On the 21st of December, BAE Systems PLC informed that it has agreed a deal to supply 20 aircrafts to Oman. A deal worth £2.5 billion, or over $4 billion, is expected to protect thousands of jobs in the United Kingdom.
BAE – Oman deal
The contract includes delivery of 20 aircrafts -12 Typhoon and 8 Hawks. The significance of the deal was underlined by BAE Systems PLC as the company expressed its confidence that the contract would support its expansion strategy in international markets and export business as well.
According to a statement, production of ordered aircrafts is said to start in 2014. Furthermore, the company also highlighted growing interest in the Typhoon and Hawk aircraft.
BAE Systems PLC is satisfied with the deal with Oman as it means that the cooperation between those two parties is successful, according to Guy Griffiths who is group managing director for BAE Systems’ International business. In addition, the company is strongly convinced that Oman made an excellent choice by deciding to acquire 12 Typhoons and 8 Hawks which are said to be the most advanced aircrafts in the world.
However markets were more pessimistic about the contract. After the announcement, BAE Systems PLC saw its shares drop approximately 2 percent.
The deal means that Oman becomes the seventh operator in the world, and the second one in the region of the Middle East, of the Typhoon. To date, the United Kingdom, Germany, Italy, Spain, Austria and Saudi Arabia have been in possession of the BAE Systems PLC’s aircrafts.
BAE in limbo
Just on the 19th of December, BEA informed that the £4.5 billion contract to supply Saudi Arabia with as many as 72 Typhoon fighters was delayed as some disagreements over the final price occurred. Therefore the company was forced to warn that it would reduce full-year underlying earnings-per-share if the deal was not reached by the 21st of February 2013.
But not only problems revolving around the contract with Saudi Arabia are beleaguering BAE Systems PLC as the company needs to find its place after the plan of the merger with EADS collapsed. The merger with EADS had been awaited by the company as cuts in defense spending have triggered the more competitive conditions in the market. The merger was aimed at minimizing any effect of budgets cuts in military spending. Therefore the company is under pressure to develop a different expansion strategy. Analysts note that the company is now looking for ways to win contracts in other markets such as the Middle East. It seems that its new strategy is bearing fruits as the company informed that the United Arab Emirates was interested in ordering as many as 60 Typhoons.
However the deal to supply Oman with its aircrafts is expected to secure as many as 6,000 high technology and engineering jobs. It is worth underlining that not only jobs at the BAE Systems PLC will be safeguarded but also posts in other companies which form the so-called supply chain.