Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Typhoon Hits England

In a slight modification of the old maxim, let's call this a "higher they fly, harder they fall" story. Earlier this week, the deal that helped inflate British bomber-builder BAE Systems late last year -- a contract to sell 72 Typhoon-class Eurofighters to Saudi Arabia -- fell into serious jeopardy at the hands of . BAE Systems.

As Reuters and others have reported, Britain's "Serious Fraud Office" -- think of our SEC and DOJ rolled into one, and you'll get an idea of its power -- is investigating whether BAE officials bribed members of the Saudi royal family to win the contract. The Saudis are understandably less than pleased to learn of this, but whether that's because they disapprove of bribery, or of being embarrassed when caught accepting bribes, is less than clear.

What is clear.
BAE now looks at risk of losing the contract that gave its stock a hefty 6% boost last December. Encouraged by the news, France's Dassault Aviation is lobbying furiously to take BAE's place in line, and sell to the Saudis six dozen of its Rafael fighter jets in the Typhoon's stead.

. And what is not
Back within the fog of this corporate war, however, the details of exactly who benefits from this deal, and who gets hurt by it, remain murky. That's nothing new, though. Back when the original deal was announced last year, the BBC valued it at a whopping $90 billion. That would be a pretty pence to pay if each Typhoon were truly fetching $1.25 billion.

Whatever the true amount, it wouldn't all have gone to BAE anyway. At the time, Morgan Stanley put the deal's value at $12 billion to $14 billion for BAE, with the balance going to its Eurofighter partners, including EADS and Italy's Alenia Aerospazio. The confusion continues in this week's news, with various reports pegging the value of the deal anywhere from $12 billion to $147 billion.

Making cents of it all
The truth likely goes something like this: According to a U.K. Defence Ministry statement, the BAE sale was "intended to establish a greater partnership in modernizing the Saudi Arabian armed forces." The $147 billion price tag presumably refers to the overall, long-term value of this and future contracts to whomever ultimately lands this Saudi business. If we assume that's the true meaning of the blockbuster figure, and take the Morgan Stanley estimate as a sort of happy medium for an initial 72-plane installment, the Typhoons would appear to be fetching a more reasonable $194 million per plane.

What's it mean to investors?
Getting down to brass tacks, here's what interested Fools need to know. First, BAE risks losing significant revenues. Second, Dassault seems poised to capitalize on BAE's troubles. Third and finally, a win by Dassault won't be all it seems on the surface; as a co-owner of EADS, BAE's partner in building the Typhoons, it would have gotten a piece of the action in any case. This week's news, therefore, is simply that Dassault might get more of the action than we originally thought.

Want to know more about the world's great plane-makers? We've recently covered BAE rivals Northrop Grumman (NYSE: NOC  ) , Lockheed Martin (NYSE: LMT  ) , and Boeing (NYSE: BA  ) .

Find the world's best stocks with a free 30-day trial to our new, internationally focused newsletter service,Motley Fool Global Gains.

Fool contributorRich Smithdoes not own shares of any company named above. The Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 517669, ~/Articles/ArticleHandler.aspx, 10/22/2016 4:03:40 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 18 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:03 PM
BA $135.63 Down -0.21 -0.15%
Boeing CAPS Rating: ****
LMT $230.52 Down -1.31 -0.57%
Lockheed Martin CAPS Rating: ****
NOC $215.86 Down -1.50 -0.69%
Northrop Grumman CAPS Rating: ****