Typhoon in Saudi Arabia

Shares of British defense conglomerate BAE Systems (Pink Sheets: BAESY) soared more than 6% yesterday. Their 22.25 pence rise in London brought the firm's local shares to a high not seen since June 2002, but for some reason, the firm's ADRs trading in the U.S. benefited from just a 4.7% gain.

The reason for the rise in shares and ADRs both: As part of European defense consortium EurofighterGmbH, BAE stands to rake in about 10% of the revenues from a reportedly enormous sale of Typhoon class fighter jets to the Kingdom of Saudi Arabia.

How big is enormous? Since the deal's terms are considered "confidential," it's not easy to say. In fact, even the number of aircraft to be supplied is not known for certain. The BBC, however, puts the total deal size at $90 billion, of which Morgan Stanley (NYSE: MWD  ) has reportedly put BAE's take at $12 billion to $14 billion. British newspaper The Guardian seconded that estimate, reporting that BAE would collect $14 billion in revenues and putting the (presumably just initial) order size at 72 planes.

Back on our own shores, American defense giants such as Lockheed (NYSE: LMT  ) and Boeing (NYSE: BA  ) are likely grumbling into their coffee this morning, wishing that they could have gotten a piece of this deal. After all, Saudi Arabia already uses long-range F-15S fighters manufactured by Boeing -- couldn't they have found room on the tarmac for a few dozen F-15E strike fighters?

But really, although it would have been nice to see the U.S. companies win this contract, the fact is that although they didn't gain any ground in Saudi Arabia yesterday, neither did they really lose ground. The Typhoons to be shipped over the coming years will be used to replace not American F-15s, but old British Tornado and Hawk aircraft that BAE already supplied.

This, then, looks to be one of those happy instances where one company (BAE, and its collaborators, EADS and Italy's Alenia Aerospazio, of course) won big, but nobody lost.

The Military Channel fans are welcome to discuss this further on the Fool's Aerospace and Defense discussion board.

Fool contributorRich Smithhas no ownership interest in any of the companies mentioned in this article (but he thinks their products are way cool).


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