RTN Raytheon Co

By Doug Cameron 

The arms agreements with Saudi Arabia formally signed by the U.S. over the weekend could help protect domestic jobs in an industry that has culled tens of thousands of workers over the past five years, but also boost employment in the Gulf nation.

Lockheed Martin Corp., Boeing Co. and Raytheon Co. announced a mix of deals as part of the slew of trade agreements signed by the U.S. government during President Donald Trump's official visit.

U.S. officials said the defense deals -- which include proposed sales and final approvals for sales that have been in the works for many years -- were potentially worth $109 billion. Most have yet to be completed and hinge on further government-to-government talks, with the Pentagon then contracting with U.S. defense companies to supply the equipment.

Alek Jovovic, a principal at consultant Avascent Analytics, described the headline number as "staggering," and said it raised questions over the Pentagon's ability to complete so many deals and Saudi Arabia's ability to absorb so much equipment.

For the defense companies, whose shares have come off the boil and underperformed the market since the start of the year following a postelection bump, much hinges on the timing of actual sales.

Lockheed Martin said in a statement that it amassed $28 billion in potential new business from Saudi Arabia, including the planned sale of four modified Littoral Combat Ships, reviving a plan ditched on cost grounds two years ago. It is also selling 150 Black Hawk helicopters that would be assembled at a new plant in Saudi Arabia, creating 450 jobs there.

Saudi Arabia also wants to acquire Lockheed's Thaad missile-defense system, which has already been bought by the United Arab Emirates, and Raytheon said it was setting up a new Saudi-based defense arm encompassing munitions and cybersecurity.

The planned ship and missile-defense sales have already been approved by Congress and are expected to be the first to make it into first into companies' order backlogs, said analyst Cai von Rumohr at Cowen & Co.

Boeing, whose chief executive was in Saudi Arabia alongside his counterparts at Lockheed Martin and Raytheon, received congressional approval earlier this year to sell around $7 billion in Chinook and Apache helicopters to the country. The sale is part of a deal first tentatively agreed in 2010, which is included in a $60 billion package negotiated with the Obama administration.

Saudi Arabia is the world's second-largest arms importer by value after India. Like other Persian Gulf states, it also wants to build more of its own military equipment to diversify an energy-dependent economy. Last week, the country announced plans to establish the state-owned Saudi Arabian Military Industries, which aims to create over 40,000 jobs by 2030. It is part of the Saudi Vision 2030 plan announced three years ago to source half of its defense requirements from domestic suppliers, compared with just 2% at present.

The largest existing Saudi arms contract from a U.S. company is the $10 billion deal signed in 2015 to buy hundreds of military vehicles from the Canadian arm of General Dynamics Corp.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

May 21, 2017 13:11 ET (17:11 GMT)

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