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Sun 15 Nov 2009 06:57 AM

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Mideast tensions seen driving demand at Dubai Air Show

Industry experts say military hardware, not civilian jets, will be main focus for buyers.

Middle East tension is driving demand for military hardware at the Dubai Air Show which opens on Sunday, but recession means fewer orders for civilian jets.

Bitter rivals Airbus and Boeing will still woo carriers at the top Middle East aviation event, but most airlines' cheque books are empty and the fiercest marketing battles will be waged by jet fighters performing above the Gulf.

"With more threats and continued tensions you will have continued demand for new systems and new capabilities and that is why we have seen ongoing interest in upgrading and renewing fighter fleets," Riad Kahwaji, chief executive of the Institute for Near East and Gulf Military Analysis, told Reuters.

"So long as tension is there, and the situation with Iran is not solved, and there is the threat of terrorism and so forth, I think there will be an ongoing arms race," he added.

Host nation UAE is in talks with France's Dassault Aviation to buy Rafale combat jets which will be on display at the Nov. 15-18 air show. But analysts say the United States has not given up on grabbing away a deal.

Others reported to be looking to expand or renew fighter fleets include Kuwait and Oman, while sources told Reuters in July that Saudi Arabia was looking to expand a recent purchase of Eurofighter Typhoons and is talking to Boeing about F-15s.

In a surprise decision, the United States will show off the world's most advanced fighter, the Lockheed Martin F-22 Raptor at the show, months after axing a display at the world's largest air show in Paris.

The jet is not on sale abroad but its only other major foreign appearance in Britain last year created a buzz and was seen as a possibly deliberate reminder, for buyers of other U.S. hardware and potential enemies alike, of its military reach.

The biennial air show is taking place a few miles from the mouth of the Gulf and the border with Iran, which remains locked in a dispute with the West over its nuclear programme.

Iran is under pressure to seal a nuclear fuel deal with Washington and other major world powers to help assuage concerns it is trying to develop an atomic bomb. Tehran insists it wants nuclear technology only for civilian purposes.

Ethiopian Airlines meanwhile looked poised to kick off the civil side of the largest Middle Eastern aviation event with a near $3 billion Airbus aircraft order, industry sources said.

The airline drafted a request for 12 A350-900s in July and was expected to aim for maximum publicity for its expansion by signing a final deal in public on Sunday.

Confirmation of the deal is a boost for Airbus as it pushes for orders for the future mid-sized jet above the 500 mark.

But rival Boeing remains in front in the lucrative market for modern fuel-saving planes after notching up 840 sales of its rival 787 Dreamliner despite ongoing production delays.

Engine maker Rolls-Royce effectively confirmed the Ethiopian plane purchase by saying it had sold equivalent engines developed for the A350 worth $480 million.

Other business is expected to be sharply lower compared to the same event two years ago when the rivalry between Airbus and Boeing produced an order haul estimated at around $85 billion. Airlines have been hard hit by the global recession and are forecast to lose a combined $11 billion this year.

Gulf heavyweights such as Dubai-based Emirates that built up massive fleets to challenge flag carriers in Europe and Asia are expected to be relatively quiet at the show, analysts said.

Still, most aerospace executives are looking to the Gulf to ease them out of recession once the economy recovers.

"It is the one civil and military aerospace market that is holding up, driven by passenger traffic, oil prices and regional tension," said Richard Aboulafia of Teal Group in Washington.

Airbus sees 6.9 percent Mideast passenger traffic growth between 2009 and 2028, faster than any other region. (Reuters)

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