Qatar’s deal to buy 24 Typhoon jets and nine Hawks is now officially effective after BAE Systems received its first payment today.
The deal, worth around £5bn includes the aircraft and a bespoke support and training package. Qatar is now buying nine Hawk trainers, rather than six, which will also be welcome news for BAE Systems’ factories in Warton and Brough which make the jets.
Welcoming the news, Defence Secretary Gavin Williamson said: “This monumental, multi-billion-pound deal is now officially in place, and those from across government and industry who have worked so hard on it together can be extremely proud to see it reach this stage. It’s a massive boost to the British defence industry, helping to support thousands of jobs, and it will help us further build the trust between the UK and Qatar to tackle the challenges we both share, support stability in the region and deliver security at home.”
UK Export Finance’s (UKEF) £5bn package of support was vital to securing the deal, (Emphasis added—Ed.) including by providing financing and insurance. UKEF’s role is to support UK exports including by providing export finance to enable overseas buyers to purchase goods and services from the UK, and export insurance for companies selling overseas.
International Trade Secretary, Dr Liam Fox said: “The UK Government is proud to be a part of this hugely significant export contract, supporting BAE Systems, its nearly 35,000 employees and the 9,000 companies in its supply chain.
“This support from UK Export Finance will sustain jobs in one of the UK’s key industrial sectors, support economic growth, and strengthen our own defence capabilities as well as those of a key strategic ally.”
BAE Systems Chief Executive, Charles Woodburn said: “This contract, effective today, represents a significant step in BAE Systems’ long-term relationship with the State of Qatar, as it becomes the ninth country to choose Typhoon. The proven combination of Typhoon and Hawk will provide the Qatari Armed Forces with the most advanced and flexible multi-role combat aircraft on the market today, along with best in class support and training.”
The Defence Secretary Gavin Williamson and his Qatari counterpart, Dr Khalid bin Mohammed al Attiyah, oversaw the signing of the deal in Doha in December. Deliveries of the first Typhoon aircraft are expected to commence in 2022.
The deal also involves a package of training and co-operation between the British and Qatari Air Forces which will see them working closely together in the future. A new UK-based Typhoon joint squadron, reformed as No.12 squadron, will comprise both Qatari Emiri Air Force and RAF personnel, including pilots and ground-crew based at RAF Coningsby in Lincolnshire ahead of the delivery of the aircraft. It represents a unique initiative, with the RAF not having formed a squadron with another nation since the Second World War and the Battle of Britain.
The UK and Qatar share mutual interests in countering violent extremism, and ensuring stability in the region, and the deal further reinforces those ties by helping to prevent terrorism from spreading and protecting the prosperity and security of the UK at home.
Qatar is the ninth country to purchase the Typhoon, with the deal sustaining thousands of UK jobs. The MOD continues to bang the drum for the UK’s world-leading aerospace industry, with sales of defence equipment to foreign customers surging by 53% last year to £9bn.
The UK is a world-leader in the combat air sector, with a mix of skills and technologies unique in Europe, supporting over 18,000 highly skilled jobs. The sector delivers a turnover of more than £6bn a year and has made up over 80% of defence exports from the UK over the last ten years.
The support follows the launch of the Government’s Export Strategy, which sets out how the government will support businesses of all sizes to make the most of the opportunities presented by markets around the world.
(EDITOR’S NOTE: The above press release from the UK Ministry of Defence makes clear that the British government, through its UK Export Finance (UKEF) agency, has agreed to underwrite the contract by providing a £5 billion package of financing and insurance.
The total value of the support is worth around £5bn, of which £4.5 billion is a UKEF-backed financing package formed primarily of guarantees on commercial lending, according to a UK government source.
The package of financing support includes an offer of direct lending from UKEF should Qatar opt to choose this.
In addition, UKEF has provided export insurance, bringing the total value to around £5 billion.
While the contract’s value has been variously reported as between £4 billion and £6 billion, it follows from the above that the contract's value is only £4.5 billion, the cost of UKEF's export insurance adding £500 million.
Thus, the UK government's maximum exposure is for the total £5 billion.
It remains unclear whether the down payment received by BAE Systems on Tuesday is additional to the £5 billion mentioned in the press release, or whether Qatar paid its down payment with money from the UK financing package.
This may appear implausible, but Qatar – which signed the initial purchase agreement in September 2017 – seems to have had some difficulties in raising a loan to pay for this contract.
It also is worth mentioning that, over the summer, a leaked memo from the UK Treasury cautioned against underwriting Qatar’s Eurofighter purchase. The note cautioned that “billions of Exchequer funding” were at risk should Qatar default on the agreement, and risked “skewing” the government’s credit agency “by concentrating about 25 per cent of their portfolio risk in one transaction”.)
-- Sept 19, 2018 at 1830: Added details of UKEF financing to the Editor's Note (in roman typeface).