BAE Systems will clinch a £20 billion deal to supply 72 Eurofighter Typhoon jets to Saudi Arabia next week.

It is understood that the British Government sent the Typhoon contract to King Abdullah bin Abdul Aziz two days ago. The King is expected to sign the contract next week, sealing one of the largest export orders ever won by the UK.

BAE led the FTSE 100 risers this morning as shares jumped by 4 per cent to 466.25p.

Completion of the deal will be an enormous relief to BAE, Europe’s largest defence company, as negotiations have dragged on for a year and were nearly derailed by a Serious Fraud Office (SFO) investigation into the company’s dealings with Saudi officials.

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A long and lucrative relationship

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The Typhoon deal will be called al-Salam, meaning “peace”, and defence analysts said that it would be vital to building closer military links with Saudi Arabia.

Last year the Saudis threatened to drop the deal as the SFO investigated allegations of corruption in an earlier contract for Tornado jets. The Saudis also gave warning that they would suspend all security and terrorism cooperation if the SFO attempted to access Swiss bank accounts of Saudi royalty.

The SFO investigation was halted by the British Government and senior ministers are understood to have travelled to Saudi Arabia this year to ensure the deal was completed.

Al-Salam is expected to break down into an initial £5 billion contract to supply the fighters, a further £5 billion to be spent on munitions and armament systems, and the remaining £10 billion to come from through-life maintenance of the jets.

BAE is building a large operation in Saudi Arabia in preparation for Typhoon deliveries and now employs 4,600 people there. The first 24 Typhoons are likely to be built at BAE’s factory in Warton, Lancashire, and the remaining jets will be assembled in Saudi Arabia.

The completion of the contract negotiations indicates that the Saudis have put aside their concern over the SFO investigation. However, they are not expected to make a formal announcement of al-Salam’s completion, partly out of concern that past corruption allegations will resurface.

A plan to have King Abdullah sign the contract in London during his state visit in October has been dropped.

The renewed cooperation between the UK and Saudi Arabia could lead to other big contract wins for BAE.

It is understood that Saudi officials have been invited on board Daring, the first of six new destroyers being built by BAE for the Royal Navy. The Saudis will join the warship for sea trials, which are currently taking place off the north coast of Scotland. They are thought to want to buy at least two of the £600 million vessels.

BAE’s links with Saudi Arabia go back to 1966, when the UK sold Lightning aircraft to the kingdom. In 1984 Britain signed the landmark al-Yamamah deal to supply Tornado jets and other military equipment.

Al-Yamamah remains the largest export order won by the UK and has been worth more than £43 billion to BAE. Its successor, al-Salam, is expected to last at least 20 years as BAE maintains and upgrades the Typhoons. The British Government had hoped to finalise the Typhoon deal in June but the Saudis pushed back completion to ensure that Gordon Brown endorsed it as the new Prime Minister.

A spokeswoman for BAE said: “This is a government-to-government negotiation and we are unable to make any comment on it.”

The Ministry of Defence made its usual statement in relation to the Typhoon deal, saying negotiations were continuing.

The Eurofighter is one of the most advanced fighter jets in the world and is built by a consortium of European defence companies It is a joint venture between the UK, Germany, Italy and Spain and was first proposed in 1985.

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