The Eurofighter Sought by the Saudis

Tony Blair and John Reid, the defence secretary, have been holding secret talks with Saudi Arabia in pursuit of a huge arms deal worth up to £40bn, according to diplomatic sources. But the Saudis want the corruption investigation implicating the Saudi ruling family and BAE be dropped

Tony Blair and John Reid, the defence secretary, have been holding secret talks with Saudi Arabia in pursuit of a huge arms deal worth up to £40bn, according to diplomatic sources.

Mr Blair went to Riyadh on July 2, en route to Singapore, where Britain was bidding for the 2012 Olympics. Three weeks later, Mr Reid made a two-day visit, when he sought to persuade Prince Sultan, the crown prince, to re-equip his air force with the Typhoon, the European fighter plane of which the British arms company BAE has the lion's share of manufacturing.

Defence, diplomatic and legal sources say negotiations are stalling because the Saudis are demanding three favours. These are that Britain should expel two anti-Saudi dissidents, Saad al-Faqih and Mohammed al-Masari; that British Airways should resume flights to Riyadh, currently cancelled through terrorism fears; and that a corruption investigation implicating the Saudi ruling family and BAE should be dropped. Crown prince Sultan's son-in-law, Prince Turki bin Nasr, is at the centre of a "slush fund" investigation by the Serious Fraud Office.

The Saudis have been trying for years to get their hands on Mr Faqih, who they say was involved in a plot to assassinate the recently enthroned King Abdullah. Mr Faqih, who has asylum, denies support for violence, and privately neither the Foreign Office nor the security services regard him as a danger to Britain. Mr Masari fled Saudi Arabia in 1994, and the Major government made an unsuccessful attempt to exile him to the Caribbean island of Dominica under pressure from BAE.

The Typhoon, currently entering service with the RAF, has a price of more than £45m a plane. Saudi Arabia previously bought a fleet of its predecessor Tornados from Britain in the Al Yamamah arms deal. Mike Turner, the chief executive of BAE, Britain's biggest arms company, was quoted in Flight International magazine on June 21, just before Mr Blair's Riyadh trip, saying: "The objective is to get the Typhoon into Saudi Arabia. We've had £43bn from Al Yamamah over the last 20 years and there could be another £40bn."

There is concern within the Foreign Office at the apparent partiality of No 10 to BAE's commercial interests. Jonathan Powell, Mr Blair's chief of staff, and his brother Charles, Lady Thatcher's former adviser and now a BAE consultant, are believed to be in favour of the deal.