KEY POINTS:
Saudi Arabia is believed to be about to cancel a £10 billion ($29 billion) deal for British-built Eurofighter Typhoon jets and buy a French aircraft instead because of a long-running fraud inquiry into its relationship with BAE Systems.
Sources close to the negotiations say the Saudis could decide to order between 24 and 36 Rafale fighters from Dassault, of France.
Such a move would be a huge blow to Britain's defence industry and the 50,000 jobs that depend on the Eurofighter programme.
Apart from BAE Systems, which employs 9000 people at Warton in north-west England making the Eurofighter, other big companies such as Rolls-Royce and Smiths Group would also be badly affected.
BAE shares fell 3 per cent yesterday.
The Saudis are understood to be furious at Britain's failure to close a Serious Fraud Office investigation into allegations that a £60 million ($173.7 million) slush fund was used to bribe members of the Saudi royal family.
The investigation began three years ago and has spread to UK arms contracts involving South Africa, Romania and the Czech Republic.
The final straw is understood to have been the SFO's decision to investigate Swiss bank accounts said to be linked to payments to members of the Saudi royal family.
"This isn't sabre-rattling any longer. The sabre is out of its scabbard and is being brandished over our heads," one UK defence source said.
"The Saudis are serious about switching to the French and it could happen in the next 24 to 48 hours."
The British Government announced the deal with the Saudis just under a year ago and signed a memorandum of understanding with the kingdom two months ago.
The Saudis agreed to buy 72 Eurofighters to replace Tornado jets bought in the 1980s and 90s from BAE.
Britain's ambassador to Saudi Arabia, Sherrard Cowper-Coles, is understood to have been working frantically to save the deal. He met the Saudi Defence Minister, Crown Prince Sultan, over the weekend.
The embassy in Riyadh said it could not interfere in or prejudice the SFO investigation.
But it is thought to be deeply concerned about the damage it is doing to trade relations between the UK and Saudi Arabia.
The French have never given up hope of snatching back the Saudi contract from Britain and they have been making representations at the highest level in Riyadh.
- INDEPENDENT
