BAE lands arms deal for a new generation

Sir Richard Evans, 64, rotund former chairman and chief executive of BAE Systems, can finally hand in the keys to BAE's executive loo. The signing of the third government-to-government contract to provide a new generation of fighter aircraft and other military hardware for Saudi Arabia marks the culmination of efforts by the Blackpool-born business bruiser to help win huge and contentious business for BAE Systems from the oil-rich desert kingdom.

He was instrumental in oiling the negotiating wheels for Al-Yamamah 1 and 2 - deals to provide 120 Tornado aircraft, trainer jets and minesweepers along with back-up - and since being retained as a consultant after surrendering executive power has hovered influentially in the background for Al-Yamamah 3, providing fatherly advice to the BAE team hammering out the new deal for 72 Eurofighters.

The deals have been surrounded with Fort Knox-style defences to deter the inquisitive, allegations of bribes and dubious commissions paid to a network of vested interests involved as major and minor players, and efforts by MPs to uncover the detailed terms of the biggest defence contracts ever won by British companies.

Sir Richard and BAE have regularly and consistently argued that the company has been squeaky clean in observing the rules of the game. Allegations that other players were involved have drawn strong denials from the likes of Sir Mark Thatcher, son of the former Prime Minister, and Wafic Said, the Syrian-born multi-millionaire. Mr Said was alleged to have been "landlord" to some of the key executives in the deal.

Doing business the Saudi way is never simple. The insistence on secrecy, the Islamic code of business conduct and the complexity of the House of Saud produced frustration, delays and a mountain of bureaucracy tainted by allegations of corruption. Sir Richard demonstrated patience and gastronomic fortitude in hosting an almost unending series of dinners, providing entertainment for a stream of visitors and ensuring the niceties of Saudi culture were observed as well as looking after BAE's interests.

The oil-for-arms basis of the first deals only served to add to the mysterious workings of Al-Yamamah. BAE was "paid" in oil produced by Saudi outside its Opec quota and sold in the market by BP and Shell. The switch from oil to cash as the basis for the third deal has been influenced by a Saudi anti-corruption drive and a recognition that the slush funds associated with other Saudi arms contracts have helped finance terrorism. There is also a recognition that Al-Yamamah - which means The Dove - is hardly appropriate for defence contracts. There is nothing "dovish" about destructive weapons.

All told, the first two contracts have provided a bonanza for British defence companies. Mike Turner, BAE's aggressive chief executive and Evans' long-time protégé, has lifted the curtain tantalisingly, disclosing that they have provided £40bn worth of business over a 20-year period. BAE has accounted for the lion's share but scores of supply companies have benefited.

The third contract is a considerable coup for the industry. There are uncertainties, however, about whether it will ever produce a repeat of the margins enjoyed in the first and second contracts. The Eurofighter is more complex and untried than the ancient Tornado and the Saudis have insisted on a greater input from BAE and its partners to increase local content and strengthen the Saudi defence industry.

BAE and the Government have been accommodating, helping to fight off competition from American and French rivals wanting to dip into the Saudi defence honeypot. They have benefited from a regime anxious to avoid becoming too dependent on American suppliers and technology and risk being hit by an Israeli-influenced embargo as well as a fruitful 20-year relationship.

The first deal in the Al-Yamamah series was signed in 1985 by Lord Heseltine, the then Defence Secretary, when the Government and BAE were desperately seeking business, Saudi was nervous about American intentions and Britain was willing to offer favourable terms. The Tornado, a product of a British, Dutch, German and Italian partnership, was hardly in the forefront of fighter technology - it started service with the RAF in 1979 - but the versatility that enabled it to take off from short or damaged runways appealed.

The first delivery of 72 Tornados and 50 Hawk trainers started in 1989, followed by the second phase of 48 Tornados and 20 Hawks from 1990-98, a badly needed follow-up contract that saved the Warton plant in Lancashire and 19,000 BAE jobs. At peak, BAE had 6,000 people working in Saudi but the numbers have fallen with the "Saudisation" of support services and a programme aimed at increasing development of local businesses.

In between, the ethical dimension of contracts that had bolstered the arms industry came under close scrutiny. Allegations of bribes and illicit commissions resulted in the National Audit Office delving into the Al-Yamamah contracts and producing a report that was effectively blocked by Robert, now Lord, Sheldon, former chairman of the powerful Commons Public Accounts Committee.

Mr Sheldon carried out his own, almost personal, investigation in an effort to avoid leaks. He closeted himself with Lord, then Sir Michael, Shaw, senior Tory member of the PAC, to examine the allegations. He said later: "The two of us operated as a PAC. If there were matters that showed somebody had made big commissions - there were one or two important people in the public news who were supposed to have made great fortunes out of the contract - and if I had found them they would have gone straight back to the PAC and we would have produced a report upon those matters.

However, we did not do that. We found that there was no evidence of anything like that." He added: "I was able to produce a report that showed that there were certain things that had to remain strictly confidential, strictly secret...."

Nothing has changed. There were precious few details about the terms and conditions tied to the Eurofighter contract available yesterday.

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