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Boeing : Saudi Arabia agrees to buy $7 billion in precision munitions from U.S. firms - sources

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11/23/2017 | 12:16am CEST
Logo of the U.S. defense company Raytheon is pictured at an international military fair in Kielce

(Reuters) - Saudi Arabia has agreed to buy about $7 billion (£5.26 billion) worth of precision guided munitions from U.S. defence contractors, sources familiar with the matter said, a deal that some lawmakers may object to over American weapons having contributed to civilian deaths in the Saudi campaign in Yemen.

Raytheon Co (>> Raytheon) and Boeing Co (>> Boeing Company (The)) are the companies selected, the sources said, in a deal that was part of a $110 billion weapons agreement that coincided with President Donald Trump's visit to Saudi Arabia in May.

Both companies declined comment on the weapons sale.

Arms sales to the kingdom and other Gulf Cooperation Council member states have become increasingly contentious in the U.S. Congress, which must approve such sales.

The U.S. State Department has yet to formally notify Congress of the precision guided munitions deal.

"We do not comment to confirm or deny sales until they are formally notified to Congress," a State Department official said, adding the U.S. government will take into account factors "including regional balance and human rights as well as the impact on the U.S. defence industrial base."

The Yemen civil war pits Iran-allied Houthi rebels against the government backed by a Saudi-led Arab coalition. Nearly 4,800 civilians have been killed since March 2015, the United Nations said in March.

Saudi Arabia has either denied attacks or cited the presence of fighters in the targeted areas and has said it has tried to reduce civilian casualties.

Saudi Arabia's Ambassador to Washington, Prince Khalid bin Salman declined to comment on the specific sale, but said in a statement his country will follow through on the agreements signed during Trump's visit.

He said that while the kingdom has always chosen the United States for weapons purchases, "... Saudi Arabia's market selection remains a choice and is committed to defending its security."

Trump, a Republican who views weapons sales as a way to create jobs in the United States, has announced billions of dollars in arms sales since taking office in January.

A U.S. government official who spoke on condition of anonymity said the agreement is designed to cover a 10-year period and it could be years before actual transfers of weapons take place.

The agreement could be held up in Congress, where Bob Corker, the Republican chairman of the Senate Foreign Relations Committee, announced in June that he would block arms sales to Saudi Arabia, the United Arab Emirates and other members of the GCC, over a dispute with Qatar, another U.S. ally in the Gulf.

In November 2016, the administration of President Barack Obama, a Democrat, halted the sale of $1.29 billion worth of precision guided weapons because of concerns about the extent of civilian casualties in Yemen.

That sale process started in 2015 and included more than 8,000 Laser Guided Bombs for the Royal Saudi Air Force. The package also included more than 10,000 general purpose bombs, and more than 5,000 tail kits used to inexpensively convert "dumb" bombs into laser or GPS-guided weapons.

U.S. lawmakers have grown increasingly critical of the Saudi-led campaign in Yemen. The coalition had briefly banned naval, air and land transportation to Yemen following a missile fired by the Houthis that was shot down over the Saudi capital Riyadh.

The Senate in June voted 53 to 47 to narrowly defeat legislation that sought to block portions of the 2015 package.

David Des Roches, a senior military fellow at the Near East South Asia Center for Security Studies in Washington was aware of the deal but said the Saudis "are one errant strike away from moving five or six senators over to the other side."

Denying Saudi Arabia precision guided munitions was unlikely to change their behaviour, he said.

"Saudi Arabia has shown they will fight in Yemen and they're going to keep on fighting in Yemen regardless of what we think," Des Roches said.

(Reporting by Yara Bayoumy and Mike Stone; additional reporting by Patricia Zengerle; Editing by Chris Sanders and Grant McCool)

By Yara Bayoumy and Mike Stone

Stocks treated in this article : Boeing Company (The), Raytheon
Stocks mentioned in the article
ChangeLast1st jan.
RAYTHEON -2.34% 213.69 Delayed Quote.21.44%
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Financials ($)
Sales 2018 97 399 M
EBIT 2018 11 213 M
Net income 2018 9 491 M
Debt 2018 1 158 M
Yield 2018 1,95%
P/E ratio 2018 21,24
P/E ratio 2019 18,63
EV / Sales 2018 2,00x
EV / Sales 2019 1,88x
Capitalization 193 B
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Mean consensus OUTPERFORM
Number of Analysts 27
Average target price 388 $
Spread / Average Target 13%
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Managers
NameTitle
Dennis A. Muilenburg Chairman, President & Chief Executive Officer
Jenette E. Ramos Senior Vice President-Supply Chain & Operations
Gregory D. Smith CFO & EVP-Enterprise Performance & Strategy
Theodore Colbert Chief Information Officer & SVP-Data Analytics
Gregory L. Hyslop CTO, Senior VP-Engineering, Test & Technology
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RAYTHEON21.44%65 817