ABU DHABI — Avascent, a strategy and management consulting firm, was on hand at the International Defence Exhibition and Conference (IDEX) late last month, where analysts they provided a post-game wrap-up of sorts. They discussed with analysis of the Ukraine-UAE technical cooperation deal, which was announced at the expo by Ukrainian President Petro Poroshenko, and other dynamics between the Arabian Gulf states and former Soviet satellites as they deal with in the wake of Russian aggression.
Days after Egypt's decision to buy Rafale's twinjet fighters in an arms package worth €5.2 billion (US $5.5 billion), the UAE made several announcements at the show connected to the consolidation of its defense industry, both moves asserting independence from their defense partner, the United States.
Avascent Principal Aleksandar Jovovic and Managing Director James Tinsley gave their views on the developments.
Q: What are the dynamics with Russia on one end of the convention hall and Ukraine on the other?
Jovovic: Ukrainian industry is in some respects a Tier 1 or Tier 2 supplier to a lot of Russian firms without a ton of their own products to market here. That link to Russia is now severed completely, to their detriment and to Russia's detriment, too. I think Poroshenko's visit here was about doing a little bit of shopping but, I think, ultimately they're looking for some money, whether that money is aimed at assistance for acquisitions or for investment.
Q: How substantive was the deal between Ukraine and the UAE and what motivated it?
Tinsley: I wondered if it was to get leverage on the DSCA [US Defense Security Cooperation Agency]DSCA. The American foreign military sales and support process has been very slow to react. Ukraine announces deals, talks to some of the individual contractors without really having a lot of money to spend, and it's more about building relationships. It's about having a presence and putting pressure on the US defense establishment. It would be really good for Ukraine and the UAE to establish their credibility as a provider when the US is a little slower to react.
Jovovic: And there's no question, the US is very slow. Since this has come through, it has taken months and months to get, you know, trivial amounts of equipment.
Q: What are Russia's former defense partners in the region doing?
Tinsley: It's not only Ukraine but really to Poland and other states that matter right now — Bulgaria and others.The Bulgarians have also been looking at how they wean themselves from Russian support in certain areas — aircraft maintenance and some other things. If Ukraine and others can align around what services they can offer each other, that's another avenue. That technology base is so limited that unless they get a refresh from UAE, the US or UK or whoever else it is, it's going to be old. Soviet-era BTR [personnel carriers] forever, and they're really not competitive in the market anymore.
You don't see countries buying from them because they're cheap and easy anymore. You see people moving in the other direction, particularly in the Middle East, where those used to sell, even in Africa and other areas where real. The Germans and others are setting up production lines for things where normally the Russians would have been the ones doing that or the Ukrainians or somebody else. It's very tough.
Jovovic: I think from the Emirati perspective here, they're very happy to cherry-pick and go into some of these markets that are sort of Tier 2 defense markets, but they have one or two interesting things they're going to invest in.
Tinsley: Serbia has a very big presence here because they see the Emiratis as a strategic investor who can pump $15 million dollars into a specific product or a specific small, limited portfolio, things the Emiratis want. They ultimately want technology coming back here. So wherever they can wean themselves off of a complex foreign military sales process and get the technology embedded locally, I think they like that. That's, I think, frankly the big story of the show is the consolidation of the Emirati defense industry, ETIC.
Q: How revolutionary is this?
Tinsley: We don't think that this changes that landscape. We think this is about having balance, unlike the Saudis, who have never been able to achieve the balance of both imports and the domestic industry investment. I think what the UAE has recognized is that they have to have their own capability. If you have your own vehicle industry and you have your own weapons systems industry, you then can plug in components and subsystems and other things and be part of that transfer package rather than asking for everything, which you're not going to get.
Q: What do the UAE and Ukraine get from each other?
Tinsley: UAE may be seeking joint ventures or partnerships or transfer relationships with somebody like Ukraine, who brings medium-caliber ammunition and formerly Russian but still-competitive systems. You start to say, 'OK, well now we've been able to bring this piece of our industry to the table and this piece.' Soon you don't need as many of those other western companies supplying to you. You only need the highest technology because you're self-sufficient in so many different areas.
If you're Serbia or Ukraine, looking for any investment at all, you might be more willing to do tech transfer and transition production because there's not enough of a domestic market to prop you up. There's not domestic research and development[R&D], you're essentially left with fewer options. There are only so many countries that can afford to invest in your industry in that way.
Q: At IDEX, Poroshenko met with Frank Kendall, the Pentagon's top weapons buyer, but not even the top guy at the Pentagon. What does that say?
Tinsley: It might be a degree of frustration with political mechanisms within the Department of State, Department of Defense and political leadership to say, 'I want to go right to the guy who is supposed to sell weapons — because I would like to buy them.'
Q: Other countries tend to have more senior officials at shows, but not the US. Still for them, this year's delegation was significant, wasn't it?
Tinsley: The DSCA is well represented here. All the American companies are here. This isn't a show that everybody had retreated from, like the air shows. They've sort of ramped back presence. There's a lot of senior military personnel. But what people are looking for is not just that interface, you know, in terms of requirements and in terms of DSCA and facilitation — yYou know, where is this in process or how long is this going to take, — but recognition in some ways.
Q: DSCA's Vice Adm. Joseph Rixey discussed the agency's efforts to become more responsive, reorganizing around regional combatant commanders. Is that a positive step?
Jovovic: It's very different from how the French or anyone else operates, where their only job is to make money for their defense and to promote. DSCA and DoD are not the Department of Commerce. They're not advertising US industry. So, it's a difference of philosophy. It's a different policy and it's a different set of requirements that these guys have to fulfill. They're doing their best to juggle the two, but it is juggling.
There are all kinds of nuances. Frankly again, you know you think about what the French are doing now with the Rafales, where they're pulling Rafales off of the line that were going to France because they're so desperate to keep the line open.
We often don't have that … and that's the other part of it, is desperation on the part of other countries that really have to sustain defense industries at a time when their budgets are not growing. You know we still, when we look at that, we're looking at the strategic implications of pulling a unit off the line because that impacts our national security. The French are just like our national security is keeping the Rafale line open, it's not about how many Rafales we have in inventory. So, there are all kinds of nuances there. But we have to be careful about ...
Tinsley: What standard we're holding them to.
Jovovic: It's intrinsically different. Then there's the old issue of actual how policies are implemented and how all these regulations are written and what's required of firms. It's still pretty onerous. We've liberalized UAV sales. Well, maybe, to some countries under very strict guidelines and all kinds of requirements. So, it's interesting. I think we've heard a lot of cheering from industry about huge changes. Everyone recognizes the process has become more streamlined, more efficient, but it's still a lot more than what the competitors have to go through. So, you know it's tough.
Q: To what degree did news about the Rafale sales to Egypt have an impact here?
Tinsley: The Rafale sale, I think, sent the message that even for key US allies that get [foreign military sales] and industry investment from the US, they're still looking to diversify. They're still looking to essentially provide a great degree of competition in some ways that encourage that political engagement. So, all the discussions of cutting off aid to Egypt during their political travails, I think, spooked them a bit, sort of like India and Pakistan and others have been spooked in the past from potential sanctions. While it never got to that, the debate itself being so public and the pressure from certain people I think create a perception that we need to have a bit more of a plan B and at least encourage competition.
Q: On the day that Frank Kendall told reporters he didn't think any F-35 would go to the region, Israel announced that it was buying more F-35s. Does that sting these guys?
Tinsley: Yeah, definitely. It's a little early to say there won't be any. I mean yes, there won't be any at the current price point with the framework of people who have invested in the program and the rest. But over time, as it becomes more of a standard platform — remember, we weren't going to export F-16s either.
Jovovic: This is a standard story that we always have. Let's not equate all the countries in the gulf. Be very careful about that.
Email: jgould@defensenews.com
Twitter: @reporterjoe
Joe Gould was the senior Pentagon reporter for Defense News, covering the intersection of national security policy, politics and the defense industry. He had previously served as Congress reporter.
