General Dynamics is missing $1.5 billion due to a Canadian-Saudi spat

WASHINGTON — An ongoing diplomatic battle between Canada and Saudi Arabia is hitting American defense firm General Dynamics hard, to the tune of about $1.5 billion in missing payments for land vehicles sold to the kingdom.

During the company’s Oct. 23 quarterly earnings call, officials from General Dynamics revealed the roughly $1.5 billion in payments Saudi Arabia currently owes for a light armored vehicle contract run through General Dynamics Mission Systems–Canada.

More specifically, that figure stems from vehicles delivered to Saudi Arabia that have not been paid for, and the amount has grown quarter by quarter in the last year, according to General Dynamics filings. The number could grow as large as $2.6 billion given production that is already underway on vehicles not yet delivered, the company added.

In the quarterly earnings call, General Dynamics CEO Phebe Novakovic acknowledged that “the payments on our international program out of Canada have remained slow,” but stressed that “there no dispute on the fact that it is owed. It’s simply a question of timing, and we are still hopeful that we resolve that by the end of the year.”

Several industry analysts said that amount of delayed payments is unusual, with one analyst, speaking on condition of anonymity, saying the issue is having real impacts on the defense firm.

“It is doing great damage to GD. Most defense primes are up 30 to 60 percent year to date, while GD is only up 11 percent,” the analyst said. “This will be a nail-biter right to the very end.”

Technically Saudi Arabia doesn’t owe General Dynamics anything; military sales are run through the Canadian Commercial Corporation, which acts as a middle man. However, General Dynamics effectively is taking the hit, as CCC can’t pay for the vehicles if the kingdom doesn’t hand over the cash. Notably, the Canadian government last summer moved up its plans to buy its own light armored vehicles, or LAV, handing over a large advance payment to General Dynamics with that contract; while officially unrelated to the Saudi situation, this move was seen by many in Canada as CCC trying to do right by its industry partner.

Saudi Arabia has been a major customer of American-made high-end defense equipment throughout the years. Since the start of fiscal 2017, for example, Saudi Arabia submitted 14 foreign military sales requests for U.S. goods, worth an estimated $26.3 billion, a figure which does not capture lower level requests or direct commercial sales, nor weapons purchased from other nations.

According to a Canadian government report , Saudi Arabia was Canada’s largest non-U.S. defense export destination in 2018; the kingdom received approximately $1.3 billion in Canadian military exports that year, which makes up for 62 percent of Canada’s total military exports, excluding to the United States.

The LAV deal is the second of its kind signed between General Dynamics Land Systems-Canada and Saudi Arabia, with an estimated 1,400 LAVs going to Riyadh over the previous two decades. Those vehicles are equipped with a variety of weapon systems, ranging from 25mm cannons to 90mm guns.

In 2014, Canada agreed to a roughly CA$14.8 billion (U.S. $11.3 billion) deal to sell to Saudi Arabia hundreds of the light armored vehicles; the exact quantities of the deal, along with many other aspects of the contract, remain secretive, but media reports suggest finalized deal may be for about 700 vehicles, with more than 200 already delivered. Despite some domestic opposition to Canadian arms sales to Saudi, the deal was upheld by the Trudeau government due to the impact on jobs.

But in August 2018, relations between Riyadh and Ottawa crumbled when Canadian officials issued statements of support for human rights activists that had been detained in Saudi Arabia. In a shockingly fast escalation, Saudi government officials quickly moved to kick out the Canadian ambassador and announced the suspension of any potential new business with Canadian firms, as well as recalling all Saudi students from Canadian universities.

That relationship remains “frozen,” said Thomas Juneau, a professor at the University of Ottawa who previously worked as an analyst with the Canadian Department of National Defence.

That’s important, he added, because of how Saudi Arabia views its defense expenditures. Certainly, there is a national defense aspect to it, but the kingdom also views large defense purchases as a key tool in creating diplomatic ties with nations.

If those diplomatic ties remain frozen, Juneau noted, spending “those billions doesn’t make sense anymore.” In fact, giving a Canadian firm all that money — and the roughly 3,000 jobs associated with it — could even be “counterproductive, to some extent,” he said.

“Given that context, it’s very, very likely to me that the main reason for that delay is the political context of Canadian-Saudi relations,” he added. “I have a very hard time conceiving of any other dominant reason why Saudi [Arabia] would be so late in the payments. It has to be because of the bilateral relationship context.”

Becca Wasser, a senior policy analyst at the think tank Rand, agreed the spat with Canada likely “pushed this payment lower on their [Saudi Arabia’s] list of priorities.” But she also noted that Saudi Arabia is well-known for its “already slow repayment practices — which have been exacerbated by some of its recent financial overstretch.”

Indeed, the kingdom has built a reputation for slow payments to foreign firms. In addition to General Dynamics, the Wall Street Journal revealed in January that American firm Bechtel was leading a consortium of firms to try to push Saudi Arabia to speed payments for construction work, while U.S.-based Boston Consulting Group was owed $125 million in back payments.

Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.

华盛顿——加拿大和沙特阿拉伯之间持续不断的外交争端正在重创美国国防公司通用动力公司，该公司向沙特阿拉伯出售陆地车辆的款项约有 15 亿美元未能支付。

在公司 10 月 23 日的季度收益电话会议上，通用动力公司的官员透露，沙特阿拉伯目前拖欠通用动力加拿大任务系统公司一份轻型装甲车合同约 15 亿美元的款项。

更具体地说，这一数字源于已交付给沙特阿拉伯但尚未付款的车辆，根据通用动力公司提交的文件，过去一年中，这一数额逐季增长。该公司补充说，考虑到部分尚未交付的车辆已开始生产，这一数字可能高达26亿美元。

在季度财报电话会议上，通用动力公司首席执行官菲比·诺瓦科维奇承认，“我们加拿大国际项目的付款仍然缓慢”，但她强调“这笔款项确实应该支付，这一点没有争议。这只是时间问题，我们仍然希望能在年底前解决这个问题。”

几位行业分析师表示，如此巨额的延迟付款实属罕见，其中一位不愿透露姓名的分析师表示，这个问题正在对这家国防公司产生实际影响。

“这对GD造成了巨大冲击。大多数国防类主承包商今年迄今为止的股价上涨了30%到60%，而GD的股价仅上涨了11%，”分析师表示。“这场竞争将会持续到最后一刻，令人揪心。”

从技术层面讲，沙特阿拉伯并不欠通用动力公司任何款项；军售是通过加拿大商业公司（CCC）进行的，CCC充当中间人。然而，通用动力公司实际上却要承担损失，因为如果沙特不支付款项，CCC就无法支付车辆款项。值得注意的是，加拿大政府去年夏天提前采购了本国的轻型装甲车（LAV），并根据合同向通用动力公司支付了一大笔预付款；虽然官方上与沙特的情况无关，但许多加拿大人认为，CCC此举是试图维护其行业合作伙伴的利益。

多年来，沙特阿拉伯一直是美国高端国防装备的主要客户。例如，自2017财年开始以来，沙特阿拉伯已提交了14份美国对外军售申请，总价值估计达263亿美元。这一数字还不包括较低级别的申请、直接商业销售以及从其他国家购买的武器。

根据加拿大政府的一份报告，2018 年沙特阿拉伯是加拿大最大的非美国国防出口目的地；当年，加拿大向沙特阿拉伯出口了约 13 亿美元的军火，占加拿大军火出口总额（不包括对美国的出口）的 62%。

这是通用动力陆地系统加拿大公司与沙特阿拉伯签署的第二份此类协议，据估计，过去二十年间，该公司已向利雅得交付了约1400辆LAV装甲车。这些车辆配备了多种武器系统，从25毫米机关炮到90毫米火炮不等。

2014年，加拿大同意向沙特阿拉伯出售数百辆轻型装甲车，交易金额约为148亿加元（约合113亿美元）。交易的具体数量以及合同的许多其他细节仍属保密，但媒体报道称，最终成交的车辆数量可能约为700辆，其中200多辆已经交付。尽管加拿大国内对向沙特出售武器存在一些反对意见，但考虑到此举对就业的影响，特鲁多政府最终还是维持了这笔交易。

但2018年8月，加拿大官员发表声明支持在沙特阿拉伯被拘留的人权活动人士，导致利雅得和渥太华之间的关系急剧恶化。令人震惊的是，事态迅速升级，沙特政府官员立即驱逐了加拿大大使，并宣布暂停与加拿大公司的一切潜在新业务，同时召回了所有在加拿大大学的沙特学生。

渥太华大学教授托马斯·朱诺（Thomas Juneau）表示，这种关系仍然“冻结”着。朱诺此前曾在加拿大国防部担任分析师。

他补充说，这一点很重要，因为沙特阿拉伯看待其国防开支的方式很特殊。当然，国防开支有其国家防御的考量，但沙特王国也将大规模国防采购视为与其他国家建立外交关系的重要手段。

朱诺指出，如果这些外交关系继续冻结，那么花费“数十亿加元就毫无意义了”。事实上，他表示，把所有这些钱——以及与之相关的大约3000个就业岗位——交给一家加拿大公司，甚至可能“在某种程度上适得其反”。

“鉴于此，我认为造成延迟的主要原因很可能是加沙关系中的政治因素，”他补充道。“我很难想象沙特阿拉伯会拖欠付款还有其他什么主要原因。这必然与双边关系有关。”

兰德公司高级政策分析师贝卡·瓦瑟也认为，与加拿大的争端可能“降低了沙特阿拉伯支付这笔款项的优先级”。但她也指出，沙特阿拉伯的“偿还速度本来就慢，而近期的一些财政过度扩张更是加剧了这种情况”。

事实上，沙特阿拉伯王国一直以拖欠外国公司款项而臭名昭著。除了通用动力公司之外，《华尔街日报》今年1月还披露，美国贝克特尔公司牵头一个企业财团，试图敦促沙特阿拉伯加快支付建筑工程款项；而总部位于美国的波士顿咨询集团则被拖欠了1.25亿美元的款项。

Aaron Mehta 曾任《国防新闻》副主编兼五角大楼高级记者，负责报道国防部及其国际合作伙伴最高层的政策、战略和采购事宜。