The best market since the Shah
In the aftermath of the 1979 Islamic revolution in Iran, Saudi Arabia quickly assumed preeminence as the most important weapons export market in the world. A combination of oil wealth, strategic need, and no indigenous alternatives resulted in contracts for well over $100 billion in imported arms. The importance of the Saudi air force meant that aircraft manufacturers benefited most from this largesse

	The Saudi purchase of 72 F-15s saved the production line from shutting down.

Because manpower was in shorter supply than money, the Saudi air force has consistently favored larger, more expensive combat planes. The service was also prone to invest in technologically advanced support aircraft, as a force multiplier. The country was one of six export customers for Boeing’s E-3 Sentry Airborne Warning And Control System (AWACS).

Between 1986 and 2000, the kingdom purchased almost $20 billion worth of new combat aircraft (in 2003 dollars). But this figure excludes the equally important market for service contracts and upgrade work, which are typically worth 100-150% of the up-front value of an aircraft over its service life. It also excludes work for training, airfield construction and maintenance, and countless other tangential requirements.

Also, just as the Shah of Iran helped save Grumman’s F-14 production line in the 1970s with an order for 80 planes, Saudi Arabia played a pivotal role in saving two key fighter production lines in the 1990s.

	The 1993 purchase of the Tornado revived the almost-mothballed British Aerospace production line.

In September 1992, the first President George Bush approved the long-awaited sale of 72 F-15s to Saudi Arabia. The deal, then valued at $5 billion, saved the F-15 production line from imminent shutdown. On December 23, 1992, McDonnell Douglas (now Boeing) received a $122-million Foreign Military Sales contract from the USAF for long-lead items for the sale. This contract represented the first disbursal of funds for the program, and came just in time to save the production line, although about 20% of the suppliers had been dropped from the program.

The U.S. agreed to sell Saudi Arabia a new variant of the F-15 known as the F-15XP (later redesignated F-15S). Based on the F-15E airframe, the F-15S has mostly F-15C/D systems. It uses the F-15E’s APG-70 radar, but this was “detuned” to APG-63 standard, and some F-15E software and electronic warfare equipment was deleted. In all, 24 aircraft were configured for air defense, and 48 for air-to-ground missions. The aircraft were to be delivered between 1995 and 1998, but stretchouts delayed the final delivery until 2000.

The salvation of the F-15 was quickly followed by a similar contract for the German/Italian/U.K. Panavia Tornado. In late January 1993, Saudi Arabia placed its long-awaited Al Yamamah II order for 48 Tornado Interdictor Strike aircraft, just several weeks after the Panavia production line finished its last home-country Tornado order.

The purchase revived the almost-mothballed British Aerospace (BAe) War-ton production line, saving about 19,000 jobs in the U.K. This contract was signed in October 1993, at which time BAe began to hand out $750 million in subcontracts. The first aircraft was delivered in October 1996, and the last was delivered in September 1998. The 48 new planes joined the 72 older Tornados delivered between 1986 and 1991 under the original Al Yamamah contract.

	Saudi military aircraft imports, 1986-2000

While the Tornado purchase provided a last hurrah for a key European program, the F-15 order helped produce additional important orders. In 1993, Israel signed for 21 F-15Is, later increased to 25. The USAF purchased 27 more F-15Es between FY96 and FY01. And in 2002, South Korea placed an order for at least 40 F-15Ks, launching an entire new variant. Without the key Saudi order, the F-15 line probably would not have survived to benefit from this impressive order activity.

The sheer volume of the Saudi market, and the pivotal timing and importance of the orders it produced, was only half the story. The other aspect that made it important was that it was not dependent on any one supplier. The kingdom was mindful of the need to maintain good strategic relations with Europe as well as the U.S., and it felt vulnerable to a U.S. arms embargo because of tensions with Israel.

	The success of the F-35 signup effort resulted in several countries deciding to delay fighter buys until this multirole fighter is available.

As a result, the Saudis regularly purchased weapons from France, Italy, and the U.K. Unlike other important arms export customers such as Australia, Israel, Japan, or South Korea, Saudi Arabia combined an enormous market with an enduring commitment to spread its buying power over a wide range of sources. Even transport helicopters were dual sourced, with major buys of both Sikorsky’s S-70 Black Hawk and Eurocopter’s AS.532 Cougar. These helicopters fill essentially identical roles.

Seeking alternative markets
There are strong indications, however, that the golden days of Saudi weapons acquisition may be over, at least for a time. Tensions between the West and Saudi Arabia arising from the September 11, 2001, terror attacks, along with a growing Saudi reform movement, have resulted in an extremely difficult environment for large weapons purchases. In April of this year, the U.S. began withdrawing all combat forces from the country, a sure sign that the situation has greatly changed since the first Iraq war, which saw the permanent establishment of dozens of U.S. bases, the stationing of tens of thousands of combat troops, and the signing of several key arms contracts.

The full extent and implications of the changes now taking place in Saudi Arabia are beyond the scope of this article. But since 2001, the world’s arms manufacturers have grown reluctant to talk of any potential major contracts with the kingdom. A long-standing requirement to replace the Saudi F-5 light fighter fleet has been placed on hold. As recently as 2000, Lockheed Martin’s F-16 had been tipped to win a 100-plane order for this requirement. This possibility seems to have disappeared, and no other manufacturer looks likely to win the contract. In fact, in September 2002, BAE Systems denied that it was even in discussion with the Saudis for a Eurofighter sale.

With the eclipse of the Saudi market, there are a mere handful of alternatives for Europe’s fighter manufacturers. The success of Lockheed Martin’s F-35 Joint Strike Fighter member country signup effort in 2002 resulted in at least seven countries deciding, in effect, to put off any fighter buys until the new U.S. multirole fighter is available. This impressive achievement was accompanied by key U.S. wins in the last important pre-F-35 competitions. In addition to the South Korean F-15 buy, Poland signed for 48 F-16s, chosen over the Saab Gripen and Dassault Mirage 2000.

	This September, BAE Systems secured an order for up to 66 Hawk advanced trainers from India.

While the success of the F-35 is by no means assured, there are only a few remaining fighter competitions for countries that are not waiting to see how the F-35 turns out. Singapore is looking for a firm buy of only 10-20 fighters, which might not be large enough to justify introduction of a new aircraft type into the country’s fleet. Australia may lease some interim fighters, but it also looks increasingly determined to go with the F-35 if its performance and costs come close to promised figures.

The key remaining fighter market is India. While not as rich as Saudi Arabia, India does have large military requirements and a growing sense of strategic importance. Also, like Saudi Arabia, it has an ongoing commitment to purchasing weapons from numerous sources. In addition to Russian aircraft, India has procured 59 Dassault Mirage 2000s, and is rumored to have considered Dassault’s Rafale. But again, compared to the Saudi market, India’s military aircraft requirements are considerably smaller. It also has begun construction of an indigenous alternative, Hindustan Aeronautics’ Light Combat Aircraft.

Meanwhile, European manufacturers of other military aircraft seem to be managing nicely without Saudi Arabia. In September of this year, BAE secured a long-awaited order for up to 66 Hawk advanced trainers from India. Also this year Agusta-Westland made a breakthrough sale of its EH 101 large naval helicopter to Japan, displacing the incumbent, Sikor-sky. Eurocopter has also achieved its first successes in the attack helicopter market, selling the new Tiger to both Australia and Spain.

Impact on planemakers
Despite these nonfighter successes elsewhere, aircraft manufacturers will be adversely affected by the closed Saudi market. Because of the fighter sales and F-35 partnership signup events of 2002, there are reasons to think that European manufacturers will be particularly affected.

There is also the simple historical record. The Tornado was Europe’s most important military aircraft program yet, and Saudi Arabia’s 120 orders represented 12% of the total production run of 992 planes. By contrast, the F-15 was just one of three important U.S. fighter programs in the last 25 years, and Saudi Arabia’s total purchase of 146 planes represented only 9% of the 1,606 planes ordered so far. Dassault’s Mirage 4000 heavy fighter failed to go ahead in the 1980s largely because Saudi Arabia, the key target customer, failed to sign an order. Saudi Arabia clearly has meant more to European aerospace than to U.S. aerospace.

	Eurofighter’s hopes for a large breakthrough export order have been significantly impaired by the Saudi market collapse.

The first indirect casualty of the end of the Saudi market could be Dassault’s Rafale Mk.2. The French company shelved this larger growth export version of the Rafale in March, for the very sound reason that there was no longer enough of an export market to justify the cost of its development. Without this larger, more capable variant, the Rafale’s competitive standing in the Singapore competition has been considerably reduced.

Similarly, Eurofighter’s hopes for a large breakthrough export order have been significantly impaired. Again, its predecessor, the Tornado, was only exported to Saudi Arabia. While Austria has provided Eurofighter with a first export order, the aircraft is in a difficult market position. Historically, aircraft in its size and cost class have been ordered by only four export customers—Saudi Arabia, Israel, Japan, and South Korea. The latter three are fully committed to U.S. fighters.

Diminishing prospects for a major export order for either of Europe’s two twin-engine multirole fighters could easily play a role in spurring faster industry consolidation in Europe. While this consolidation appears stalled, realization by home governments that another Al Yam-amah export breakthrough appears unlikely could dampen enthusiasm for the current status quo.

Again, the Saudi market may well recover, after a period of internal reform (or perhaps because of higher oil prices). But there is also the risk that this might not happen—or that it might not happen until the window has been closed to export sales for several key European fighter programs.