BAE Systems’ £20 billion contract to supply Eurofighter Typhoons to Saudi Arabia will be delayed until October as the Saudis seek to develop closer ties with Gordon Brown, the incoming prime minister.

The deal for the 72 fighter jets is understood to be nearly complete but is being held up by diplomatic wrangling.

It had been scheduled to be signed by the British and Saudi governments this month, but that slipped to July when Tony Blair announced that he was stepping down. The deal has now been put off until October because defence sources say that the Saudis want a better relationship with Gordon Brown, who becomes prime minister this week, before committing to such a large contract. They see the Typhoon deal as key to cementing diplomatic and military relations with the UK.

Officials are understood to be in talks over setting up meetings between senior Saudi royals and Mr Brown in Riyadh and London.

Background

• MoD names Thales and Boeing as ‘battlespace’ team

• Eurofighters go to Saudi Arabia in £4.4bn order

• MoD seeks a way out of Typhoon contract

• Armor wins $4bn contract with US military

• Arms companies showcase latest technology

A long and lucrative relationship

King Abdullah to make his first state visit to London

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There are also complex protocol arrangements being discussed because King Abdullah bin Abdulaziz, the Saudi ruler, is thought to want to sign the contract himself. It has not yet been agreed whether this will take place in Britain or Saudi Arabia.

Having spent the past ten years in the Treasury, Brown is largely unknown to the Saudi hierarchy. Its members prefer to develop close personal relationships before embarking on a business deal.

The negotiations over the Typhoons have become even more important in recent months as the Saudis want a demonstration of loyalty after allegations emerged that Prince Bandar, nephew to the king, had received payments of more than £1 billion from BAE. These payments are alleged to be part of the £43 billion Al Yamamah oil-for-arms deal between Britain and Saudi Arabia, which was first signed in 1985. Prince Bandar was a key architect of this deal to supply 120 Tornado jets and other military equipment.

A Serious Fraud Office investigation into Al Yamamah was shut down last December by Downing Street amid fears that it would damage relations with Saudi Arabia. The Saudis also threatened to drop the Typhoon deal in favour of the French Rafale fighter.

The only other part of the Typhoon deal that is yet to be concluded is what armaments the jets will carry. The contract is likely be signed without this agreed as the aircraft will take several years to build at BAE’s Warton factory in Lancashire.

The Saudis are pushing to equip both their Tornados and Typhoons with Stormshadow missiles, but these are among the most sophisticated weaponry in the world and the Ministry of Defence is thought to be unwilling to export them.

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