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The weekly said a senior BAE executive authorised the payment to Prince Bandar bin Sultan's daughter and her husband to enjoy a six-week break in Singapore, Malaysia, Bali, Australia and Hawaii.
It quoted Peter Gardiner, the managing director of the travel firm that arranged the trip, as saying: "BAE instructed me to give Bandar's daughter and her husband the honeymoon of a lifetime at BAE's expense.
"Who says that big business doesn't have a heart?"
It was not clear whether Gardiner spoke directly to the newspaper but Gardiner has previously spoken out in the long-running claims surrounding BAE Systems attempts to secure defence contracts with the oil-rich Gulf kingdom.
A BBC television investigation broadcast in October 2004, citing Gardiner, alleged that Prince Turki bin Nasser, whose son Prince Faisal bin Turki married Bandar's daughter Reema, was the main beneficiary of BAE's millions.
Prince Turki, who was at the time head of the Saudi air force, and his family enjoyed about £2m worth of luxury hotels, limousines, flights and security at BAE's expense, Gardiner told the BBC at the time.
BAE Systems had been under investigation in Britain for allegedly setting up a £60m slush fund to secure continued business after the Al-Yamamah deal in 1985, which provided Hawk and Tornado jets for the Saudis.
But the investigation was shelved last December. The government's most senior law adviser, Attorney General Lord Peter Goldsmith, said to continue could have harmed Britain's national and international interests.
British Prime Minister Tony Blair has supported the move, but the Paris-based anti-corruption watchdog the Organisation for Economic Cooperation and Development said it had "serious concerns" about the probe being dropped.
The Guardian newspaper in Britain has alleged that BAE secretly transferred more than $1bn to accounts controlled by Prince Bandar, who was at the time Saudi Arabia's ambassador to Washington.
It alleged that BAE bought the prince a top-of-the-range Airbus airliner worth £75m and was still paying the costs of flying it.
Both BAE and the prince, who The Guardian said received funds in US accounts for at least 10 years, have strenuously denied any charges of wrong-doing.
