DEFENCE giant BAE Systems said demand for fighter jets from Saudi Arabia should offset sluggish UK and US government spending as it forecast double-digit earnings growth this year.

The group is pinning its hopes on successful talks with the Kingdom of Saudi Arabia over higher prices for a historic contract for 72 Eurofighter Typhoon jets, which is assembled at its Samlesbury plant.

Underlying earnings fell six per cent to £865million in the first six months of the year, while sales dipped one per cent to £8.5billion on weaker government spending.

But shares in the group were up 3 per cent as BAE said a 'satisfactory conclusion' to the Saudi Salam Typhoon talks, plus a £1billion share-buyback programme, would mean earnings per share rise at least 10 per cent for the full year.

Deliveries of Typhoon jets to Saudi Arabia had stalled over the negotiations, but BAE said they resumed in April with four more jets delivered by July. It has now delivered 28 of the aircraft and expects to hand over six more by the end of the year.

The Saudi deal was signed in 2007, and said to be worth £4.5 billion at the time, but BAE always expected to renegotiate prices mid-way through the contract based on higher parts and labour costs. The initial contract was based on 2005 prices.

BAE boss Ian King said: “In terms of Salam, we do expect that we will close this out in the second half."

Mr King added the group is also hopeful of an order for more Typhoons from Saudi Arabia.

In June BAE also signed a £1.8 billion contract to support the Saudi Typhoons to 2017.