U.S. defense contractors have shied away from publicly discussing the disappearance and killing of Jamal Khashoggi, a Washington Post contributing columnist who sharply criticized the Saudi state for limiting free expression. But when pressed by investment analysts this week on how the political situation might affect their business, executives from Massachusetts-based Raytheon and Bethesda-based Lockheed Martin said they would keep selling advanced weaponry to Saudi Arabia as long as the U.S.-Saudi military partnership continues.
“We continue to be aligned with the administration’s policies, and we intend to honor our commitments,” Toby O’Brien, Raytheon’s chief financial officer, told investors Thursday.
Both companies emphasized that their international arms deals are ultimately coordinated by the government in concert with foreign allies. For U.S. defense contractors to sell weapons systems abroad, they have to first go through a complicated government process that involves the Defense Department, State Department and Congress, which vet each deal’s geopolitical, security and human rights implications.
“Most of these agreements that we have are government-to-government purchases, so anything that we do has to follow strictly the regulations of the U.S. government,” Lockheed Martin chief executive Marillyn Hewson said Tuesday. “Beyond that, we’ll just work with the U.S. government as they’re continuing their relationship with Saudi.”
The Aerospace Industries Association, a trade group, said it will continue to “support U.S. national security and foreign policy goals, and our companies will continue to look to the government for direction on how best to support those goals.”
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Saudi Arabia is a favored business partner of U.S. defense contractors because it is among the world’s largest military spenders. The kingdom spends billions of dollars every year on American-made weapons systems, and it has few of the bureaucratic checks and balances that delay big military purchases in the United States.
Raytheon executives said Thursday that about 5 percent of the company’s annual sales come from the kingdom, though they emphasized it is not dependent on any one foreign buyer. They expect those sales to remain roughly flat into next year, as the company receives at least two large contracts for “offensive and defensive weapons systems” and military training.
Lockheed executives said Tuesday that they have “about less than $500 million” in Saudi sales planned for 2019 and about $900 million into 2020. The company expects to receive an additional $450 million contract for combat ships and is awaiting an additional deal on its Terminal High Altitude Area Defense (THAAD) missile defense system, which is expected to be operational in Saudi Arabia by 2023.
Lockheed has made selling to foreign governments a key target for growth. Earlier this year, Hewson said her company’s international sales had jumped from 17 percent of total sales in 2013 to 30 percent in 2017.
Saudi Arabia played a key role in that growth, she said, and made it clear that the relationship would continue.
“Saudia Arabia has expressed its intent to procure integrated air and missile defense systems, combat ships, helicopters, surveillance systems and tactical aircraft in coming years,” she said.
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That relationship is now complicated by a global political backlash over Saudi Arabia’s human rights record in the weeks since Khashoggi’s killing, an issue that has also brought renewed visibility to a long-running humanitarian crisis in Yemen.
The United Nations has counted thousands of civilian deaths, including “possible war crimes,” in a Saudi-led war in Yemen that is bolstered by U.S. arms and training. The Associated Press reported Thursday that 21 people, including some children, were killed by a Saudi airstrike at a fruit and vegetable market near Yemen’s Red Sea port of Hodeida.
“Civilians are paying a shocking price because of this conflict,” U.N. Humanitarian Coordinator for Yemen Lise Grande told the AP.
There has so far been little decisive action to curb arms sales, however.
On Sunday, German Chancellor Angela Merkel said that the country would suspend arms sales to Saudi Arabia, telling reporters that, “arms exports can’t take place in the current circumstances.” And the European Union passed a resolution Thursday urging a ban on weapons sales in response to Khashoggi’s killing.
The resolution was nonbinding, however, and it was unclear what if any effect it would have. Britain, Saudi Arabia’s second-largest source for military hardware behind the United States, has yet to take a firm stance on the issue. And President Trump said on CBS’s “60 Minutes” last Sunday that he wants U.S. arms sales to continue to protect jobs at Lockheed, Boeing and Raytheon.
“I don’t want to lose an order like that,” he said.
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Numerous U.S. politicians have pledged to place limits on Saudi arms sales in light of Khashoggi’s killing even though it will be hard for them to overcome a White House veto.
On Wednesday a bipartisan group of lawmakers introduced a bill in the U.S. House of Representatives that would stop most U.S. arms sales to the kingdom, specifically referencing “the murder of journalist and United States permanent resident Jamal Khashoggi.”
Raytheon faces political headwinds over a proposed sale of precision-guided bomb kits, complex navigation systems that steer bombs to their targets, presumably making them more effective against military targets and less dangerous for civilians. Raytheon wants to sell bomb kits to the United Arab Emirates as well as Saudi Arabia, but the Saudi portion of that deal is being held up by Sen. Robert Menendez (D-N.J.) over human rights concerns.
Sen. Jack Reed (R.I.), the ranking Democrat on the Armed Services Committee, recently told reporters that he wouldn’t support any new weapons deals to the kingdom. “The mood of the Congress is this outrageous act can’t be followed by a business as usual arms deal,” he said, according to published reports.
Still, defense analysts believe U.S. defense contractors are unlikely to take much of a financial hit over the Saudi situation, even if arms sales are curbed significantly. With the U.S. defense budget growing again under a Republican-controlled Congress and White House, companies like Lockheed Martin and Raytheon are more optimistic about future sales in the United States.
“We are a global company providing technology and security solutions for over 80 countries and we have numerous global franchises,” Raytheon chief executive Thomas Kennedy said. “So I’m pretty confident that we will weather this complexity."
Lockheed took in more than $50 billion from U.S. government contracts last year, dwarfing its expected $500 million in Saudi sales for 2019.
“So not a huge amount of dependency on the [Saudi] activity, even though the opportunities we’ve described are much larger than that obviously,” Lockheed chief financial officer Bruce Tanner said Tuesday.
Defense analysts see it as unlikely that any campaign to limit arms sales will succeed unless President Trump leaves the White House in 2020. Even then, U.S. defense contractors would have the support of a sophisticated and well-funded lobbying operation in Washington: Lockheed Martin, Boeing, Northrop Grumman and Raytheon spent more than $50 million combined in 2017, according to opensecrets.org. Boeing, which has a substantial commercial airline business, led the way with $16.7 million, with Lockheed and Northrop at $14.5 million each.
“We have supported the kingdom of Saudi Arabia in securing defense for more than 50 years,” Kennedy said. “And through that course of time, we have seen issues that have occurred at different periods of uncertainty. And we’ve always resolved it through the end and by doing this one thing: It’s actually following the direction and position of the U.S. administration, which we were right behind in making sure that we understand where they are going and that we’re locked in step behind them.”