Dubai Debt Crisis May Affect Military Deals

The United Arab Emirates (U.A.E) has seem to be a place immune from the world’s economic downturn. The oil rich emirates have invested their money in development and overseas as well as in modern weaponry. The UAE like many of the other Gulf States fears the military ambitions of Iran and had been buying modern U.S. and European weapons to beef up their defenses.

The U.A.E. had recently signed a large deal for U.S. THAAD and PATRIOT ground based missile defense systems. They have bought UH-60 Black Hawk medium helicopters and were in discussions to purchase the Rafale fighter from France. The U.S. companies like Lockheed Martin (LMT), Raytheon (RTN) and United Technologies (UT) were looking at this market to make up for potential shortfalls in their domestic market. The Rafale had never been sold overseas but is competing in India, Brazil and the U.A.E. deal would be a major coup for the French company Dassault.

Unfortunately all of this thought that the country was avoiding the financial crisis that roiled the U.S. and Europe ended last Wednesday when Dubai World, a large real estate development firm in the U.A.E., announced that it was going to have to stop paying some of its debt while it restructured it. While this is only one large company in the U.A.E. the fact that it could happen has caused major drops in stock markets around the world on worries that it could lead to a major decline in cash available for investment.

If the U.A.E. is suffering debt problems this could also mean that there won’t be the money available for the big defense deals. It does not only affect things like buying C-17 or C-130J transports but also the civil aerospace market. Emirates Airlines has been one of the larger purchasers of the Airbus A380. These ultra large airliners provide luxurious travel as well as comfortable coach accommodations. Already EADS reported that they will have to take a charge related to the A380 and that uncertainty with that market and the A400M will mean it cannot make a full year guidance prediction. Any further decline in the market for these aircraft especially canceled or delayed orders will greatly affect Airbus and its parent company EADS (EADS.P).

Boeing (BA) also provided many 777 aircraft and they would like to sell 787 and support to the airline. This is just one illustration of the affect that this debt crisis might have on defense contractors big and small. In today’s market every contract is necessary to provide long term stability to the industrial base of America and Europe especially now there may be worries that the domestic market may see declines.

The U.A.E. debt crisis if serious and long drawn out may end up affecting the U.S. defense business quite a great deal.