Qatar's efforts to raise debt financing to buy advanced fighter jets from Britain has forced a delay in the deal until later this year, casting a shadow over a visit to London by the emir.
The Qatari leader is due to meet with British Prime Minister Theresa May for a working lunch on Tuesday and hold meetings with other British ministers during the day. The order for the British-made fighters is at the heart of British relations with Qatar. Doha's decision to raise funds from the capital markets for the purchase appeared to catch those close to the deal by surprise last month.
Last December, Qatar agreed a $6.7 billion deal with industry giant BAE Systems for 24 Typhoon fighter jets and the first payment was expected now. However, a source close to the deal confirmed that Qatar was seeking a $4 billion loan to fulfill its obligations that delayed the payment and plunged the agreement into uncertainty.
“Initially the payment was expected around now but (has now been pushed) back to the third quarter on financial records, perhaps late August, so the deal can go through,” the source with knowledge of the contract said. “We don’t know why they need to do this (get the loan), it is their internal process that we are not party to, but we are still confident of payment and expect the deal to go through."
The financing will be backed by export credit agencies. Last December, BAE said the deal was subject to “financial conditions and receipt by the company of first payment, which are expected to be fulfilled no later than mid-2018”.
The British government said the discussions were a matter for commercial negotiation between BAE systems and Doha. “The Typhoons will boost Qatar’s mission to tackle the challenges we both share in the Middle East," a spokesman said. "This is an ongoing commercial matter between BAE Systems and the Qatari government, who continue to progress this deal, which will support thousands of jobs and inject billions into our economy.”
In light of Qatar’s historic wealth, it was not expected at the time of signing that a large loan would be necessary to fund the first installments. Since the diplomatic boycott imposed on Qatar by the Arab Quartet, including Saudi Arabia and the UAE, last year, Doha has engaged in a series of unprecedented debt market issuance exercises.
In June last year the boycotting countries severed diplomatic relations with Qatar, accusing it of supporting terrorism and siding with Iran. The stand-off impacted the state's economy, shifting trade and leading to budgetary constraints on Doha.
The World Bank said in April that the Qatari economy had flat-lined in the aftermath of the announcement. “GDP growth is estimated to have remained flat at 2.2 per cent in 2017, in part reflecting the effects of the ongoing rift with its neighbours," it said.
While British officials insisted they expected the fighter jet deal to go through, it nonetheless threw a cloud over an agreement hailed by British ministers as a vital safeguard of UK jobs amid an uncertain time as Brexit looms.
The deal was announced in Doha by Defence Secretary Gavin Williamson and his Qatari counterpart Khalid bin Mohammed al Attiyah last December.
Mr Williamson said it was a "massive vote of confidence, supporting thousands of British jobs and injecting billions into our economy".
BAE Systems employs about 5,000 people in the UK to build the fighter jets, mainly at Warton in Lancashire. The Eurofighter Typhoon projects supports some 40,000 jobs in the UK and deliveries were expected in 2022.
BAE chief executive Charles Woodburn said the deal signalled a long-term relationship with Qatar and its armed forces.
The Eurofighter Typhoon entered service with the RAF in 2007 to replace the ageing Tornado fleet.
The Eurofighter Typhoon accounted for nearly a third of BAE Systems' sales in 2016.
It is a joint project between BAE, France's Airbus and Italy's Leonardo, and supports an estimated 40,000 jobs in Britain.
In March, BAE also agreed to finalise talks with Qatar's rival Saudi Arabia on a multi-billion pound order for 48 Typhoon aircraft.