RTX/Saudi Defense Firm's Failed Arms Megadeal - Blame Emergence Of China, Russia Links

The U.S. defense manufacturer, RTX Corp RTX, formerly Raytheon Technologies, terminated a substantial multi-billion-dollar agreement with Scopa Defense, a Saudi firm, driven by concerns that Scopa Defense was engaging in business transactions with companies from China, Russia, and Belarus subject to international sanctions. 

In 2022, RTX and Scopa signed a memorandum of understanding to collaborate on establishing a factory in Saudi Arabia to produce air defense systems to safeguard Riyadh from aerial threats, including airstrikes. 

The ambitious plan included installing radar and multiple air defense systems, the Wall Street Journal reported, with a total investment of $25 billion in the kingdom and an anticipated $17 billion in sales.

Mohamed Alajlan, the owner of Scopa Defense, denied involvement with sanctioned Russian companies and stated that any dealings with Chinese firms were limited to procuring essential raw materials such as copper and rubber to produce ammunition and armored vehicles. 

Alajlan said he set up Tal Military Industries and Sepha Military Industries alongside Scopa. 

A document examined by WSJ indicated that Sepha had explored opportunities such as marketing Russian ammunition, producing body armor and surveillance equipment in Saudi Arabia, assembling Russian attack helicopters, and manufacturing armored vehicles in collaboration with Russia's Military Industrial Co.

According to WSJ, the U.S. embassy in Riyadh was aware of the discussions between Tal, Sepha, and Chinese and Russian companies as early as August 2022. 

U.S. officials warned Scopa Defense that such dealings could seriously impede the company's ability to enter into contractual agreements with U.S. defense firms.

Scopa, Tal, and Sepha were planning to showcase Chinese drones and radars provided by BelTechExport in conjunction with RTX air-defense systems and Beretta firearms during the upcoming Riyadh defense exhibition slated for February 2024.

Price Action: RTX shares closed at $75.50 on Thursday.