Analysis: Saudi Arabia - A close customer (part 1 - land)

[The SC]

With Saudi Arabia engaged in military action in the Yemen, the kingdom is taking an active part in the wider Middle East conflict between Sunni and Shi’ite regimes that are fighting it out for dominance in the region. As the fighting gets ugly and atrocities are committed, questions are raised about the role of the West.

Although just a bit-part player with its own limited intervention, the West still has a significant role in supporting the military capabilities of the Middle East regimes, in particular Saudi Arabia.

Bruce Riedel, a senior fellow at the Washington DC-based Brookings Institute said that President Obama was the ‘most enthusiastic arms salesman to Saudi Arabia in American history’, with sales totalling $110 billion since his term in office began.

But it is not just the United States. The amount that Riyadh spends on Western military equipment has meant they are a very valued customer, which governments will bend over backwards to support.

This is ironic as the Wahhabist form of Islam that Saudi Arabia is exporting around the world, funded by their oil riches, is the source of most of the extremism we see today that poses such a threat. The country is also one of the most repressive and runs counter to most of the democratic values held by the West.

So if you want to get a more detailed idea about why the Saudi regime is such a valuable customer and how deep the West and industry is involved here are some facts and figures about recent procurement activity in the land domain:

The Saudi Arabian Army is keen to expand its main battle tank fleet to 700. The latest deal with the United States to acquire more M1A1/A2 tanks through foreign military sales (FMS) was announced in August for 153 tanks for $1.15 billion. Interestingly 20 of these are to replace ones that have been lost or damaged during the conflict in Yemen where Saudi forces are fighting Houthi rebels. Some older M60 Patton tanks have been lost as well from what appear to be Iranian-made anti-tank guided missiles.

These additional units will add to the Saudi Arabian Army inventory of 373 M1 Abrams. Upgrade work on older platforms across a decades long life-cycle is often more lucrative than the actual sale of the equipment in the first place.

Contractor General Dynamics Land Systems is doing the upgrades to these tanks to get them to the more modern M1A2S standard. These 373 were acquired under an FMS deal worth $2.9 billion and included the acquisition of 58 M1A2S tanks and an upgrade for the other 315.

The tank orders will suit GD, which has production facilities in Lima, Ohio that need feeding and have come under pressure as the Iraq and Afghanistan campaigns have closed. It includes navigation systems from Smith Industries, sights and fire control systems from Raytheon and electrical systems from Chrysler.

In addition the company is expected to provide 8x8 LAV III vehicles to the Saudi Arabian Army worth between $10-13 billion.

The company has already delivered over 1,000 similar vehicles to the Saudi Arabian National Guard (SANG) over the past decade and a half. The two most recent deals were for 124 vehicles in 2007 for $631 million and the second for 73 vehicles in 2011 for $263 million.

The army deal however is expected to involve many more vehicles. Belgian company Cockerill is providing its CT-CV 105HP and CMCT turrets for some vehicles.

French company Nexter is delivering 73 Aravis 4x4 protected patrol vehicles to Saudi Arabia for an undisclosed sum with plans for follow-on contracts to increase this to 200. The company has also delivered 32 Caesar 155mm self-propelled artillery gun system on a 6x6 Mercedes truck chassis under a contract awarded in 2011 worth $210 million and follows earlier deliveries of 80 and 20 Caesars.

Another French company, Renault, has also sold 100 VAB 4x4 vehicles to Saudi Arabia worth about $40-50 million as part of a $3 billion arms package from Paris under which the vehicles were destined for Lebanon. The deal did not go through so Saudi Arabia has taken the vehicles for itself.

Saudi Arabia is also upgrading its old US-built M113 armoured personnel carriers. It has been doing this since 2004 and has completed half of the 2,000 vehicles in total it wants done.

Turkish manufacturer FNSS (part-owned by BAE Systems) is doing this work providing kits to be fitted to the vehicles in Saudi Arabia. The latest batch of 500 vehicles is being completed for $360 million. MTU has provided some engines with Allison providing the transmission systems.

Elsewhere, Spanish company URO has delivered 30 of its Vamtac vehicles and Riyadh had also ordered 950 BMP-3 amphibious vehicles from Russia but a deal is unlikely to materialise because of poor relations.

This is just some of the more recent activity. The defence relationship with Western governments and the military has gone on for decades. In the land sector the more interesting dynamic is that equipment is being bought for two separate armies, Saudi Arabian Army – also known as the Royal Saudi Land Force – and the SANG.

The latter is a force loyal directly to the royal family and designed to keep them in power should the army’s allegiance get tested in the event of any internal difficulties.

The rate at which SANG has developed – with significant levels of funding – is telling that the regime is concerned about the recent fall of other dictators and wants to guarantee its own survival. This is just in the land domain. It could be argued that the most significant investment and closer relationship between the House of Saud and the West is based on procurement of warplanes, which will be covered on 16 December in part 2 - air.

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[The SC]

Analysis: Saudi Arabia - A close customer (part 2 - air)

As we have already seen in Part 1 – Land, the close defence relationship between Saudi Arabia’s ruling House of Saud and Western governments is built on a series of huge contracts for new and upgraded tanks and armoured vehicles that makes the Saudi land forces the most modern in the region.

But the money spent on ground equipment is chicken feed compared to that spent on the air force. The helicopters, fighters and bombers and the transport aircraft bought from the US and Europe far exceed the land and maritime domains and is where the relationship is closest with industry.

On 13 December, Saudi Arabia recieved its first four of 152 upgraded Boeing F-15SA (Saudi Advanced) fighter jets, which illustrates this neatly.

But, the most high profile in recent years has been the procurement of fast jets, particularly when the Royal Saudi Air Force (RSAF) selected the Eurofighter Typhoon multi-role fighter to replace Tornado and supplement its existing fleet of US-built F-15C/D fighters.

These Typhoons were taken from a batch that was due to be delivered by BAE Systems to the UK Royal Air Force so it shows the priority given to the Saudis. The initial was deal signed in 2007 for 72 aircraft at a cost of $8.86 billion to be delivered in three batches (three sets of 24). As of this year the second batch was delivered with the third underway. BAE is in negotiation for a further 48 aircraft but concerns over human rights have strained relations and it is unlikely to go through.

However, in 2012, BAE Systems secured a $2.5 billion contract for training aircraft including 22 Hawk, 55 Pilatus PC-21 aircraft, simulators and support, with the Hawk deliveries due to start this year after the PC-21s are completed. The company is also providing Cirrus SR22 aircraft as part of the deal.

Elsewhere upgrades to existing fighter aircraft remain the most lucrative for industry. The RSAF wants to keep some 84 Tornados in service until 2025 and includes the aircraft and supporting weapon and electronic systems. Stage three of the upgrade was signed in 2014 and is worth $2.5 billion to BAE Systems. Raytheon is providing its Paveway IV bombs, MBDA its Storm Shadow munition and Thales Damocles pods.

The biggest deal however was announced in 2010 with a $60 billion aircraft deal between the US and Saudi Arabia. The largest section of this deal was signed in 2011 in a contract worth $29.4 billion for 84 new Boeing F-15SA Strike Eagle aircraft and also included upgrades to the existing fleet. The arrival of the first four aircraft on 13 December included two new build F015SA and two upgraded F-15S. The RSAF already has 59 F-15C, 21 F-15D and 68 F-15S aircraft.

The older F-15s were already being upgraded with new datalinks (under an earlier contract for $34.8 million to Data Link Solutions, which is a joint venture between BAE Systems and Rockwell Collins, in 2007) and engines (in contracts with GE Aviation worth a total of $750 million in 2007-08), but the new deal has led to a spate of new contracts.

In 2012 Goodrich - now UTC Aerospace - received $183 million for pods and logistics support, BAE Systems $367 million for electronic warfare systems, Boeing $18.4 million for the integration of eight pods. In 2013 the contracts included $253.4 million for Lockheed Martin for undisclosed work with a second contract worth $21.4 million for targeting pods that is part of a longer term pod contract worth about $220 million. Raytheon got three contracts totalling $33.4 million for electronic and software systems but overall Boeing has secured $3.5 billion for conversion kits for the modernisation of the 68 F-15S aircraft to SA standard.

Saudi Arabia is also in a process of modernising it helicopter fleets and has a healthy inventory of western attack, multirole, utility and light helicopters.

In a 2010 deal, Saudi Arabia is acquiring 60 Apache AH-64 Block III helicopters and associated weapons in a deal worth $9.7 billion. There are 10 for the Saudi Royal Guard, 24 for the Royal Saudi Land Forces and 36 for the Saudi Arabian National Guard (SANG) – the royal family’s second army used for internal security.

Deals announced by the US DoD in 2013 shows that one Apache contract was valued at $333 million so far with others valued in the tens of millions.

Boeing has upgraded 12 Apache AH-64A attack helicopters to the ‘D’ standard for about $400 million, this likely to be for the SANG and includes a sights contract with Lockheed Martin worth $66.6 million awarded in 2012. This followed a $15.3 million contract the previous year. The Royal Saudi Land Force has been taking deliveries of the AH-64E ‘Guardian’ variant from Boeing and Lockheed Martin secured a contract last year to provide target acquisition sights for this variant for $10 million.

Meanwhile Boeing is providing SANG with 24 AH-6i Little Bird light attack and reconnaissance helicopters under a $234.7 million contract announced in 2014, although there has been a delay and deliveries have yet to take place.

In 2008 22 UH-60L Blackhawks were acquird for $286 million but now a total of 24 have been purchased. In 2010 as part of the $60 billion aircraft deal the acquisition of 72 UH-60M transport helicopters was also included, 24 of which will go to the SANG with 16 delivered so far. The latest contract announced on 30 September was for $91.8 million for Sikorsky to deliver eight helicopters.

Sikorsky has business elsewhere and is upgrading 12 S-70A Blackhawk multirole helicopters to the L variant for an estimated $60-80 million and is delivering 10 MH-60R naval helicopters for the Royal Saudi Naval Force for $145 million. This is part of a deal worth a total of $1.9 billion, which was announced in 2015 and also includes a host of electronic, sensor and weapon systems worth $11.8 million for SAIC, $66 million for Raytheon and Lockheed Martin $117 million.

MD Helicopters has provided 12 MD 530F training aircraft to SANG for $40.7 million that was completed in 2013.

For transport aircraft, the RSAF wants to replace its ageing C-130E transport aircraft. A FMS request for new and upgraded C-130s was announced in 2012 worth $6.7 billion. Contracts will be awarded in increments and Lockheed Martin has so far received $181 million and $662 million in 2013 and 2015 respectively for C-130 work. The first two KC-130 were delivered earlier this year.

Saudi Arabia is also buying eight An-132 and 30 An-178 transport aircraft from Ukraine’s Antonov some of which will be built in-country under an agreement with Saudi state-owned company Taqina Aeronautics. Sub contract agreements have been signed this year with Pratt & Whitney for engines and Liebherr Aerospace for air management systems with, Esterline CMC, Hamilton Sundstrand, Honeywell and Broetje-Automation involved. The value of both could total about $90 million.

The air force is upgrading its five E-3A airborne warning and control aircraft under three major contracts. The largest and most recent is the Block 40/45 avionics modernisation programme worth up to $2 billion announced in 2014. This follows a radar and command and control systems upgrade worth up to $400 million, first announced in 2007 and due to finish this year from which Boeing has been awarded a succession of contracts worth a total of at least $260 million with Northrop Grumman as a major sub-systems contractor. Communications terminals were added from 2007-09 by Boeing and Data Link Solutions for $49.2 million.

The RSAF also bought a Saab 2000 Erieye early warning and control aircraft from Saab in 2010 for $667 million that was delivered in 2014.

Other recent aircraft acquisitions include a number of Beechcraft King Air 350i light transport aircraft modified by Raytheon for use for intelligence, surveillance and reconnaissance. They are being fitted with ISR equipment worth up to $257 million. The RSAF also bought three MultiRole Tanker Transport aircraft from Airbus from 2013-2016 for a reported $500 million.

The operation of a modern and well-funded air force makes Saudi Arabia a major regional power. By purchasing the latest aircraft, weapons, sensors and computer systems from Western suppliers the Saudi regime is making some powerful friends and is becoming an invaluable customer. The purchase of expensive naval platforms and upgrading of existing ships only adds to this breadth of western industrial involvement, see part 3 - the maritime domain here.

Until recently Saudi Arabia has avoided military operations but it is becoming more openly proactive rather than just working behind the scenes. By flexing its muscles in Yemen alongside its backing of some rebel groups in Syria it is becoming a more uncomfortable relationship for Western governments and industry to manage.



Analysis: Saudi Arabia - A close customer (part 3 - maritime)

We come to the last part on Saudi Arabia’s defence relationship with the West, the maritime domain. This is less high profile than the land and air but naval platforms have a high dollar price tag and require just as significant an industrial relationship.

The Royal Saudi Navy is planning to procure new destroyers that have a ballistic missile defence capability as well as standard anti-air warfare role. US Navy Arleigh Burke-class destroyers from Huntington Ingalls are thought to be favoured although the smaller FREMM frigate from France and F-100 from Spain are also under consideration. A decision is expected in 2017.

In addition there are plans for new frigates to cover anti-submarine warfare (ASW) and anti-surface warfare (ASuW) roles in a programme announced in May. Several ships are required and initial plans saw the consideration of the purchase of four ships based on the Lockheed Martin design of the US Navy’s Littoral Combat Ship. Although the offer was not accepted, negotiations will continue.

Vintage choice

The procurement programmes are part of a plan to replace the Royal Saudi Navy’s 1980s vintage ships, which are also going through an upgrade. Other options on the table include the other US Navy LCS design from General Dynamics, the FREMM frigate that is built by French company DCNS for the French Navy and by Fincantieri for the Italian Navy. It is expected that Spanish shipbuilder Navantia will offer a variant of its F-100 frigate and Germany’s ThyssenKrupp Marine Systems may offer one of its designs, probably the latest MEKO-class, which have been successfully exported in the past.

A mixture of ships is likely because the navy has two separate fleets in the Gulf (East) and the Red Sea (West). The foreign military sales (FMS) request for the Lockheed-variant LCS was confirmed in October with an overall project value of $11.25 billion for up to eight ships.

Another expensive piece of hardware and the most difficult to operate and sustain are submarines. Saudi Arabia has wanted to develop its underwater force for over a decade now but plans for six diesel-electrics attack boats that are suited for the shallow waters of the Gulf have not materialised. The main Western exporters of these types of submarine are ThyssenKrupp Marine Systems, DCNS, Navantia, Saab Kockums, and Fincantieri, although there could be options from China, Russia and South Korea.

Smaller ships like corvettes and offshore patrol vessels are cheaper and easier to acquire. As part of its Saudi Naval Expansion Programme II (SNEP II) the navy plans to replace its four Badr and nine Al Siddiq-class corvettes in its Eastern Fleet with five new ships for up to $3.5 billion. The main contender is thought to Navantia with its Avante-class corvettes with Spanish press reports stating that a contract is expected soon and that a second batch of five ships could come further down the line.

Plans for patrol boats seem to have progressed with German press reports in 2014 suggesting that the publicity shy shipbuilder Lurssen has secured a $1.7 billion project for 2-3 OPVs about 80m-long, with 5-10 coastal patrol boats and 100 other smaller patrol boats and interceptor craft, which are yet to be confirmed . However, the Saudi Border Guard has already received the first CSB 40 patrol vessel from Lurssen with the second underway. About 15-20 of these are expected. A competition for smaller 35-45m-long patrol vessels is underway between two joint ventures, DCNS with Piriou against OCEA with Raidco Marine. In addition, an FMS announced in 2013 has called for the procurement of 30 Mark V patrol boats with support worth $1.2 billion.

Into the 21st Century

Meanwhile the navy is going ahead with a number of upgrade programmes to keep its older vessels in service. Paris and Riyadh have agreed to upgrade the four Madina-class frigates and two Boraida-class replenishment ships with French firms DCNS, Thales and MBDA (which will integrate Mistral air defence missiles) with its Simbad launcher doing the work in Saudi Arabia. This includes enhancing the combat systems, sensors, and electronic systems as well as hull refurbishment with each ship to be be worth in excess of $100 million.

The four 70s vintage Badr-class corvettes are undergoing an upgrade in Saudi Arabia with US help after Tacoma Shipbuilders, where they were built in the 80s, shut down in 1992. The refit is taking place under a programme worth about $154.9 million confirmed through an FMS in February that will include the addition of Block 1B Baseline 2 upgrade kits from Raytheon for the Phalanx close-in weapon system as well as associated electro-optical systems, guns and other refurbishment work expected.

Looking ahead there is a requirement for 3-4 new minehunter vessels as the existing Al Jawf-class (ex-UK Royal Navy Sandown-class) ships are getting to the end of their life cycles and it is unclear if one of the three Al Riyadh-class frigates (modified La Fayette-class from DCNS), which was damaged following its delivery under the Sawari II programme in 2004 will be returned to service.

Shop or drop?

This analysis across the land, air and maritime domains has provided some insight into the importance of the Saudi Arabian defence market to the West and gives some example of the money involved and demostrates the close relationship between the country and Western governments and industry.

Their business keeps US and European shipyards open, manufacturing plants running and high tech industries moving because the Saudi Army, Air Force and Navy can all afford to buy the latest and most expensive military hardware available across the board – which is rare for an export customer.

With European defence expenditure continuing its downward spiral and exports become ever more essential to sustain its industry and workforces it is likely that this relationship will get closer rather than part ways.