Defence Notes

IDEX 2021: Spotlight shines on procurement programmes

22nd February 2021 - 14:34 GMT | by Harriet Haywood, Ilker Aktaşoğlu, Sonny Butterworth in London

Data and case studies from the Shephard Defence Insight team illustrate the state of play in Middle Eastern defence procurement.

Although global supply chains continue to come under pressure with the COVID-19 pandemic still raging — and as Middle Eastern countries turn to domestic industry to meet more of their needs —there remains sufficient demand in the region for ‘big ticket’ programmes.

Whatever the demand, however, domestic political attitudes in Western countries represent a complication.

With IDEX 2021 and NAVDEX 2021 as the backdrop, Shephard Defence Insight analysts Harriet Heywood,  Ilker Aktasoglu and Sonny Butterworth look into some of the key national programmes in the naval, air and land domains respectively.

Naval – Fincantieri stays on track for Qatar but LPD remains a mystery

Over the past few years, the relationship between Qatar and Italian shipbuilder Fincantieri has gone from strength to strength. In 2016, Fincantieri signed a contract worth almost €4 billion ($4.67 billion) with the Qatari MoD for a total of seven naval vessels.

This relationship has continued to grow since then, with an MoU signed in January 2020 (via Barzan Holdings) aimed at strengthening this strategic partnership.

The current procurement programme for seven vessels includes two Musherib-class OPVs, a single landing platform dock (LPD) and four Al Zubarah-class corvettes (first-in-class vessel pictured) for the Qatari Emiri Naval Forces (QENF), to be built by Fincantieri. The programme value for the vessels alone, with no support or training, is estimated at a total of $3.15 billion, leaving an additional $1.5 billion in additional services and ten years of support from Fincantieri.

Although the ongoing COVID-19 pandemic has caused delays to shipbuilding globally with Fincantieri impacted in Italy, it seems to have had only a minimal effect of the current schedule of the Qatari vessels thus far. Fincantieri is working hard to mitigate the production slowdown caused by a national lockdown in the first half of 2020 and the ensuing restrictions.

The first multi-role air defence corvette was launched on 27 February 2020 followed by the first OPV on 18 September, hinting at no significant delays so far. The vessels are on track to be delivered within the ten-year programme timeframe, with the final vessel (the LPD) delivered by 2026.

Mystery still surrounds the LPD as the last of the seven vessels to enter the design phase. All that is known of the project is it is to be a unique variant of the Fincantieri Enhanced San Giusto class. Should the vessel be delivered by 2026, construction will need to begin around 2022 — at that time we may begin to see details emerge on the most expensive platform within the multi-vessel procurement deal. Its unit cost has been speculatively valued at $750 million but may well be higher.

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Current procurement spending on the corvettes, LPD and OPVs alone is expected to be complete by 2025, followed by ten years of support, but the end of the programme does not seem to signify the end of a budding relationship between the Italian shipbuilder and Qatar.

The January 2020 MoU includes the evaluation and study of new technologies and capabilities, which may lead to future acquisition of new Fincantieri vessels by the QENF.

The MoU also indicates the design, construction and management of a QENF naval base, a whole warship fleet management system and the application of new technologies on top of the naval procurement programmes.

Part of Fincantieri’s business development strategy in the Middle East, this successful relationship will no doubt continue to see future defence procurements on the cards.

Air – Saudi Arabia misses out on military airlift 

Saudi Arabia is one of the wealthy nations in the Middle East investing heavily in defence equipment procurement amid increased threat perception. Riyadh has been trying to diversify its military purchases from different regions, including the US, China and Russia.

However, there is arguably a major gap in Saudi procurement policy, in the form of transport aircraft programmes for the Royal Saudi Air Force (RSAF).

Since the beginning of the global COVID-19 pandemic, demand for military air transport capacity has seen an enormous spike, including moving personal protective equipment, medicine, food and other key supplies between regions and countries.

Global powers seized this opportunity to extend their soft-power reach by offering aid. For example, Russia sent nine Il-76 strategic transport aircraft loaded with medical equipment and military medial teams to Italy in March 2020.

One of the key players in the Middle East, Saudi Arabia, not only has missed such ability to project its power with not offering much-needed resources to the communities in the region, but it is also left with unmet domestic military airlift requirements.

Saudi Arabia is less than transparent about its defence programmes, in common with other nations in the region, but it is known that the RSAF has sought to upgrade its airlift capabilities since the early 2010s. With plans to order the C-17, it requested only 20 C-130J-30s to replace its 50 C-130E transport aircraft.

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The RSAF was also considering the An-178 for this requirement. Riyadh is believed to have signed a memorandum of intent with Ukraine for the procurement of 30 An-178 aircraft in 2015. However, there is no announcement of the final contract.

Meanwhile, the US State Department announced in November 2012 that it had approved the possible FMS sale of 20 C-130J-30 and 5 KC-130J tanker aircraft.

However, Saudi requirements were insufficient to save the C-17 in the absence of further USAF orders, and Boeing announced the closure of the production line September 2013 due to low demand. Subsequently, the RSAF examined the A400M as an alternative, but it seems that Airbus is unable to make a sale until a German defence export ban, which was introduced in 2018 and extended until the end of 2021, is lifted.

Deals signed during the presidency of Donald Trump are also in question. In May 2017, Trump signalled $109.7 billion arms deal with Saudi Arabia, including $5.8 billion for three KC-130Js and 20 new C-130Js, along with sustainment until 2026.

A contract award was expected in 2021-22; however, political change in Washington DC is likely to have an effect. New US President Joe Biden announced on 4 February 2021 that arms sales to Saudi Arabia will be frozen amid the ‘humanitarian and strategic catastrophe’ in Yemen, where Riyadh is supporting government forces in a civil war.

Even if the C-130J-30 sale goes ahead with the approval of Washington, Saudi Arabia is set to face 60% capability gap in terms of total payload by 2028 when the older C-130E fleet is retired.

Additional investment of $2.5 billion to $3.2 billion is required if Saudi Arabia wants to retain its military edge as one of the key players in the region.

Land – LAV procurement proves a rough ride for Riyadh

Thought to be one of the largest ongoing armoured vehicle procurement programmes in the region, the Saudi Arabian National Guard (SANG) acquisition of General Dynamics Land Systems – Canada (GDLS-C) LAV 700 8x8 armoured vehicles is emblematic of the high-value, high-risk defence acquisitions that could increasingly come under threat in the Middle East.

Reportedly worth around C$14 billion (US$12.7 billion), the contract is believed to cover the supply of 742 vehicles in various configurations, down from the 928 initially ordered, as well as upgrade kits for older Saudi LAVs, spares and technical data.

While news on the programme is rarely forthcoming, progress appears to have been far from smooth. Following a deterioration in relations between the Canadian and Saudi governments in 2018 and the temporary imposition of restrictions on Canadian arms exports to Saudi Arabia, LAV 700 deliveries were disrupted and GDLS-C reportedly faced difficulties obtaining payments from Saudi Arabia.

To resolve the impasse, both governments are understood to have renegotiated the deal by early 2020 with Saudi Arabia agreeing to expedite payments and accepting that the Canadian government reserves the right to repudiate export permits if Saudi Arabia employs the vehicles in a way that does not align with their stated purpose.

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This contract wrangling points to the inherent risks for both suppliers and customer countries involved in large Middle Eastern defence programmes. For a country such as Saudi Arabia, the potential to cut dependence on foreign imports makes investment in its indigenous defence industry an increasingly attractive proposition. Such thinking is likely to have been magnified by the COVID-19 pandemic, which has disrupted production lines and international trade.

Moreover, removing foreign governments from the defence acquisition process frees up Saudi Arabia to use its equipment however it sees fit, an attractive proposition at a time when its conduct in Yemen has come under widespread international condemnation and the Biden administration’s decision to suspend arms exports to Saudi Arabia is placing pressure on other governments to do the same.

These advantages to domestic defence procurement, magnified by the pandemic, are likely to add impetus to an already established trend towards the inclusion of technology transfer and licensed production into Middle Eastern armoured vehicle contracts.

While these countries will still require foreign assistance to realise their grand ambitions of greater self-sufficiency in defence, the days of direct imports from overseas appear to be numbered.

This coverage is brought to you in partnership with IDEX 2021. To register for our free market-leading magazines click here or return to our full event coverage.

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