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Mon 21 Feb 2011 12:36 PM

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Gulf states offer rich pickings to Western defence firms

The region’s military spending bonanza looks set to run on, writes Ed Attwood

Gulf states offer rich pickings to Western defence firms
DEFENCE DEALS: The Gulfs spending bonanza is also in part responsible for convincing more conventional firms to launch defence manufacturing arms (Bloomberg Images)

In case you missed it, the Middle East's biggest defense exhibition opened with a bang in Abu Dhabi on Sunday. Fake bombing runs featuring some of the UAE air force's most modern jets swooped down over the IDEX exhibition area, where a bewildering array of tanks, armoured vehicles and all forms of weaponry greeted visitors.

IDEX only occurs once every two years - hence the hefty interest in the exhibition this year from the world's biggest defence suppliers. The conference launch coincided with the news that the US House of Representatives had plumped for even budget cuts than those passed by the US government. A new breed of Republicans has even targeted defense spending - an area previously regarded as untouchable by the party - as an area where savings must be made. The House even cut the alternative engine program me for the F-35 Joint Strike Fighter, the next-generation jet destined for the US air force, in a move that will have resulted in furrowed brows in defence contractor boardrooms across the country.

In the UK, the situation is far worse. Overspending by the Ministry of Defence, and almost a decade of war in two different countries has left the armed forces broke, and the emphasis is now on lay-offs, rather than purchases.

What that means, therefore, is that the biggest original equipment manufacturers (OEMs) are targeting the emerging markets, with the cash-rich Gulf a particular source of interest. That interest was symbolised last year in Saudi Arabia's move to buy around $30bn worth of arms from the US - now being considered by Congress - which could rise to as much as $60bn over the lifetime of any confirmed deal. In the seven years up to 2009, GCC states bought $70bn in arms from the US alone. 

The Gulf may be a cash cow for OEMs, then, but massive deals are by no means easy to come by. France has been negotiating with the UAE to replace the majority of its Mirage fighter fleet with new-generation Rafale, but those talks have now been ongoing for almost three years.

Similarly, the UAE has also been discussing a purchase of the Lockheed Martin-led Terminal High Altitude Area Defence (THAAD) missile defence system, although negotiations have again been protracted. Worth a potential $7bn, although probably less when and if the package is confirmed, THAAD is designed to combat short and medium-range ballistic missile threats, such as from Iran. A senior Lockheed Martin official refused to confirm or deny whether Saudi Arabia or any of the other Gulf countries was also in negotiations to buy THAAD.

The Gulf's spending bonanza is also in part responsible for convincing more conventional firms to launch defence manufacturing arms. Airbus Military, a relatively new division of the European aerospace giant, is attending IDEX in an attempt to build on recent purchases by Saudi Arabia and the UAE.

Of course, it's tough to estimate exactly how much business will be done this week, but many billions of dollars worth of deals are on the line - as evidence by the presence of French president Nicolas Sarkozy, amongst others. With over a thousand companies in attendance - and amid a wave of unrest hitting the region - Gulf officials are likely to be in high demand.