighter Typhoon: Flight tests with Storm Shadow missile started”.

Aug 1/13: Mid-2013 Update. BAE’s 2013 Half-Year Results says that deliveries have resumed, with the Saudi fleet up to 28 fighters, construction beginning on new facilities, and pilot training in-country progressing:

“Four Typhoon aircraft were delivered in the first half, adding to the initial phase of 24 Typhoon aircraft deliveries between 2009 and the end of 2011…. A [GBP] 0.3bn contract was signed in March for the construction of airfield facilities at King Fahd Air Base in Saudi Arabia. Discussions on the provision of maintenance and upgrade facilities in-Kingdom, and further capability enhancement of the Typhoon aircraft remain ongoing. Under an order received at the end of 2012 to deliver training to the RSAF, the first graduation ceremony of cadets from the King Faisal Air Academy was held in May [2013].”

With respect to finalizing terms for Tranche 3 upgrades, BAE’s accompanying presentation cites “good progress,” and says “Significant trading bias to second half anticipated.” Translation: we expect a deal before the end of the year. That will need to be taken care of before BAE can talk about further sales, though they do cite a “KSA B2” opportunity as one of their top prospects. Half-Year Results statement [PDF] and presentation [PDF] | Daily Mail.

June 2013: Support. Saudi Arabia signs an extension to the Salam Typhoon program, and will pay up to GBP 1.8 billion (about $2.771 billion) for support to “through to 2017”. The original agreement was signed as part of the original 2007 deal, but the initial period had lapsed, and it was kept in place through a number of short-term extensions (q.v. Feb 21/13). Source: BAE [PDF].

Support deal extended

Feb 21/13: BAE 2012 review. BAE’s end of year investor presentation [PDF] discusses changes in Saudi Arabia, including a contract amendment that formally abandons Saudi plans for a final assembly line in-country. That insistence had been holding up deliveries, and the remaining 48 aircraft will begin arriving in 2013. Meanwhile, work to “expand the multi-role capabilities” of Saudi Typhoons continues.

Pricing remains an issue several years after the contract, and the next stage of support contracts is also in long negotiations:

“Under the Saudi British Defence Co-operation Programme (SBDCP), orders totalling £3.4bn were awarded for support through to 2016, including the provision of manpower, logistics and training to the RSAF…. The initial three-year Typhoon support contract finished at the end of June and two subsequent six-month extensions have been secured. Discussions continue with the customer on the next five years of support. Discussions on Typhoon price escalation with the Saudi Arabian government remain ongoing. Negotiations are also ongoing for the provision of maintenance and upgrade facilities in-Kingdom, and further capability enhancement of the aircraft.”

All 72 assembled in Britain now

April 3/12: Amendments? Reuters reports that BAE has signed an agreement in principle to amend the Saudi Eurofighter contract, but is still finalizing some of the key details. As noted in the firm’s 2011 annual report, changes involve Tranche 3 upgrades for the last 48 planes, retrofits of the existing 24 planes, and the creation of a maintenance & upgrade facility. Reuters adds that:

“The Saudi royal decree, which was signed off at the end of 2011, releases some 1.5 billion pounds ($2.40 billion) on top of the existing Salam programme commitment for a series of enhancements, BAE said.”

March 27/12: BAE’s Chairman of the Board Dick Olver, along with other “company leaders” and Members of the Board, visits King Fahd Air Base in Taif, Saudi Arabia. They were received by air base commander Major General Fayyad Al-Roweily, and a number other senior Royal Saudi Air Force officers. All their release would say is that:

“During the visit discussions took place on ways to enhance the prospects for future cooperation in various areas.”

March 26/12: BAE 2011 review. BAE systems releases its 2011 Financial Report. The Chief Executive’s Review includes some discussion of the Saudi Typhoon sale:

“In the Kingdom of Saudi Arabia, where defence spending remains a high priority and is growing… established core business, including support to Tornado aircraft in service with the Royal Saudi Air Force under the Saudi British Defence Co-operation Programme (SBDCP), continues to deliver good performance, and 24 Typhoon aircraft have been successfully introduced into service under the first phase of the Salam programme.

BAE Systems has been in discussions with its customer regarding changes to the Salam programme. The proposed changes relate to final assembly of the last 48 of the 72 Typhoon aircraft, the creation of a maintenance and upgrade facility in the Kingdom of Saudi Arabia, initial provisioning for subsequent insertion of Tranche 3 capability in respect of the last 24 aircraft of this order and formalisation of price escalation.

Good progress on these discussions has been made in 2011, with budgets approved in the Kingdom in December on all items other than the price escalation where negotiations will now continue into 2012. Budgets have also been established for the next five years of support on the core SBDCP, including an upgrade of the training environment. Formal contracts under these budgets are being progressed.”

Feb 1/11: Arabian Aerospace’s “Phoon a friend?” looks at the Typhoon’s initial assessment, the behind the scenes negotiations as the type enters service, and what happened to that rumored follow-on order.

2009 – 2010

RSAF picks IRIS-T SRAAM missiles; Support deals for planes, engines; Handovers begin; A final assembly plant in Saudi Arabia?

RSAF Rollout

RSAF rollout
(click to view full)

Aug 16/10: Saudi Arabia’s Arab News quotes BAE Systems managing director international Guy Griffiths, who says the firm will establish a military aircraft final assembly plant in Saudi Arabia:

“We have started training Saudis on Typhoon aircraft assembling at our plant in Warton in order to establish an assembling plant in the Kingdom shortly.”

It is inferred that this plant would work on the Eurofighter, but not explicitly stated. By 2013, however, the Saudis had formally backed away from final assembly in-country.

Dec 15/09: Engine support. Rolls-Royce announces a pair of 3-year deals with BAE Systems to support the RSAF Typhoon fleet’s EJ200 engines. The contracts will become part of the Salam Support Solution, and Rolls-Royce Defence Aerospace Managing Director Martin Fausset said that: “we have designed this solution using the experience gained supporting the UK’s EJ200 fleet…”

Under the terms of the contracts, whose value was not announced, Rolls-Royce and its subsidiary Rolls-Royce Saudi Arabia Limited will lead engine support on behalf of the EUROJET consortium. The Saudis have pushed to maximize in-country work, A key element of the new contracts is that initial in-country support activity on the EJ200 engines will be conducted in Saudi Arabia. This will involve conducting some repairs onsite, but deeper maintenance will still involve preparing engines and modules for transport back to Europe.

Oct 12/09: Support. With 4 of 72 Typhoons delivered to the Royal Saudi Air Force, and flying operations commencing, BAE systems announces a detailed 3-year contract for “The Salam Support Solution.” This is a full availability-based service contract, which also includes Saudi pilot training in the UK and training for RSAF maintenance technicians. Britain is already implementing the Typhoon Availability Service (TAS) for its Eurofighter fleet.

The deal’s value was not disclosed, but Saudi support contracts tend to be very large due to the wide range of contractor services they request. A 2013 disclosure by BAE placed the value of all their support contracts under the Saudi-British framework at GBP 3.4 billion through 2016. The Typhoon contract ran until 2012, but a pair of 6-month extensions have served as a bridge while BAE negotiates the next 5-year support contract.

3-year support deal

Sept 7/09: IRIS-T missiles. Diehl BGT receives an interesting spin-off order for its 5th generation IRIS-T (InfraRed Imaging System – Tail/thrust vector controlled) short range air-air missiles, which will equip Saudi Arabia’s Eurofighter Typhoons and its Tornado strike aircraft. The size of the order was not announced.

The Saudis have ordered comparable American AIM-9X Sidewinder missiles for their F-15 fleet, but IRIS-T is a comparable missile that has already been integrated with Tornado and Typhoon aircraft belonging to Germany and Italy, removing the need for that additional work. The Saudis could also have chosen MBDA UK’s AIM-132 ASRAAM, which is integrated on RAF Eurofighters.

IRIS-T emerged after Germany pulled out of the joint US-UK-German ASRAAM program. Testing with their “new” East German MiG-29s and AA-11/R-73 Archer SRAAMs led them to believe that ASRAAM’s entire philosophy was wrong, and so they sought to develop their own missile based on the AA-11’s lessons. IRIS-T is being developed by a multinational European consortium, and the missile has now been ordered by Germany, Denmark, Greece, Italy, The Netherlands, and Spain among consortium countries; plus small export orders to Austria and South Africa. Saudi Arabia appears to be the first sizable export order beyond the consortium.

IRIS-T missiles for Saudi Typhoons

June 25/09: Link 16. Data Link Solutions in Cedar Rapids, IA receives a $28.9 million firm-fixed-price delivery order for MIDS-LVT Link 16 terminals. It combines purchases for the USA (45%), Saudi Arabia (15%), Canada (10%), South Korea (8%), Switzerland (6%), Finland (6%), Poland (5%), Japan (4%), and Norway (1%).

See Sept 26/08 entry, re: Saudi Arabia’s official DSCA request to equip its new Eurofighter Typhoons.

Work will be performed in Wayne, NJ (50%), and Cedar Rapids, IA (50%), and is expected to be complete by December 2010. Contract funds in the amount of $425,983 will expire at the end of the current fiscal year. This delivery order was competitively procured, with 2 proposals solicited and 2 offers received via the Space and Naval Warfare Systems E-commerce web site, after the synopsis was released via the Federal Business Opportunities web site (N00039-00-D-2100).

June 11/09: 1st handover. Saudi Arabia’s Assistant Defense and Aviation Minister Prince Khaled bin Sultan formally receives 2 Eurofighter Typhoon jets at a ceremony at BAE Systems’s facility in Warton, UK. Saudi Arabia’s Arab News | Agence France Presse.

1st Delivery

2007 – 2008

Contracts for planes & engines; Britain stops bribery inquiry; 1st flight.

EJ200 Eurojet Cutaway

EJ200 cutaway
(click to view full)

Oct 20/08: 1st flight. BAE Systems flies the first aircraft destined for Saudi Arabia, with a second Saudi aircraft due for completion “in the next few weeks.” A Defense News report adds that:

“…the British have yet to secure export approval from Washington for American equipment used in the combat aircraft. The approval remains blocked by U.S. Justice Department investigations into alleged corruption by the British in an earlier aircraft deal with the Saudis.”

See: Defense News report | BAE release.

1st flight

Sept 26/08: Link-16 request. The US Defense Security Cooperation Agency announces [PDF] Saudi Arabia’s request for 80 MIDS/LVT-1 terminals for its Eurofighter Typhoon aircraft, along with data transfer devices, installation, testing, spare and repair parts, support equipment, personnel training, training equipment, contractor engineering and technical support, and other related elements of program support. The estimated cost is $31 million.

The prime contractor will be Data Link Solutions, LLC of Cedar Rapids, IA. There are no known offset agreements proposed in connection with this potential sale, and implementation of this proposed sale will not require the assignment of any additional U.S. Government or contractor representatives to Saudi Arabia.

Aug 10/08: More? Reports are surfacing in the media that the Saudis may be looking for up to 48-72 more Eurofighters from Britain, to add to the 72 already under contract. If true, this would probably add about GBP 4.5-7 billion to the existing contract, along with increased support costs down the road. BAE has called the reports ‘speculative,’ which is true, but it has not denied them.

It turned out not to be true, but would have resolved a key issue for Britain. The MoD was already wondering whether it could afford its commitment to buy 88 Eurofighter Tranche 3 aircraft, which offer full multi-role capabilities as well as other enhancements. Selling 48 of these aircraft to the Saudis would go a long way toward resolving its budgetary difficulties. In the end, Britain negotiated its “Tranche 3A” deal with Eurofighter to effectively transfer 48 of those planes to the Saudis anyway. The Times | Thomson Financial News.

July 30/08: Inquiry stopped. Under the British system, the House of Lords is more than just the upper chamber of Parliament – it is also the country’s highest court. The House of Lords unanimously overturned a London High Court decision that said the SFO had acted “unlawfully” in halting its inquiry. In an unusually strong comment, Lord Bingham of Cornhill, the senior peer on the panel, said:

“The director’s decision was one he was lawfully entitled to make. It may indeed be doubted whether a responsible decision maker could, on the facts before the director, have decided otherwise.”

The ruling renders the British investigation dead for all practical purposes, though there is still a nominal case before the US Department of Justice. The international stakes involved in continuing that investigation have just become immensely higher, however, as it would become a direct, high-level international clash with the British government. That outcome can be considered unlikely. The Times | The Guardian | The Independent | Telegraph op-ed (supportive) | Guardian op-ed (critical) | Al Jazeera | AP | Agence France Presse | Bloomberg | The Hindu.

Jan 27/08: The Saudi Arabian Arab News quotes Deputy Minister of Defense and Aviation for Military Affairs Prince Khaled ibn Sultan as saying that the kingdom will receive the first of 72 Eurofighter Typhoon Tranche 2 aircraft in 2009.

Dec 7/07: Engines. Rolls-Royce announces that the Salam Project will be worth up to GBP 1 billion ($2.06 billion) for EJ200 turbofan engines and support. The European EUROJET consortium (owned Rolls Royce 33%, Avio 21%, Industria de Turbo Propulsores 13%, MTU Aero Engines 33%, slightly differing work shares) has overall responsibility for the EJ200, and each Eurofighter Typhoon carries 2 engines.

The twin-shaft EJ200 turbofan produces 13,500 pounds thrust, or 20,000 pounds with afterburner. This is not an exceptional thrust rating, but that was not the design objective. Rolls Royce says that the Eurojet EJ200 was designed to be both smaller and simpler in layout than current powerplants of a similar thrust class (esp. PW F100, GE F110), with lower fuel consumption and an exceptional power-to-weight ratio. Rolls Royce produces major components for the EJ200 at sites at Ansty, Derby, Hucknall and Sunderland.

Nov 5/07: The latest Typhoon test aircraft IPA6 has made its maiden flight from BAE Systems flight test facility at Warton Aerodrome in Lancashire. The purpose of the New Instrumented Production Aircraft is to prove out the Tranche 2 system design. This will underpin the Type Acceptance process in 2008, leading to the delivery of the first Tranche 2 production aircraft. Later software releases will introduce enhanced capabilities on an incremental basis.

The Tranche 2 airframe has been strengthened to carry heavier air to surface weapons and features enhanced main mission computers and upgraded electronics, increasing the aircraft’s multi-role versatility and making it compatible with the next generation of air-air and air-ground weapons. BAE Systems’ release confirms that the 4 Eurofighter partner nations (Britain, Germany, Italy, Spain) and Saudi Arabia will all receive new Eurofighters at the Tranche 2 standard.

Oct 28/07: France’s Minister for Defense Herve Morin effectively concedes that the Dassault Rafale sale to Saudi Arabia is dead, derailed by the Eurofighter sale. See “Saudi Rumors of Rafale: Stalled?” for full details, and see “Saudis May Go Russian As France Loses Out” for indications that the biggest problem may have actually been the French approach to the deal.

Sept 17/07: Contract announced. All parties formally announce the signing of a contract for 72 Eurofighters. The actual contract was signed on Sept 11/07:

“In line with the approval of the Custodian of the Two Holy Mosques, and with reference to what was earlier announced about signing an understanding document by the governments of the Kingdom of Saudi Arabia and the United Kingdom on 7/7/1427 AH, for the development of the Saudi Armed Forces within the framework of the existing close defense relations between the two countries and which include the purchase of 72 Typhoon planes in addition to transference of technology and investment in the field of defense industries in Saudi Arabia as well as training of Saudi citizens in the field of aviation, a contract was signed by the two governments on Tuesday, 29/8/1428 AH for purchase of the mentioned planes at a cost of 4,430 million sterling pound [DID: about $8.86 billion/ EUR 6.5 billion]. It is worth mentioning that the price of one plane is similar to the price of the plane when it is sold to the Royal British Air forces.”

A figure that would place the Eurofighter’s per-plane flyaway cost for the RAF at about GBP 61.5 million, or $123.5 million. This is less than the GBP 6 billion deal many were expecting, but maintenance of the Saudi fleet over the next 20 years will raise the deal’s value considerably, and localized maintenance partnerships tend to attract very little scrutiny.

Saudi Press Agency | UK MoD | Bloomberg | Financial Times | The Guardian | Jerusalem Post | Finmeccanica (estimates a EUR 2 billion | $2.77 billion share) | Society of British Aerospace Companies.

Contract

Tornado Maintenance Nose

Tornado maintenance
(click to view full)

Sept 11/07: BAE announces that a new training program to produce the first multi-skilled Tornado aircraft technicians for the Royal Saudi Air Force (RSAF) is up and running at BAE Systems Warton. The first batch of RSAF students has arrived at BAE Systems’ Technical Training Academy for the final stage of the training program before they return to the Kingdom of Saudi Arabia, and this program is very likely to serve as a model for the Typhoon effort as well.

The idea is to reduce the numerous single-skill vocations currently used to maintain the RSAF Tornado fleet to a set of multi-skilled trades, in line with the RAF’s current approach. A period spent at the Technical Studies Institute in Dhahran is followed by 6 months of English language training; an intensive year at the RAF’s Defence College of Aeronautical Engineering in Cosford, Shropshire; and then the final element of the program at Warton involving a mixture of classroom-based theory and specific on-the-job training, using the academy’s own aircraft.

This first batch of students will be equipped with the skills in one of 4 trades – airframe, propulsion, avionics, or electrical; then they return to Saudi Arabia for deployment to an RSAF squadron. The relationship does not end at that point, however, as the student will have an experienced multi-skilled BAE Systems technician trainer on hand to perform consolidation training before he can become a fully qualified, multi-skilled technician. BAE Systems release.

The Long Road to the Deal

Typhoon RAF ASRAAM AMRAAM Vertical

RAF Typhoon
(click to view full)

While both BAE and the UK Ministry of Defence kept mum about the precise number of Eurofighters in December 2005, The Financial Times reported that the agreement was understood to be for 48 Eurofighter Typhoon jets, with an option for a further 24 (total: 72). The BBC added that the deal is rumored to be worth more than GBP 6 billion (about $11.7 billion). Government to government “understandings” were signed in August 2006 that appeared to clear the way, but BAE’s recent admission that the deal has stalled, a significant fraud investigation by Britain’s Serious Fraud Office alleging GBP 1 billion in bribes, major public revelations about details of the GBP 40+ billion Al-Yamamah accords, and rumors that the Saudis may be about to buy French Rafale fighters were keeping things very interesting.

Eventually, the British formally abandoned all fraud investigations related to Al-Yamamah. They took intense criticism for that decision on many fronts, ranging from the OECD to the USA who opened a Justice Department investigation. The British government has held firm on the matter, however, with no change once Gordon Brown replaced Tony Blair to become Britain’s Prime Minister in June 2007. In September 2007, the wait ended, and the deal for 72 aircraft was done. In August 2008, thre House of Lords ended the remaining legal wrangling by ruling that the Serious Fraud Office had the authority to call the investigation off.

What follows is a partial timeline whose entries contain additional information of interest. More details and links may be found in Appendix A:

Sept 11/07: A deal for 72 Eurofighter Typhoons, and their support arrangements, is concluded. See previous section.

July 17/07: The Guardian: “Diplomatic clash looms with US over BAE arms sale investigation.” That American investigation is still technically ongoing, though progress seems very slow.

June 27/07: Tony Blair tenders his resignation as Britain’s Prime Minister, per an agreement announced a year earlier. Gordon Brown assumes the job because he is the new leader of the Labour Party, which holds a majority in the House of Commons.

June 26/07: The US Justice Department begins its own investigations into the corruption allegations. See: BAE’s position | Prince Bandar of Saudi Arabia and others comment (videos) | The Guardian | MarketWatch | The Times.

Dec 15/06: British officials have dropped their fraud investigations related to the Al-Yamamah deal on two grounds. The first set of grounds is that some of the allegations predate the Anti-Terrorism, Crime and Security Act 2001, which extended the pre-existing law of corruption to the bribery of overseas officials. With respect to allegations covering conduct after 2001, the UK Attorney General had this to say:

“I have, as is normal practice in any sensitive case, obtained the views of the Prime Minister and the Foreign and Defence Secretaries as to the public interest considerations raised by this investigation.

They have expressed the clear view that continuation of the investigation would cause serious damage to UK/Saudi security, intelligence and diplomatic cooperation, which is likely to have seriously negative consequences for the UK public interest in terms of both national security and our highest priority foreign policy objectives in the Middle East. The heads of our security and intelligence agencies and HM Ambassador to Saudi Arabia share this assessment…”

See Defense Aerospace.

Rafale Carrier Landing

French Rafale
(click to view full)

Dec 6/06: The Business online reports that the Saudi government is in talks to buy 36 Rafale fighter jets from the French regardless of how ongoing issues with Eurofighter Typhoon contract are resolved. The Rafale contract would reportedly be in addition to the Eurofighter, not an either-or deal. With support and weapons added in, this could easily be additional $5-15 billion transaction all its own.

Nov 30/06: Jane’s Defence Weekly notes that:

“BAE Systems has conceded that negotiations regarding the sale of the Eurofighter Typhoon multirole combat aircraft to Saudi Arabia have “not exactly moved apace” in recent weeks. The comment came in response to speculation concerning the future of the agreement – reputedly worth up to GBP36 billion (USD69.3 billion) – which pushed down the UK group’s shares on the London Stock Exchange from GBP414.5 pence on 22 November to GBP386.75 pence at the close of trading on 28 November. Continuing UK Serious Fraud Office (SFO) investigations into BAE, including those relating to contracts for services in connection with defence contracts with the Saudi government, prompted media speculation that the Kingdom might withdraw altogether from talks on the Eurofighter deal.”

Nov 19/06 Articles like the Sunday Times “Blair hit by Saudi ‘bribery’ threat” appear in British papers. The reports say the Saudis have threatened to cancel the Al Yamamah contract unless the fraud investigation into Al-Yamamah bribes to Saudi officials is stopped, and notes steps taken in that investigation including legal action to access Swiss bank account information. In general, however, analysts interviewed for other media coverage at this stage tended to doubt that the Al Yamamah orders would be canceled, given BAE’s massive support infrastructure which the Saudis need and could not easily replace. Nonetheless, this certainly reflects increasing tensions.

Aug 17/06: A series of announcements are made re: the signing of an “Understanding Document” between the Saudi & UK governments. This is not a contract, but it does set out agreements in principle re: the structure of the program, industrial benefits in Saudi Arabia, etc. A Saudi Government news outlet puts the deal at 72 aircraft. See releases.

BAE Systems shares climbed 6% shortly after the news of the contract was released in December 2005, and according to The Independent, the August 17, 2006 news sent their shares up by 3% when it was announced.

Dec 21/05: The Saudi and UK governments sign an Understanding Document, which is intended to establish a greater partnership in modernising the Saudi Arabian Armed Forces and developing close service-to-service contacts especially through joint training and exercises.

“Under the terms of the signed document Typhoon aircraft will replace Tornado Air Defence Variant aircraft and others currently in service with the RSAF. The details of these arrangements are confidential between the two Governments.” UK MoD Press release (via Eurofighter GmbH) | BAE Investors Report: Dec 2005 | China’s Xinhua News covers it.

Autumn 2005: BAE refuses to comply when the Serious Fraud Office serves compulsory production notices on the company to obtain details of its secret offshore payments to the Middle East. Source: December 2006 Guardian report.

Sept 28/05: The Guardian newspaper reports that Britain has been in secret discussions with Saudi Arabia over a major arms deal that includes the Eurofighter Typhoon, and is said to be worth up to GBP 40 billion (USD $71 billion, EUR 59 billion). Talks are said to be stalling, however, after Riyadh asked for three “tricky” favors. Read “Eurofighters for Saudis? Only with Eurofavours.”

November 2004: BAE Systems confirms it is being investigated over the Al-Yamamah deal by the Serious Fraud Office (SFO), but strenuously denies any wrongdoing.

Appendix A: From Al-Yamamah to Project Salam

Tornado F3 ASRAAMs

Tornado F3 ADV
(click to view full)

Back in December 2005, Britain’s Independent newspaper added more specifics, calling the deal the third phase of the Al-Yamamah oil-for-planes arrangement, which had previously sold the RSAF 48 Tornado IDS/GR1 strike aircraft and 24 Tornado F3 air defense variants in 1989, and another 48 Tornado IDS aircraft in the 1990s:

“The Saudis are understood to have ordered a total of 72 Eurofighters to replace older aircraft, including Tornado jets bought in the 1980s and 1990s from BAE under the Al Yamamah arms-for-oil deal. The Eurofighter order in effect amounts to the third phase of the Al Yamamah programme, and marks the first time the aircraft has been bought by any country outside Europe… the deal includes a full package of training, through life support, spares and technology transfer, which will at least double the value of the deal and perhaps increase its value by 150 per cent.”

Al-Yamamah added understandings regarding the RSAF’s trainer aircraft fleet, which would include BAE Hawk trainer/ light strike aircraft and PC-9 turboprop trainers and aerobatic aircraft. Those potential orders have yet to be filled, and represent additional potential spinouts from this deal.

The controversy around alleged bribes to key Saudi figures in exchange for the Eurofighter deal shone a bright light on Al-Yamamah, which may explain the decision to continue that framework via an updated protocol called “Project Salam” instead. From the Sept 17/07 UK Ministry of Defense release:

“As per the 1986 MOU the UK MOD will continue for Project Salam to ensure that all equipment, spares, training and technical work supplied by the main contractor (BAE Systems) are in accordance with Saudi requirements.”

In other words, the UK MoD maintains its oversight role, BAE remains to prime contractor, payment remains oil for jets, and the agreement features continued development of the ‘Saudi’ workforce and industrial offsets, as well as long-term maintenance contracts. One is tempted to ask in what meaningful respect “Project Salaam” differs from the Al-Yamamah framework, and whether it would even exist if recent controversies hadn’t turned “Al-Yamamah” into a term both sides wished to bury – even as they seek to keep the relationship alive.

Al Yamamah was always far more than an agreement with a defense contractor. It was a bilateral national agreement made at the highest levels of the British and Saudi governments, with BAE Systems serving as the contracted executor.

To the Saudis, it was a strategic relationship that would allow them to cultivate two foreign sources for its air force, just as it had done by having American-equipped and French-equipped formations in its army.

The agreement wasn’t as strategic to the British, but it did have a national security dimension by cementing cooperation against the Soviet threat. Its huge economic impact on one of the country’s biggest and most important defense firms was more obvious; Britain had sold fighters to the Saudis in the 1960s, but American firms had taken the subsequent contracts in the 1970s and early 1980s (F-5s, F-15C/Ds). These large contracts for BAE would make it far easier for Britain to maintain its own aerospace industrial base.

Tornado IDS GR4

Tornado IDS GR4
(click to view full)

Though the foreign policy landscape has undergone a radical shift since the agreement’s inception in the mid-1980s, national security issues are still playing a role in British-Saudi defense agreements. From the Sept 17/07 UK MoD release:

“The Governments share key objectives on national security and actions to combat global terrorism.”

In the post 9/11 era, Saudi intelligence cooperation on terrorism is cited as a key strategic reason for maintaining special agreements to cement British-Saudi relations. This is somewhat dubious. On the one hand, Saudi intelligence is indeed in position to provide useful information about Al-Qaeda, and may well be doing so.

On the other hand, the kingdom and its members are also known for playing both sides. In some cases, this stems from the beliefs of different individuals within a divided oligarchy. There is also a strong belief that the Saudis have pursued a policy designed to export potential trouble, and therefore serve as protection against local attacks. Additional constraints include internal tribal politics, and by the integral role of Salafist Islamic clergy as the second founding pillar of the Saudi state. To this day, significant funding and support for al-Qaeda continues to come from prominent “golden chain” members in Saudi Arabia; and Saudi financing remains vital for many radical Salafist mosques, who act as al-Qaeda’s key global clearing houses and are active recruiters in countries like Pakistan.

While the unspoken truce between the Saudi state and its radical ‘enemies’ has frayed considerably over the last couple of years, the term “frenemies” from the popular American TV show “Sex in the City” may well be an apt description of the situation from both al-Qaeda’s perspective and the West’s.

“Saudi Arabia continues as an important strategic ally for the United Kingdom in the Middle East, playing a moderating leadership role in promoting regional stability.”

Saudi efforts to finance local counterforces to Iran’s proxy warfare in the Mideast region and beyond are rarely mentioned explicitly, and this excerpt from the UK MoD release is a good example. Nevertheless, they have become a defining feature of the current Mideast environment, and from a British perspective they are a clearer-cut and more obvious form of mutual modern interests on the national security front.

All of these considerations find themselves inextricably intertwined with British-Saudi defense aerospace deals, alongside a Saudi environment that is widely reported to feature bribes as a matter of course if one wishes to conclude key deals.

BAE continues to be a target for investigation in the USA, but the question does arise: if BAE is the executor of a government to government deal in which payoffs were contemplated at the outset, how high does the investigation need to go? Given the reported business culture in Saudi Arabia and the extent of American defense activities there, one may also wonder what the results would be if Britain decided to open an investigation of its own, asking the same questions of the US government and its firms?

With BAE Systems’ acquisition of US firm Armor Holdings complete and official, and the sale of 72 Typhoon fighters to Saudi Arabia concluded with a contract, the US Justice Department finds itself sailing into a highly combustible situation with very little ability to make a difference. Its ability to harm America’s relations with both Britain and Saudi Arabia, however, remains intact and considerable. Bloomberg’s Sept 17/07 report features predictions that BAE’s most serious outcome may now be a substantial fine, but adds that even this outcome may be unlikely.

See also:

The Guardian (Oct 28/06) – The secret Whitehall telegram that reveals truth behind controversial Saudi arms deal. The article asserts that “The MoD documents reveal that the price of each Tornado was inflated by 32%, from GBP 16.3m to GBP 21.5m. It is common in arms deals for the prices of weapons to be raised so that commissions can be skimmed off the top. The GBP 600m involved is the same amount that it was alleged at the time in Arab publications was exacted in secret commissions paid to Saudi royals and their circle of intermediaries in London and Riyadh, as the price of the deal.” Includes original documents mistakenly revealed in a Freedom of Information request:

* Initial “Al-Yamamah” agreement [PDF] signed by Britain and Saudi Arabia in September 1985 (known formally as a memorandum of understanding).
* Telegram from Sir Colin Chandler [PDF], the then head of MOD’s arms sales unit, in January 1986.
* Briefing prepared by the Ministry of Defence for Margaret Thatcher for the Al-Yamamah deal [PDF], September 1985, containing descriptions of key Saudis.
* Minutes of meeting between then defence secretary Michael Heseltine and Prince Sultan [PDF], in September 1985.

* BAE Systems – Project AY. Al-Yamamah page, now defunct. 2007 snapshot.

* BBC (June 26/07) – Timeline: BAE corruption probe.

* The Guardian (Dec 16/06) – Brutal politics lesson for corruption investigators.

* Sunday Times (Nov 19/06) – Blair hit by Saudi ‘bribery’ threat. The report says the Saudis threatened to cancel the Al Yamamah contract unless this investigation stopped, and notes steps taken in that investigation including legal action to access Swiss bank account information. In general analysts interviewed for other media coverage at this stage tended to doubt that the Al Yamamah orders would be canceled, given BAE’s massive support infrastructure which the Saudis need and could not easily replace. Nevertheless, this certainly reflects increasing tensions.

* The Sunday Times (Aug 20/06) – BAE cashes in on GBP 40bn Arab jet deal. “Mike Turner, the plain-speaking chief executive of BAE Systems, Britain’s biggest defence group, let the cat out of the bag at a dinner on the eve of last year’s Paris Air Show. “The objective is to get Typhoon in Saudi Arabia. We have GBP 43 billion from Al-Yamamah over the past 20 years and there could be GBP 40 billion more…” The article pegs the sale at GBP 5.5 billion, with up to GBP 25 billion more for support to 2030.

Appendix B: Saudi Arabia: Dependence & Deployment Options (updated)

F-15 Saudi

Saudi F-15 refueling
(click to view full)

This purchase gives Saudi Arabia the most capable air superiority aircraft in its region. It also dovetails with The Saudi Kingdom’s objectives of moving away from its dependence on American weapons. Their “special relationship” has soured somewhat, due to increased scrutiny from both sides of the American political spectrum of the kingdom’s internal practices, and of its role in funding the worldwide spread of violent Salafist Islamism. From a Saudi perspective, the Al-Yamamah agreements have represented an important step toward that goal of reduced dependence.

The Independent notes that the Al-Yamamah deal has been worth at least GBP 20 billion since its inception (a figure placed as high as GBP 43 billion by other reports), and has included both types of Tornado aircraft. When the Eurofighter deal was signed, Saudi Arabia operated about 120 Tornado aircraft, including both the strike-optimized Tornado IDS (96 aircraft, Scramble places them within 7, 66, 75 & 83 Squadrons at Dhahran on the east coast), and Tornado F3 ADV long-range interceptors (24 planes in 29 Squadron at Tabuk near Jordan).

AIR_Tornado_F3_ADV.jpg

Tornado F3 ADV
(click to view full)

Given the Eurofighter’s current optimization for an air-air role and the continued usefulness of Saudi Arabia’s Tornado IDS strike aircraft, observers are urged to be cautious about assuming that all Royal Saudi Air Force Tornados will be withdrawn from service as the Eurofighters arrive, as some media reports were suggesting. The December 2005 UK Ministry of Defence release said simply:

“Under the terms of the signed document Typhoon aircraft will replace Tornado Air Defence Variant aircraft and others currently in service with the RSAF.”

Note the lack of specificity beyond the Tornado F3s. The Eurofighters could serve at least as well as replacements for the 24 Tornado ADVs of 29 Squadron, but those planes have just finished an important set of upgrades. They now carry long-range, stealthy Storm Shadow cruise missiles, which the Eurofighters can’t use until 2015 or later. Until that changes, the Tornado ADVs aren’t going anywhere.

Initial Eurofighter deployment has been with 3 Squadron at Taif, slightly inland from Jeddah. 10 Squadron will be activated there as more Eurofighters arrive. Scramble now reports that Taif’s elderly American-built F-5/RF-5 Tiger IIs of 17 Squadron aren’t considered to be operational, which makes 17sq the logical destination for the 3rd Eurofighter squadron set.

The RSAF’s 62 Boeing F-15 C/D Eagle air superiority fighters acquired during the 1980s are due for a replacement, and the March 2012 order for 84 F-15SA Strike Eagles will provide a strong strike capability as well. The F-15SAs will be the world’s most advanced F-15s when they’re fielded, though their reign may be short if South Korea decides to field the stealth-enhanced F-15SE Silent Eagle.

Saudi Arabia also has 72 F-15S downgraded Strike Eagle variants delivered under the Peace Sun IX contracts, but a December 2011 contract has begun upgrading them to become F-15SAs as well.

Appendix C: Analysis – Effects on the Eurofighter’s Export Prospects (updated)

AIR SU-30MKI Eurofighter Tornado-F3

SU-30MKI, Typhoon, F3
(click to view full)

Although it has not been completely shut out on the export front like the French Rafale, the Eurofighter has also lost its share of potential export orders beyond its initial consortium partners: Australia (F-35 JSF), Czech Republic (JAS-39 Gripen), Greece ( F-16 block 52), The Netherlands (F-35A or JAS-39NG), Norway (F-35A or JAS-39NG), Poland (F-16 block 52), Singapore (F-15SG), and South Korea (F-15K).

Austria’s order had been small and inconsequential, so the Saudi order thus provided an important boost for the Eurofighter on the export front. Even so, the length of Saudi coat-tails remains uncertain, given the segmentation of the global fighter market described in DID’s analysis of the Singapore contract decision. As one example, Switzerland picked the medium-cost JAS-39E Gripen NG over the high-cost Rafale or Eurofighter.

Western abandonment of the low-end fighter segment has left several major vendors competing for a smaller slice of the global market, which means more intense competition at the market’s high end. Since the Saudi buy, India has picked the Rafale over Eurofighter as its preferred bidder for the MMRCA contract. Brazil didn’t even shortlist the Eurofighter in its (now delayed) F-X2 competition, though the Rafale, Super Hornet, and Gripen all made the cut. Japan has signed a contract to begin replacing its F-4J Phantoms with the F-35A, instead of buying Eurofighters.

Phase 3 of South Korea’s F-X competition is still alive, and the Eurofighter is touted as the main competitor against Boeing’s stealth-enhanced F-15SE Silent Eagle. The ROKAF already has a fleet of 60 Strike Eagles, and the prospect of upgrades to an all-SE force make the Eurofighter a dark horse competitor.

The Saudi buy is more helpful in the Middle East. Oman took awhile, but 2012 saw them continue their long defense relationship with Britain and buy 12 Eurofighters. BAE’s foothold in Oman and Saudi Arabia gives them a stronger regional attraction within the Gulf Cooperation Council. The Typhoon moved in to become the Rafale’s main competitor for a 60-fighter buy in the UAE, and a win there could have tipped the scales in a number of other local buys. Even without that win, the Eurofighter will remain competitive in Qatar (currently Dassault Mirage 2000-5s) and Kuwait (currently Boeing F/A-18C/D Hornets). Bahrain’s 22 F-16C/Ds were bought in 1987 and 1998, and they have also begun talks concerning a potential buy.

Additional Readings

Readers with corrections or information to contribute are encouraged to contact editor Joe Katzman. We understand the industry – you will only be publicly recognized if you tell us that it’s OK to do so. Thanks to readers Guy Cramer and Eric for their update tips.

Eurofighter Typhoons, & the RSAF

* DID – Eurofighter: Tranche 3, and Beyond. Explains the Eurofighter’s production arrangements and history, and where the Saudi orders fit in.

* DID – Saudi TSP: Tornado Upgrades, incl. Storm Shadow’s Stealth Strike. Via a $4.66 billion deal. It’s part of the same overarching relationship with Britain.

* DID – The Saudis’ American Shopping Spree: F-15s, Helicopters & More. Are the proposed 84 new F-15SAs just price pressure for more Typhoons, or a serious F-15 fleet expansion? Very serious, as it happens, and other Saudi buys will also affect the Typhoon fleet’s operating and training environment.

News & Views

* Arabian Aerospace (Jan 21/12) – Bahrain 2012: RSAF driving Typhoon forward. “…Both are ex F-15 Eagle pilots, and though both point out that the F-15 remains an impressive and capable fighter, the Typhoon enjoys a significant and decisive edge.”

* Arabian Aerospace (Feb 1/11) – Phoon a friend? Looks at the Typhoon’s initial assessment, the behind the scenes negotiations as the type enters service, and what happened to that rumored follow-on order.

* Arabian Aerospace (April 29/09) – Saudis countdown to Typhoon service entry.

* Tribune-Libanaise (June 22/06) – The Geopolitics of Weapons Procurement in the Gulf States. Excellent analysis.

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