Doing business in the Middle East often presents numerous minefields. Few likely know this better than John Harris, CEO of defense manufacturing giant Raytheon International.
Amid calls by U.S. lawmakers to reduce weapons sales to Saudi Arabia and other Gulf countries involved in offensive warfare in the Middle East, corporates in the defense space are coming under increased scrutiny. But their sales adhere strictly to U.S. policy, Harris told CNBC at the Munich Security Conference on Saturday, deflecting policy responsibility away from the company itself.
“We are an element of U.S. policy — our role is not to make policy, our role is to comply with it,” Harris told CNBC’s Hadley Gamble.
“What we’re trying to do is make sure we remain relevant, we have the right capabilities, to the extent there are questions that we provide the responses, and that we continue to comply with U.S. laws and regulations.”
Bipartisan support in Congress has been building at an unprecedented pace for cuts to support for Saudi Arabia in its war in Yemen, which the UN has described as the world’s worst humanitarian crisis.
The Saudi-led coalition, which includes the United Arab Emirates, Egypt, Bahrain and others, is backed by the U.S. with intelligence, logistics and training support. But since the October murder of Saudi journalist Jamal Khashoggi, which numerous lawmakers blame squarely on the Saudi government, U.S. support for the kingdom is coming under serious pressure.
On February 13, the House of Representatives voted 248 to 177 to advance a resolution invoking the War Powers Act of 1973 to end U.S. support for the war in Yemen.
The resolution directs the administration to “remove U.S. Armed Forces from hostilities in or affecting Yemen within 30 days,” unless Congress authorizes a later date or issues its own declaration of war. Support for the Saudi-led offensive began under the Obama administration without approval from Congress.
“Prohibited activities include providing in-flight fueling for non-U.S. aircraft conducting missions as part of the conflict in Yemen,” the resolution said. It now requires a vote from the Senate before it can be brought to the president’s desk.
Saudi Arabia is the top customer of the U.S. weapons industry, with some 20 percent of American defense exports between 2012 to 2017 going to the kingdom and more than $90 billion in arms sales since the 1950s, according to the Stockholm International Peace Research Institute.
Raytheon’s senior management has previously said that it does business in some 80 countries and does not rely on any particular buyer for the majority of its business. Saudi Arabia has deployed the company’s flagship Patriot missile defense system since the 1990s, with a record of mixed success.
Weapons sales to foreign militaries require U.S. government approval, meaning they are often incremental and can take many years to complete. Buyer countries negotiate with defense contractors, who then must obtain export permits through the State Department.
In an October 2018 earnings call, Raytheon described its business from Saudi contracts as constituting about 5 percent of that year’s revenue so far. Its Chief Financial Officer Anthony O’Brien said that he expected Saudi revenues to be “flattish” for 2019, with a few contracts expected in the final quarter of the year.
As to whether it would alter its sales to the Saudi Kingdom or other Middle Eastern governments, Harris said, “Our job is to always stay within the laws, and that is our intention.”
Lockheed Martin CEO Marillyn Hewson, in a late 2018 earnings call, had a similar response to Harris’s.
“Most of these agreements that we have are government-to-government purchases,” she said, “so anything that we do has to do with following strictly the regulations of the U.S. government.”
