Gulf in an arms race despite global downturn

Gulf countries are upping their arms spending despite the global economic turn down and massive drop in oil prices as the United Arab Emirates placed weapons orders of nearly $1 billion on Monday and Bahrain leased several fighter jets.

The UAE military contracts worth 2.54 billion dirhams ($692 million), mostly to local companies, during the IDEX 2009 defense show in Abu Dhabi.

Two other deals still under negotiation would be worth over 469 million dirhams ($128 million), IDEX spokesman General Obeid al-Ketbi told reporters on the second day of the region's largest arms fair.

The total value of orders announced by the UAE forces was just over three billion dirhams ($819 million), he said.

"The Middle East market, including the Gulf, remains very viable and credible. There is confidence in their ability to drive on their acquisition schemes," said P.T. Mikolash, Raytheon Co.'s Middle East and North Africa chief.

"There are no delays in our projects so far," he said on the sidelines of the International Defence Exhibition (IDEX) in Abu Dhabi, the Middle East's largest military show.

The Middle East market, including the Gulf, remains very viable and credible

P.T. Mikolash, Raytheon

Why arm?

The energy-rich Gulf region has been affected by the collapse of world oil prices from nearly $150 a barrel last July to below $40 a barrel. The global financial crisis has also hit real estate and financial markets in the Gulf.

But concerns among Gulf countries, especially Saudi Arabia, over non-Arab power in the face of Iran's rising influence in the region is fuelling an arms race. Gulf Arabs fear Iran's nuclear energy program will allow it to develop nuclear weapons. Tehran denies any such interest.

"Security needs are still important to them as much as the global downturn," said John Ward, a vice-president at Lockheed Martin, the world's biggest defense contractor.

"We have not seen any slowdown in any of the projects in this region that we are working on," he said, adding the Gulf region remains interested in air missile defense systems.

We have not seen any slowdown in any of the projects in this region that we are working on

John Ward, Lockheed Martin

U.S. Defense foresees profit

American defense giant Lockheed Martin said also Monday Boeing is hoping to sell the UAE up to 12 military air transport C-130J jets before the end of 2009 to upgrade its ageing fleet.

"We have had discussions about the C-130s. The UAE currently have the older C-130 now and they are looking into upgrading to C-130J," said James Grant, vice president of Customer Engagement at Lockheed Martin's Air Mobility.

"We are anticipating a request between eight to 12 aircrafts," he said on the sideline of the International Defence Exhibition and Conference (IDEX) 2009 defense show in Abu Dhabi.

He said he was hoping to conclude talks over the potential deal by the end of the year, but declined to reveal its value.

He said that Saudi Arabia also remains "for the long haul a very key C-130 customer, with a current fleet of 54 aircraft.

"We are having a dialogue with them across their whole fleet," he added.

Bahrain

Bahrain is also looking to spend money on arms as its state-owned carrier Gulf Air agreed Monday to lease four Boeing 777 aircrafts from India's Jet Airways as part of its efforts to replace its fleet.

Gulf Air said the new aircraft, three of which will be delivered in March and one in May, will replace Airbus A340 airplanes.

Loss-making Gulf Air in 2007 cut its network and jobs and started to renew its fleet, after announcing losses of more than $1 million a day.

The carrier has 59 planes on order as it partially renews its existing fleet of 27 planes and plans to add three planes and three destinations each year until 2013.

Gulf Air has already leased two A330 aircraft from Jet Airways.

Arms Deals going strong

Abu Dhabi Ship Building won two contracts to supply 12 vessels and renovate 12 others, for a total of 935 million dirhams ($255 million), Ketbi said.

French group Thales Communication was awarded two contracts worth 329.6 million dirhams ($89 million) for signaling equipment and to supply its SOTAS communication system for Leclerc tanks.

Discussions are underway with U.S. giant Boeing for the provision of spare parts for Chinook helicopters and to provide training, in a contract which would be worth 373.4 million dirhams ($102 million) altogether.