$4.07B Oman Eurofighter deal bolsters BAE

Dec. 21, 2012 at 1:04 PM
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MUSCAT, Oman, Dec. 21 (UPI) -- The Persian Gulf sultanate of Oman has a signed a $4.07 billion contract with Britain's BAE for 12 Eurofighter Typhoon strike jets and eight advanced Hawk trainers, a big boost after a proposed merger with European aerospace giant EADS fell through in October.

It wasn't the $12.6 billion deal with Saudi Arabia BAE was shooting for to put it back in the increasingly competitive battle with U.S. and European companies for major export orders but it should keep Britain's largest defense contractor going as it regroups following the collapse of the $25 billion merger with the builder of the Airbus jetliner.

The proposed deal would have created the world's largest defense and aerospace group but was blocked largely because of political objections by German Chancellor Angela Merkel.

The Eurofighter consortium comprises BAE, EADS and Italy's Finmeccanica, with the British company leading negotiations with Saudi Arabia and Oman.

On Wednesday, BAE warned it had been unable to finalize a deal to sell Saudi Arabia 72 more Typhoons, on top of 72 Riyadh bought in 2007 under a $7.3 billion deal.

BAE has delivered 24 of that order, enough for one squadron, with the final 48 to be built in Saudi Arabia, part of the kingdom's drive to develop its own defense industries.

But obstacles have emerged in recent months. BAE said Wednesday these includes differences over "definitive pricing ... While progress has been made through the course of these negotiations, issues remain to be resolved before contract pricing, acceptable to all parties, can be agreed."

But there may be political overtones to the differences.

The Oman deal was announced as British Prime Minister David Cameron, a staunch advocate of British arms exports, visited Muscat, the capital of the sultanate that lies at the southeastern tip of the Arabian Peninsula and is a longtime ally of Britain.

The deal had been expected despite recent strains in relations between the gulf's defense heavyweights, Saudi Arabia and the United Arab Emirates, and London over what they see as undue British criticism of their democratic failings and human rights record.

Cameron visited the gulf in early November seeking to soothe regional tempers that threatened to disrupt Britain's long-established arms sales in the region, which was under British protection until 1971 when London withdrew its "East of Suez" military forces as Britain's imperial power waned.

Amid severe cutbacks on defense spending across Europe and the United States, these sales have become vital to companies like BAE so they can maintain production lines while domestic orders shrink alarmingly.

"Boosting exports is vital for economic growth and that's why I'm doing all I can to promote British business in the fastest-growing markets so they can thrive in the global race," Cameron said before leaving London.

"Every country in the world has a right to self-defense and I'm determined to put Britain's first-class defense industry at the forefront of this market, supporting 300,000 jobs across the country."

Oman's Sultan Qaboos owes his power to Britain, which discreetly helped him usurp his isolationist father in a 1970 palace coup, then later sent Special Forces to crush a communist rebellion.

BAE said in August that modest earnings growth this year was dependent on concluding pricing agreement for 72 Typhoons with Riyadh.

Shrinking U.S and European defense budgets have made the oil-rich Persian Gulf monarchies more crucial to Western defense industries than ever.

The George W. Bush and Barack Obama administrations have intensified arms sales to the gulf states, citing the need to contain Iran. It follows that competition between European and U.S. contractors has intensified as they fight for the big-ticket defense programs in the strategic region.

At this time, the United States is supplying Saudi Arabia, the Emirates and Kuwait with missile-defense systems, combat jets, tanks, helicopters and warships with some $67 billion under a 10-year arms program involving U.S. defense leaders like Boeing, Lockheed Martin, Raytheon and others.

In 2011, Riyadh placed an order worth $29.4 billion for 84 Boeing F-15S jets and upgrades for 70 already in Saudi service.

In the final analysis, the Americans have more influence with regard to arms sales because they guarantee the security of the gulf monarchies, whereas Britain has nowhere near that kind of clout to bolster its arms sales.

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