Despite diplomatic spats, US arms firms trust in mideast

Lockheed Martin, Boeing, Northrop Grumman and other big companies are expanding in the Gulf, with executives openly pinning their hopes on the region

For US arms firms flocking to the Dubai Airshow this week, the Middle East has never been more important - the second fastest growing market after Asia as western defence spending shrinks.

But they face an awkward reality: an apparently ever-growing gap between Washington and its closest regional allies.

Lockheed Martin, Boeing, Northrop Grumman and other big companies are expanding in the Gulf, with executives openly pinning their hopes on the region.

Lockheed founded an international division earlier this year, and Northrop last month named a former senior US Air Force official as its new chief executive for the United Arab Emirates (UAE). Most of the companies sent chief executives or other senior executives to the Dubai Airshow, with many also visiting other countries in the region on the same trip.

"Across the globe, we're seeing tougher and tougher competition," Boeing defence chief Dennis Muilenburg told reporters on Sunday. "The fact that US and European defence budgets are down is creating more competition in other markets."

But successful defence business, he said, was heavily dependent on good government to government relations.

Last month, Saudi intelligence chief Prince Bandar bin Sultan told European diplomats the kingdom was hoping to make a "major shift" away from the United States, a source familiar with Saudi policy says. Relations with Egypt's rulers have deteriorated since Washington cut back military aid, while long-term ally Turkey signalled it would likely buy a Chinese rather than US or European missile defence system.

"You're certainly seeing a growing sense of frustration on the part of some of our regional allies," said Michael Eisenstadt, a former US defence official now head of the military and security program at the Washington Institute For Near East Policy. "I think that will carry across in some ways when it comes to defence sales."

The most likely beneficiaries of that, he said, would be European defence firms - primary British and French, both already major regional suppliers.

Several Gulf nations have long deliberately split their major defence purchases between western states, buying French Mirage and Rafale jets as well as the BAE Systems-led Eurofighter Typhoon.

Both Britain and France have stepped up their military presence and links with the Gulf in the last few years, a move seen in part aimed at reassuring local states.

The UAE is expected to order up to 60 Rafale or Typhoons, defence sources say, although it is also seen likely to top up its forces with up to 25 Lockheed Martin F-16 jets.

US officials have taken a more active role in promoting arms sales under the Obama administration, anxious to encourage greater military burden-sharing with allies.

For now, the order book for US equipment still seems strong. The US Defence Security Corporation Agency (DSCA) records multiple planned deals including a $4 billion munitions contract with UAE, a similar $6.8 billion deal with Saudi along with $1.2 billion to support the Royal Saudi Air Force.

UAE recently signed a multibillion dollar order to buy Lockheed's longer-range missile defence system, while negotiations are underway to buy tilt-rotor V-22 Ospreys.

Other potential deals could come with a major redevelopment of the Saudi navy.

Three top US officials - the Pentagon's policy chief, the head of the DSCA and the State Department official in charge of foreign arms sales - all travelled to the region last month. US government attendance at the Dubai show includes multiple senior military and State Department officials. The aircraft carrier USS Harry S Truman is also making a port call.

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