Failed talks between RTX and a Saudi defense firm show the kingdom’s difficulties in establishing its own military industry.
Saudi Arabia—American defense giant RTX and a Saudi weapons firm were heading
toward a multibillion-dollar deal when it was abruptly called off early this
year. The reason, say people familiar with the talks, was RTX’s concerns that
its Saudi partner’s companies were pursuing business with sanctioned Chinese
and Russian entities.
unease was a deciding factor for an advisory board of retired American military
officers to resign from the Saudi company, Scopa Defense, the people said.
Scopa fired its American chief executive who had raised the sanctions concerns
with his company’s owner and U.S. officials. And now other major Western
defense companies are reconsidering early-stage agreements primarily because of
the concerns around engagement with Russian and Chinese entities, the people
failed talks with RTX, formerly known as Raytheon Technologies, demonstrate a
challenge Saudi Arabia faces in pursuing diplomatic and business relationships
with China and Russia that Washington says jeopardize U.S. national security.
Doing business with sanctioned companies could undermine U.S. efforts to
squeeze Russia and China financially and heighten the risks that Western
companies would face sanctions themselves. It also raises the specter of Moscow
and Beijing obtaining secret U.S. military technology.
breakdown of RTX-Scopa talks also shows the challenges for countries that want
to maintain relationships with both the U.S. and its top global rivals when
Washington prefers its partners and allies to take sides.
Arabia was once firmly in the Western camp, but since Russia’s invasion of
Ukraine, it has expanded ties with other powers, managing the oil market in
alignment with Moscow and entering discussions with Chinese companies to help
build its nascent nuclear program. The Biden administration has said it doesn’t
want Saudi links with those countries to stray into military cooperation.
oil-rich kingdom’s courtship of Russia and China also threatens ambitious plans
to build its own military industry after decades as a top global-arms importer.
Saudi Arabia’s strategy so far has been to join with defense firms from the
U.S. and other North Atlantic Treaty Organization countries, which have sold
the Saudis most of their current arsenal of defense systems.
owner, Mohamed Alajlan, chairs the Saudi-Chinese Business Council and is the
scion of a prominent Saudi family that has imported Chinese textiles for
decades and now operates in many sectors. Scopa, founded in 2021, is the
highest-profile private Saudi company set up to support Crown Prince Mohammed
bin Salman’s vision for a local arms sector, as the 38-year-old ruler tries to
diversify the economy away from oil.
denies dealing with Russian companies and says any transactions with Chinese
firms are limited to securing raw materials such as copper or rubber for use in
producing ammunition and armored vehicles.
don’t work with any companies that have international sanctions,” Alajlan said
in an interview. Suggestions to the contrary “are all rumors, inaccurate and
illogical and unrealistic,” he added. In a subsequent statement, he said none
of his companies are involved in any negotiations or dealings with any
Department spokesperson declined to comment on any ongoing or potential
investigations. “We expect all U.S. companies and individuals to do their
necessary due diligence and operate in full compliance with all U.S. export
control regulations and any applicable sanctions,” the person said.
official said the Treasury Department is aware of concerns that Alajlan’s
companies had dealings with sanctioned Russian and Chinese entities.
Scopa signed a memorandum of understanding in 2022 to set up a factory in Saudi
Arabia for sophisticated air-defense systems to protect the country from drone
and missile attacks.
companies’ plan was to stitch together radars and multiple air-defense systems
that could intercept drones and missiles of various sizes that fly at different
speeds and altitudes, said Nasr Alghrairi, who was Scopa CEO until he was fired
this year. Called a multi-mission battery, the system was supposed to be able
to protect an eight-square-mile area, he said.
information about current U.S. weapons systems that would be used in Scopa’s
new weaponry were to fall into Russian or Chinese hands, it could risk being
reverse engineered, undermining U.S. defenses.
proposed joint venture between RTX and Scopa was expected to invest $25 billion
in the kingdom and generate $17 billion of sales, said Alghrairi.
decision to end talks with Scopa was “rushed, illogical and even irrational,”
Alajlan said. He brought in a Saudi executive to succeed Alghrairi, whose
contract wasn’t renewed after he failed to achieve performance targets, Alajlan
denied that and said he had expanded the business rapidly. He said he was fired
for raising concerns about the Russia and China business.
the Saudi government didn’t respond to requests for comment.
Western companies, including Italy’s Beretta Defense Technologies and
SpA, have backed away from working with Scopa.
Some of the people familiar with the matter said concerns about Russian and
Chinese business were a factor.
drive to create a local arms-manufacturing industry, the Saudi crown prince set
up a defense company under the Saudi sovereign-wealth fund to do weapons and
aerospace deals with Western manufacturers and encouraged the private sector to
get involved. Scopa and Alajlan’s other companies aren’t state-owned but are
generally expected to fall in line with the kingdom’s foreign policy. Alajlan
said the government is their only customer.
Scopa, Alajlan hired Alghrairi, a U.S. Navy veteran who set up a small
government-service contractor in Florida with his wife but had never worked for
a major defense manufacturer.
company splashed onto the scene in March 2022 at an arms expo in the Saudi
desert. American executives in attendance grumbled privately about Scopa
erecting billboards featuring NATO weapons systems and the company logo before
it had even begun negotiations with their manufacturers.
used his military connections to establish an advisory board for Scopa led by
retired Army Lt. Gen. Michael Barbero and other U.S. military veterans. They
began lining up partnerships with RTX and dozens of other arms manufacturers in
the U.S. and Europe.
envisioned manufacturing significant portions of NATO weaponry inside Saudi
Arabia, which meant gaining access to technology that is tightly guarded by the
International Traffic in Arms Regulations, a set of Cold War-era American rules
that control the export of U.S. defense equipment.
with people familiar with the matter and documents reviewed by The Wall Street
Journal indicate that two of his other companies made efforts to engage with
sanctioned Chinese, Russian and Belarusian entities. It was those contacts that
spooked Scopa’s board and potential Western partners such as RTX, some of the
said Scopa’s U.S. advisers had worked in good faith and delivered potential
partnerships with Western defense firms. “However, the situation on the ground
made it untenable for us to continue to work with Scopa and left us with no
choice other than to resign,” he said.
Scopa, Alajlan said, he set up Tal Military Industries and Sepha Military
Industries. To run Sepha, he hired an executive from Concern Granit-Electron, a
Russian company that supplies the Moscow government with communications
technology and was sanctioned by the U.S. for supporting Russia’s
a Chinese national to run Tal, which he said does deals in Asia.
months, Tal engaged in discussions about deals with Chinese companies
sanctioned by the U.S., the U.K. and the European Union, while Sepha held deal
talks with Russian and Belarusian companies that also face Western sanctions,
according to company records reviewed by the Journal and the people familiar
with the matter.
Sepha also shared corporate functions, including computer servers, with Scopa
employees, according to one of the people familiar with the matter, even as
Scopa was moving toward getting access to sensitive data from companies
document dated September 2022 indicates that Sepha had a preliminary agreement
with Belarusian state arms exporter BelTechExport to acquire mobile air defense
and counterdrone systems it proposed to sell to the Saudi Defense Ministry. The
U.S. Treasury sanctioned BelTechExport as part of restrictions put on the
Belarusian defense industry in 2021.
preliminary agreement with Granit and Russian state-arms exporter
Rosoboronexport aimed to acquire communications interception technology that
Sepha proposed to sell to the Saudi intelligence services. The document also
shows that Sepha looked at marketing Russian ammunition, body armor and
surveillance equipment in Saudi Arabia, assembling Russian attack helicopters
there, and manufacturing armored vehicles with Russia’s Military Industrial Co.
complaint lodged with the U.S. Treasury and reviewed by the Journal alleges Tal
was in touch with at least half a dozen sanctioned Chinese companies. For
example, it sought to produce land systems with Norinco Group, which has faced
U.S. sanctions for years for links to the Chinese military and allegedly
supplying missile technology to Iran, according to a Tal company record from
Russian, Belarusian and Chinese companies didn’t respond to requests for
comment or couldn’t be reached.
Tal and Sepha were planning to display Chinese drones and radars from
BelTechExport alongside RTX air-defense systems and Beretta firearms at the
next Riyadh defense show, scheduled for February 2024, according to another
document and the people familiar with the matter.
Embassy in Riyadh knew about the talks that Tal and Sepha were having with
Chinese and Russian companies as early as August 2022, when it told Scopa in an
email reviewed by the Journal that those activities “could seriously hinder the
ability of Scopa to enter into contractual agreements with U.S. defense firms.”
said that Sepha works with Eastern European companies and that Tal’s engagement
with China is limited to securing supply chains for manufacturing military and
civilian equipment in Saudi Arabia.
continues inviting U.S. companies to work with Scopa and said some still talk
to him. “There is a huge opportunity to cooperate together,” he said.