November 6, 2012 7:34 pm

UAE signals interest in Typhoon jets

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David Cameron is greeted by UAE ministers in Abu Dhabi©PA

British efforts to sell arms to Gulf states have received a boost after the United Arab Emirates said it was interested in buying Typhoon fighter jets made by BAE Systems and its European defence partners.

In a joint communiqué – signed following a trip by David Cameron, the prime minister, to the Gulf state – the UAE and UK said they would “establish a defence industrial partnership that involves close collaboration around Typhoon”.

The potential breakthrough could involve selling up to 60 Typhoons to the Gulf state, which would represent a significant boost for BAE and the British arms trade in general.

However, analysts have warned that Typhoon’s competitor, Dassault Aviation’s Rafale jet fighter, is not out of the running.

The deal has triggered criticism, however, with some human rights organisations warning Mr Cameron is putting commercial interests ahead of human rights. Amnesty International has called arms sales to the Gulf a “deeply disturbing trade-off”.

The prime minister visits Saudi Arabia on Wednesday, where he will try to help secure several Typhoon-related deals. He is also hoping to help BAE secure a separate deal for Typhoons with Oman. Altogether he hopes to help sell 100 aircraft in deals worth a total of about £6bn.

BAE, pan-European EADS and Italy’s Finmeccanica have struggled to sell their fighter jet beyond the borders of Germany, Italy, Spain and the UK – which have collectively invested billions of euros in its long and difficult development.

Saudi Arabia and Austria are the only two export markets Typhoon has found so far and even the countries where the jet is being manufactured have been scaling back their orders as the downturn in the economy has eaten into public budgets.

The outcome of big jet fighter tenders often causes significant fallout. Typhoon’s painful loss to Rafale of last year’s $20bn Indian tender caused political consternation in the UK, prompting Mr Cameron to announce further investment in an advanced radar system for Typhoon, and helped prod BAE into its ultimately unsuccessful $34bn tie up with EADS.

Though the UAE tender would not be as big as the one for India, it comes at a critical time for BAE and the UK. BAE has been closing factories and slashing thousands of highly skilled jobs in the UK as the Ministry of Defence has cut spending. With the US also cutting its defence budget, BAE has warned investors it expects only modest underlying growth this year, and only if it manages to secure a Typhoon-support deal in Saudi Arabia.

A sale of the jets to the UAE would come with a decades-long partnership, including training, maintenance and upgrades, worth much more than the initial value of the jets themselves.

The UAE is likely to demand a sizeable offset deal, which would see BAE and others investing as much, if not more than the value of the contract in the country.

The details of any sale – including whether it would simply be a transfer of Typhoons already ordered by the UK but no longer wanted or a new tranche – remain unclear.

Tuesday’s announcement will come as an unwelcome surprise in Paris, whose Rafale jet fighter was long seen as the favourite in the UAE given that it is better tested and the UAE already owns the weapons it can carry.

“It is a definite statement of interest from a strategic customer who has the means and the intent to purchase jet fighters,” said Rob Hewson, analyst at IHS Jane’s, the defence industry analyst, noting that such deals were usually decided government to government rather than directly with the company. “I suspect it may even have surprised BAE.”

For now BAE is said to be cautiously optimistic. That caution is well advised as analysts warn that these sorts of tenders can take years of political twists and turns as buyers play one seller off against the other.

Separately, Mr Cameron met the heads of three of the UAE’s largest sovereign wealth funds today, seeking investment for British projects including wind farms.

BACKGROUND NEWS

Eurofighter’s Typhoon was first envisioned during the Cold War, when dog fights in the skies were seen as a significant threat, writes Carola Hoyos .

Since then the jet fighter has been engineered to hit ground targets, the critical requirement of modern conflicts such as that over Libya, where Typhoon had its first combat outing.

The jet is produced by pan-European EADS, the UK’s BAE Systems, and Italy’s Finmeccanica. The UK, Germany, Spain and Italy, which made the initial investment, each manufacture part of every aircraft, creating highly skilled jobs and the strategically important technological knowledge needed to build such sophisticated equipment.

The countries collaborate on marketing the aircraft overseas through a system that almost everyone involved admits needs to be streamlined and improved following Typhoon’s failure to win a big Indian contract.

Typhoon’s closest competitors include Rafale, made by Dassault Aviation of France; Gripen, produced by Saab of Sweden; and two US rivals Boeing ’s F-18 and Lockheed Martin’s F-35 Joint Strike Fighter.

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