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Staying in business.

CONSIDER THE PARADOX. After the end of the Cold War, Western armed forces are being told by their governments to make do with less manpower and equipment. This means a troublesome future for Western arms makers. To stay in business, the arms manufacturers are indulging in cutthroat competition for lucrative arms export markets, particularly the Gulf.

Gulf governments today, however, have less to spend on weapons imports than expected. When crises occur in the area, such as the Iraqi threat to regional stability, it is up to the Western powers led by the United States to ensure security. But as their armed forces are slimmed down, and other crises around the world demand their attention, they are increasingly stretched to perform such tasks.

Late in January, John Major, the British prime minister, returned home from an impromptu visit to Riyadh able to report a $7bn order for 48 more Tornado combat aircraft and associated equipment. The fact that the deal was greeted more with a sigh of relief than triumphant effusion says a great deal about the troubled times faced by American and European arms industries and a growing appreciation of the risks of relying on Gulf countries to bail them out.

The Saudi order came at a crucial time for the Tornado's manufacturer, British Aerospace (BAe). After much political infighting, Germany was persuaded by its partners to continue participation in a modified European Fighter Aircraft (EFA) programme which will build a new generation combat plane for the beginning of the next century. "If we had not received the Saudi order, we would have had to shut down completely the Tornado line in a couple of month's time," commented Dick Evans, BAe's chief executive. "We can also plan sensibly our medium-term production before EFA production comes on stream." In other words, without the Saudi deal, BAe would have been hard pushed to find the money to stay in the game of developing sophisticated military aircraft. BAe is not alone in confronting the economic downside of the Cold War's end.

Throughout the Western world, military budgets are being cut heavily to pay for the "peace dividend". It is now being realised that the reduction in military spending may be taking place too fast and too steeply if the United States and its European allies are to retain the ability to intervene in crisis-ridden areas around the world (such as the Gulf). But even if leaner spending plans are revised, arms manufacturers will still have to rely on their ability to find foreign buyers if they want to survive. It is improbable, for example, that the EFA programme will be a commercial success if it has to depend solely on the reduced requirements of European air forces.

The Gulf has always presented an attractive market for Western suppliers. But there are too many of them, they face intrusive competitors (such as Russia, South Africa and China) and the Gulf countries are pruning their spending plans. After the Iraqi invasion of Kuwait, the emirate said it would spend $25bn on arms procurement over the following six years. This is now expected to be less than $15bn over an eight-year period. Similarly, Saudi Arabia's shopping list has fallen from around $8bn a year to less than $5bn.

BAe is lucky to have the order for Tornados after Saudi Arabia announced it would buy another 72 McDonnell Douglas F-15s from the United States last autumn. From a military point of view, it is questionable whether the kingdom needs both types of aircraft. But political arm-twisting played its part.

It apparently did so as well when Kuwait awarded its main battle tank contract to General Dynamics last year and agreed to buy the M1-A2 Abrams in preference to Britain's Challenger II. There are some who worry that exercising undue influence to gain orders may prove counter-productive. But in the desperate search for buyers, no holds are barred. The end of the arms race in the Gulf for which George Bush called two years ago is not yet in sight.
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Title Annotation:arms manufacturers feel the crunch
Publication:The Middle East
Date:Mar 1, 1993
Previous Article:Hard to shake history loose.
Next Article:Bunkered down.

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