BAE Systems (OTCPK:BAESY) (OTCPK:BAESF) announced today that it has secured a £1.7bn ($3bn) deal to provide Hawk trainer jets to Saudi Arabia. The deal also includes simulators, ground and training equipment and spare parts.
A Saudi defence ministry official, quoted by news agency SPA, said the deal would help its pilots "to use fourth generation jet fighters in full professionalism and efficiency."
The £1.7bn deal follows on from the one secured in 2007, by BAE Systems, when Saudi Arabia ordered 72 Eurofighter Typhoon fighters (24 of which have been delivered to the Royal Saudi Air Force) in a deal valued at £21bn (£32.9bn) - the contract to build the remaining 48 jets has been signed but changes to the price of the deal has yet to be agreed.
Earlier this week, the UK government awarded BAE Systems with a £328m ($518m) nuclear submarine contract to design UK's next generation of submarines. The vessels are intended to replace the Vanguard class of submarines, which carry the Trident nuclear missiles.
Britain is committed to renewing all its Trident submarines at a cost of around £20bn ($31.3bn). The Vanguard successors are due to be delivered to the Royal Navy from 2028.
F35 Joint Strike Fighter
Earlier this month, the UK government reversed a decision on the type of fighter jet it will buy in a multi-billion dollar weapons programme. Britain will now opt for the jump-jet variety of the F35 Joint Strike Fighter (F-35B), built by U.S. firm Lockheed Martin (NYSE:LMT).
Lockheed is developing the multi-role stealth F-35 for the U.S. military and eight international partners at a projected cost of around $396bn.
The F-35B model can take off from shorter runways and land like a helicopter. The airplane does not require a catapult and arrester wires to be fitted to UK's new aircraft carriers being built.
The United Kingdom currently has no aircraft carriers and is awaiting delivery of two new ships, both being built by BAE Systems. Britain plans to operate 12 F-35B jets from any one carrier. Britain has so far placed a firm order for three F-35B test and evaluation aircraft costing $632m, and is due to receive its first F-35B in two months.
Earlier in March, I reviewed BAE Systems in some depth, and while the above is all good news, in particular in these rather constraint times for military equipment manufacturers the real difference in results this year will be if and when:
1. BAE Systems announces the conclusion of negotiations with Saudi Arabia over the price for the remaining Typhoon jets in 2012, and/or
2. the exclusive 'final' talks between the Indian government and France's Dassault Aviation, the maker of the Rafale fighter, jet falls through opening the door for the re-entrée of the Eurofighter consortium.
BAE Systems is one of our 6%+ dividend yielders
BAE Systems is one of a rather select group of FTSE100 6%+ dividend yielders on which I reported earlier. In fact at the current share price of £2.74, BAE Systems' forward yield is 6.9%, while its dividend cover is around 2.4
Disclosure: I am long OTCPK:BAESF.
Additional disclosure: We run the Dividend Income Portfolio, which owns a shareholding in BAE Systems Plc, purchased when the shares were historically undervalued as per our valuation methodology