BAE Executive Bullish on ME Defence Spending.

Summary: DUBAI u BAE Systems of the UK is an international defence, security and aerospace company providing products and services for air, land and naval forces.

With 105,000 employees worldwide, BAE Systems' sales exceeded $34.4 billion in 2008, making it the third-largest defence company in the world after US rivals Boeing and Lockheed Martin.

BAE Systems has operated in the GCC region for more than 30 years, with offices in Oman, Qatar, Bahrain, Kuwait and the UAE.

"We are quite bullish about our business prospects in the region in the coming years," said Martin Bennett, the company's Regional Vice- President for the Middle East.

"The huge amounts of money that the countries here have made from energy have given them tremendous spending power. They are now upgrading their defence capabilities so that they can protect the infrastructure they have put in place in the energy sector and feel secure as growing nations," he said in a recent interview with Khaleej Times.

Bennett, who began his career as an Avionics engineer, became Director of BAE Systems in Kuwait and Qatar in January 2006. He was promoted last November to his current post, where he has responsibility for BAE Systems' business in Kuwait, Bahrain, Qatar and the UAE. Bennett has recently located to Abu Dhabi. Aa Here are excerpts from C the interview.

How do rate your market in the Middle East?

The GCC defence market is good. C* However, the actual procurement spend does get a little lumpy, occasionally, as the nations would buy capabilities and products, which have a significant cost, at a particular point of time. If you are going to buy 60 airplanes, there could be a spike in the procurement spending at that point of time. But you may not buy 60 airplanes every year. So you see peaks and troughs in spending. Aa

How fast is the Middle East defence market growing?

Military expenditure in the Middle East has gone up from $59.3 billion in 2004 to $75.6 billion in 2008, indicating that there was an overall increase of over 25 per cent in the last five years, according to the web site of the Stockholm International Peace Research Institute, a top global think tank on defence-related issues.... The (annual) increase is not dramatic as some people tend to portray." AaAa

How do you compare the levels of growth in defence spending in the Middle East and in the rest eC of the world?

In the Middle East, the growth is stronger, comparatively. The spurt in income from energy in the recent years has given the countries in the region considerable spending power, and they are now taking the opportunity to renew and upgrade their C defence systems.

These countries had invested heavily in the past on infrastructure mainly within the energy sector. The desire or the need to get oil or gas out of the ground has been a driver for C those investments.

Now that kind of infrastructure is more mature and there is need to defend the infrastructure they had put into place. So, more money is being put into defence for upgrading the existing equipment or for buying new ones.

The population of the GCC is very low, and so you cannot have a standing army of brutal size. The focus here will be on acquiring technologically-advanced equipment and capabilities.

Can you share details of some of the sales you have made in the region?

We cannot give specific details. We are restricted by the confidentiality clause of the agreement with the customers. C* Aa But in the region we have everything from our latest Eurofighter Typhoon aircraft -- recently delivered to Saudi ArabiaC* (to) training aircraft, fighter aircraft, Main Battle Tanks, mine-resistant armoured protected vehicles, avionics systems and even ships in service.

How is your business eC set to grow?

We are quite bullish over the business prospects for the next five years in the UAE and in the region. And this would encompass everything, from aircraft, autonomous aircraft, land vehicles, sensors, (and) maybe even ships. C* We areC* continuing (a) number of discussions in the UAE, on various deals, including land systemsC*.

The GCC market will be an important driver for our future growth, but not as big as the US.

Industrial collaboration will be a major driver of our strategyC* The signing of the joint venture between the Abu Dhabi Ship Building Company and BVT Surface Fleet, which is a BAE Systems majority-held company, underlines that we are serious about partnership in the region.

The new company, Gulf Logistics and Naval Support LLC will service the naval ships in the whole region and not just in the UAE.

Over the last ten years the profile of our business has changed. We now have home markets or countries where we not only export to, but also eventually export from, by setting up C production facilities.

The US, Sweden, South Africa, Australia, and Saudi Arabia, all are our home markets. We declared India as a home market, a couple of days back.

We cannot say 'never' to the possibility of the UAE being declared as the home market. At the moment it is not on the prescribed list of countries, though. But the way the UAE is developing there is no reason why this couldn't be a home market.

When is defence spending in this region likely eC to peak?

We are in a peak at the moment. I think the peak will last couple of years more, especially because of the concerns of enhancing the air-defence capabilities, then it will start to ease off a bit. Air defence is the biggest area of development in the region. You might see the UAE itself buying couple of more fast jets, in C the coming years. The army generally has been fairly looked after in the region. But the navy requires lot more replacement of equipment. So you might see a bit more action in future on the naval side.

You will find lot of small craft being bought in the region for strengthening the coast guard, for mitigating the C piracy threats.

Do you see the possibility of an arms race in the region?

I can't say. The individual states in the region believe that they have a defence policy to enable them to be safe and protected. This means acquisition of new technology, new equipment, and they have C been doing that. A lot of it is defensive, but are they going beyond that objective? I would debate that.

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