:: April 2003 Newsletter ::
Like good portrait art? If yes, then I suggest you avoid BAE’s Warton fighter facility. Overdone portraits of the Saudi royal family are on prominent display there, complete with ultra-flattering nameplates. For some reason, it’s nice to know that a corner of Northwest England knows that one of King Fahd’s many titles is Protector of the Two Holy Places. Otherwise, these plus-sized oil paintings lack merit.
The reason for this House of Saud sycophancy is simple: the Saudis once saved BAE’s non-Halal bacon. The huge Al Yamamah 1 and 2 arms deals basically kept BAE (BAe then) afloat during the dark years in the first half of the 1990s. Industry veterans might remember that at the time BAe had jeopardized its future by delivering Avro/146 commuter jets to world airlines at random, hoping the airlines would send money back out of gratitude. They generally didn’t, and BAe almost went bust, but the petrodollars came rolling in. All told, the Saudis signed for 96 semi-useful Tornado IDSs, 24 near-useless Tornado ADVs, and 74 Hawks. With PC-9 trainers, airfield work, plus support and upgrade packages, the total value of the two Yamamahs was in the tens of billions (denominated in pounds, dollars, euros, jihads, whatever).
If BAE’s Saudi portrait slavishness sounds over-the-top, consider the alternative. Dassault spent the ‘80s watching this growing revenue stream with envy. The Saudis bought high-end F-15s and Tornado fighters while the French had nothing but medium/light planes to offer. They cobbled together a prototype large combat plane, the Mirage 4000. This resembled two Mirage 2000s riveted together (and was almost twice as attractive as the already impossibly beautiful 2000). The 4000 was demonstrated to the Saudis, but they declined to buy it. The prototype 4000 now sits in Le Bourget air museum, watched over by Saint Marcel, the patron saint of abandoned fighter projects.
Yet those Saudi market glory days are in the past. The US victory against Saddam has vast geostrategic repercussions, beyond the scope of these two pages. Suffice to say that for internal and external reasons, Saudi Arabia needs to change. They used to channel their society’s anger outwards, through violence-producing exports of Wahhabism. Now, the Saudi Government is confronting this anger through reform. This effort may not be successful, but either way, the days of huge and opaque Saudi arms deals are over. And in any case, they are no longer willing to be treated, as Tom Friedman put it, as a big, dumb gas station.
This event is just as significant as the end of the Iranian market in 1979 (incidentally, Dassault showed plans for the Mirage 4000 to the Shah in the late 1970s). For US manufacturers, the end of the Saudi market will have some limited impact—hopes of additional F-15s, AH-64s, or M1 tanks are over, although service contracts should remain lucrative. But for European companies, the impact will be huge. Saudi Arabia was the most important hard currency arms market that consistently bought Western equipment and wanted a second, non-US arms source. For the F-15 and F-16 folks, the Saudi market was gravy. For the Europeans, the Saudi market is salvation, a needed boost to their own low levels of defense spending and a raison d’etre for new, upgraded versions of their latest planes.
I believe Dassault’s Rafale Mk.2 is the first casualty of this major strategic shift. The French company shelved this growth export version of the Rafale in March, for the very sound reason that there was no longer enough of an export market to justify the cost of its development. South Korea went with the F-15, Singapore looks set to sign for only about 20 planes, and everyone else is waiting to see how F-35/JSF shapes up. Saudi Arabia was the only source of hope. If a prototype Mk.2 had been built, it would join its cousin the 4000 in Le Bourget Museum, anointed by the tears of Saint Marcel. Of course, the Rafale itself might be a result of the same Saudi market envy that created the 4000; why else would France abandon its traditional emphasis of low-cost single engine jets?
As for BAE, well, it will need something non-Saudi to drag it out of its Nimrod and Astute doldrums. Given the commercial jetliner market, Airbus work won’t contribute much until 2007, at the earliest. Still, I suspect a combination of US defense market access, coupled with meaningless rumors of a Boeing merger, will keep BAE going until these messes are cleaned up. But the Eurofighter program people will need to look elsewhere, probably within Europe, to make the case for the Tranche 2/3 upgrades. Given the demands of the A380, company-provided Eurofighter development cash will not be forthcoming. So far, the firmest Tranche 2/3 Eurofighter commitment is from Norway, a JSF partner. They’ve kicked in $20 million, basically as a hedge against the F-35 people screwing up.
Back at Warton, within ten years, chances are that BAE will have taken down its Saudi oil portraits. What will they do with all the empty wall space? Most likely, it will be a shrine to whoever is in charge of the F-35 program, and to the US service officials who made it happen.
Speaking of fighters, this update includes new Eurofighter, Gripen, F-15, and Mirage 2000 reports, as well as a new Business Jet market overview. Other updates include the V-22, 737, T-45, 206/407, EC 135, CN-235/295, and the Challenger/Global Express. Next month we’ll update the C-130, Hawk, 757, and 328JET. Call with requests, or if you want the latest numbers.
Yours, ‘Til Teal Group Opens Branch Offices In Tehran and Damascus,
(703) 385-1992 ext. 103 (office)
© Richard Aboulafia 1997-2006, All rights reserved.