(Bloomberg) -- Saudi Arabian Military Industries and Spain's state-owned shipbuilder Navantia SA started a joint venture to manufacture warships in the kingdom, preserving a deal threatened by a global outcry over the murder of government critic Jamal Khashoggi.
SAMI Navantia Naval Industries will design and build five corvettes of the “Avanti 2200” class, equipped with a combat management system, for the Saudi Ministry of Defense, the official Saudi Press Agency reported on Wednesday. The two parties came to the agreement during Crown Prince Mohammed bin Salman's visit to Spain in April, SPA said. It didn't provide a value for the deal.
Navantia earlier said the total cost will reach 1.8 billion euros ($2.1 billion), making it the biggest contract ever signed by Spain's public shipyards with a foreign client.
The pact shows how Saudi Arabia is trying to ride out criticism and international condemnation that followed the killing of Khashoggi at the kingdom's consulate in Istanbul last month. Still, Chancellor Angela Merkel has signaled that Germany will suspend exports of military equipment to Saudi Arabia pending investigations into the death.
Read More: Merkel Throws Future Military Sales to Saudi Arabia Into Doubt
Prime Minister Pedro Sanchez said last month that Spain shares the international outrage but will also take into account the interests of its strategic industries. While Spain has exemplary standards on human rights, it must also consider the legality of existing contracts and protect jobs, Sanchez said.
The issue of suspending arms sales to Saudi Arabia is politically sensitive in Spain. Navantia will supply warships to the kingdom from its shipyards in Cadiz in Andalusia, a stronghold of the ruling Socialist Party. In September, Spain considered suspending sales of high-precision bombs to Riyadh but opted not to do so.
Military contracts like the one with Navantia are important for Saudi economic plans, which include ensuring that more than half of the kingdom's total military spending goes toward local production. Saudi Arabian Military Industries plans to manufacture equipment and provide maintenance services across units, including air and land systems, weapons and missiles, and defense electronics, mainly in joint ventures.
--With assistance from Glen Carey.
To contact the reporter on this story: Abbas Al Lawati in Dubai at aallawati6@bloomberg.net
To contact the editors responsible for this story: Shaji Mathew at shajimathew@bloomberg.net, Paul Abelsky, Karl Maier
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