BAE, hit by defense cuts, pins hopes on Mideast jet sales

Oct. 25, 2013 at 3:20 PM
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ABU DHABI, United Arab Emirates, Oct. 25 (UPI) -- BAE Systems, Britain's leading defense company with major interests in the United States, is counting on securing big fighter jet sales in the Middle East to see it through the hefty cutbacks in U.S. and European military spending.

Potential deals in the Persian Gulf, where major defense contractors are seeking big-ticket contracts from the jumpy oil-rich Arab monarchies include the sale of 60 Eurofighter Typhoons to the United Arab Emirates as it faces off against Iran.

BAE is also pressing to close long-running negotiations with Saudi Arabia over the pricing of 72 Typhoons with weapons systems it sold the kingdom under the al-Salaam contract signed Aug. 18, 2006, with an eventual estimated value of $16.2 billion.

Riyadh may also be in the market for 72 more although it is buying 84 Boeing F-15s under a 2010 U.S. arms package worth $67 billion, with upgrades for older F-15 variants it already possesses.

It is unclear whether U.S. President Barack Obama's efforts to secure a rapprochement with Iran, and end 34 years of confrontation that has dominated U.S. Middle East policy will jeopardize the prospects for these defense deals.

If Tehran agrees to abandon its controversial nuclear program, a reconciliation could give the gulf states pause before signing on the dotted line for combat jets worth tens of billions of dollars.

But since Saudi Arabia and its regional partners bitterly oppose any rapprochement with their main regional adversary, they may be inclined to acquire the most advanced weapons available.

BAE Systems, recovering from the 2012 collapse of a potential $25 billion merger with European aerospace giant EADS, has warned its earnings could suffer a larger than expected hit if the protracted negotiations with Riyadh, under way for more than two years, extend into 2014.

The Typhoon is built by the German and Spanish arms of EADS, BAE Systems and Finmeccanica of Italy. BAE heads the marketing operation.

The United Arab Emirates is in the market for as many as 60 Typhoons to replace its fleet of aging Mirage 2000 fighters built by Dassault Aviation of France. But Dassault is offering its agile multirole Rafale and the Emirates may just stick with Dassault.

"If we win in the Emirates, this could have a snowball effect across the Middle East," BAE chief executive Ian King declared in August as the company signaled an "emphasis shift" in improved prospects outside its traditional Western markets.

"This isn't a 12- or 18-month hiatus, it's going to go on for some time," King said. "We've always been the most international of all the defense groups but the emphasis shift is quite strong."

BAE expectations of wider sales took a beating when Rafale beat the Typhoon for a $20 billion Indian contract for 126 fighter jets, and also suffered major setbacks in losing fighter competitions in Japan and Switzerland.

British Prime Minister David Cameron has spearheaded a sales drive for the Typhoon in the gulf and toured the region in November 2012.

But the only real result of that effort was the December 2012 sale of 12 Typhoons and eight Hawk 128 advanced training aircraft to the sultanate of Oman under a $4.04 billion contract.

Meantime, in the first six months of this year, BAE received orders outside the U.S. and Britain totaling $7.8 billion.

That included a $2.9 billion maintenance contract to support al-Salam Typhoon program in Saudi Arabia which involves the future assembly of the aircraft in the kingdom.

The Financial Times says in the longer term, it's uncertainty in the United States rather than in Saudi Arabia that's the company's main concern.

Even so, the political upheavals in the Arab world since early 2011 have forced the Arab monarchies to pump hundreds of billions of dollars into social programs to head off domestic unrest, and this could lead to cuts in defense procurement.

"Many parts of the Middle East were guaranteed markets in past years," cautioned Guy Anderson, chief analyst at IHS Jane's defense consultancy.

"You could almost take it for granted Oman would buy British or that Saudi Arabia would alternate between the U.S. and the U.K. But now it will be harder to take that for granted."

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