Idex 2019: French shipbuilder Naval Group bullish on Mena sales with Saudi deal in the bag

Exclusive: The state-owned firm is delivering ships in Egypt, finalising a UAE deal and has signed a JV agreement with Saudi Arabia

Naval Group chief executive Herve Guillou. Khushnum Bhandari for The National

French military shipbuilder Naval Group, formerly known as DCNS, is bullish about sales in the Middle East and North Africa as it signs a joint venture agreement with Saudi Arabia, finalises a UAE deal and delivers vessels to Egypt.

Saudi Arabian Military Industries and Naval Group on Sunday signed an agreement to build warships for the first time as the Saudi Arabia seeks to build its homegrown defence industry, Andreas Schwer, chief executive of Sami, said at a press conference. The companies plan to sign the final contract for the deal later this year, he said without giving the size of investment.

State-owned Sami will hold a 51 per cent stake in the JV with the Naval Group to manufacture corvettes, frigates and submarines in Saudi Arabia, one of the biggest military spenders in the wider Mena region, where Naval Group had supplied seven frigates between 1985 and 1994.

Naval Group is also finalising an agreement for two Gowind corvettes in the UAE, which also includes an option for two more vessels, its chief executive Herve Guillou earlier told The National, in Abu Dhabi, where the company is participating in the International Defence Exhibition and Conference (Idex).

The deal in partnership with Abu Dhabi Ship Building was first announced by French President Emmanuel Macron at the end of a two-day visit to the country in 2017.

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“We are now finalising the discussions to conclude the agreement – of course always with a local partnership,” said Mr Guillou. “We are contemplating a progressive transfer of technology to the shipyard and to enable them … to take the lead in building and integration in the mid-term future.”

Alongside local production, Sami expects its French JV partner transfer technology to enable Saudi Arabia to build in the long-term, warships by themselves in the framework of this JV, Mr Schwer noted.

Naval Group has been active globally and this month signed a long-delayed A$50 billion (Dh131.17bn) deal to supply 12 Scorpène-class submarines to Australia, beating Japan's Mitsubishi Heavy Industries, Kawasaki Heavy Industries and Thyssenkrupp of Germany. It is also supplying its ships to countries ranging from Brazil to Malaysia.

After delivering two Gowind corvettes, Naval Group is building two more vessels in Egypt. It is also in discussion for a deal for two more, the executive said. The corvettes ordered in 2014 are being built in Alexandria Shipyard in Egypt, which is part of the technology transfer deal signed with Cairo.

“We have closed the technical specifications [of the agreement] and we now have a clear direction from the highest political decision-makers [for the two more corvette options],” Mr Guillou said.

The pivot to the Middle East is part of the company's plans to expand its global business, which contributed to 35 per cent of annual sales of €3.7bn (Dh15.35bn) in 2017.

The company aims to have an even split between domestic and international sales in the next three to five years as French naval needs are not big enough for the volumes produced by the group.

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Idex 2019: Defence expo opens in Abu Dhabi - in pictures:

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Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces and Sheikh Mohamed bin Rashid, Vice-President, Prime Minister of the UAE, Ruler of Dubai and Minister of Defence, attend the opening ceremony of Idex. Mohamed Al Hammadi / Ministry of Presidential Affairs

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"France alone cannot afford the continuity of development programmes to keep the competency in the engineering teams or in the production teams," said Mr Guillou.
"It is also important in terms of volumes to keep very competitive offers and we see in Europe that the countries that do not export have always a higher price than what we have thanks to the volumes we generate export-wise."

Mr Guillou expects Asia to account for 20 to 25 per cent of total international sales in 10 years as an increasing number of Asian nations aspire to expand their military capabilities.
"Today it is clear that the growth potential of Asia is extremely large because you have a lot of emerging countries that will create new markets," he said. "The biggest one is India of course, which has huge potential.
"But you have also Indonesia, Vietnam, Philippines. and these countries are really just starting."

Other ongoing deals the French company is pursuing include a potential agreement for three Scorpène-class submarines in Poland and four expeditionary submarines in the Netherlands.

Naval Group is also in the process of creating a joint venture with Fincantieri of Italy. The deal that has been in the works since 2016 aims to create a global competitor in the face of rising competition from countries such as China and Russia. The tie-up will help the two companies co-operate on research and development, secure procurement, deliver joint programmes and bid internationally to increase their global market share.

“There is growth and opportunity in Europe," Mr Guillou said. "Even if there is very good growth in Europe, none of the European countries alone are able to ensure the continuity of the industrial technology base and therefore we are looking very proactively to capturing part of the growth of the market outside Europe. This is essential for us.”