BAE Systems has denied a report that it is in talks with Saudi Arabia about the sale of Typhoon Eurofighter jets.

The Observer newspaper said that the company was in talks with Saudi Arabia about the sale of 50 jets in a deal worth at least �1.5bn ($2.3bn).

And the paper added that Saudi Arabia might make some of the payments for the jets through oil shipments, similar to the al-Yamamah oil-for-arms deal struck in the 1980s.

But a BAE Systems spokesman told BBC News Online that while there were quite a lot of potential customers for the plane, it was not currently in talks with Saudi Arabia.

Tough times

Earlier this month BAE Systems shocked investors when it reported a 25% fall in half-year profits.

The company blamed production delays and shipbuilding losses for the worse-than-expected figures.

BAE also said that its intention of returning to profit growth in 2003 depended on a spending review by the Ministry of Defence.

The Observer said that BAE's finances will be helped when Britain begins to take delivery of 232 Typhoon fighters by the end of this year.

Swedish links

BAE Systems also denied that it was trying to strengthen its ties with the Swedish aircraft maker Saab.

The Observer had reported that BAE might seek to increase its 35% stake in the company, which it bought three years ago.