How Jamal Khashoggi's murder just made the income of Boeing competitor Airbus plummet, more than 6 months on

Journalist Jamal Khashoggi was brutally murdered in the Saudi Consulate in Istanbul. Photo / Getty Images

On October 2, 2018, Washington Post contributing columnist Jamal Khashoggi was brutally murdered in the Saudi Consulate in Istanbul.

Seemingly unrelated, on April 30, 2019, more than six months later, one of the world's largest aerospace companies, Airbus, announced that its net income fell almost 90 per cent during the first quarter of 2019.

What would appear to be two very different developments are in fact part of same story, which started hours after Khashoggi's disappearance was noticed.

Mohammed bin Salman, Saudi Arabia's crown prince, was deemed by the CIA to be responsible for the murder. Photo / Bloomberg

In the days following Khashoggi's death, President Trump immediately faced mounting pressure from human rights groups and even members of his own party to impose sanctions on Saudi Arabia, whose Crown Prince Mohammed bin Salman was deemed by the CIA to be responsible for the murder. The most effective way of punishing Saudi Arabia, human rights advocates argued, was to stop selling the kingdom US weapons, which have also been used by the Saudi-led coalition in the controversial war in Yemen.

Fighter jets and other high-tech arms cannot easily be replaced by other competitors such as Russia or China, because nations usually order entire systems that are connected and need to be maintained. Ordering fighter jets from the United States and having them maintained by Russia would be difficult in the long run, if not impossible in the short run.

Watch: On October 2, 2018, Saudi agents killed Washington Post columnist Jamal Khashoggi inside the Saudi Consulate in Istanbul. What has been done to hold those responsible accountable?

But citing the risk of job losses in the United States, Trump refused to pursue such measures. So did some of the other Western exporters to Saudi Arabia, notably France and Britain.

One exception was Germany, since World War II a country torn between economic lobbies and its human rights shame that persists today.

On October 21, the German government announced it would halt all arms exports to Saudi Arabia.

"I agree with all those who say that the, albeit already limited, arms exports can't take place in the current circumstances," German Chancellor Angela Merkel said at the time. The move was applauded by Trump critics, but it was ridiculed by other weapons exporters, including some in Europe.

Saudi Crown Prince Mohammed bin Salman, right, shakes hands with Salah Khashoggi, a son of Jamal Khashoggi. Photo / AP

What they forgot, however, was that few things in Europe work if one of the big three nations - France, Germany and Britain - don't play according to the rule book.

The reason that had ensured Saudi Arabia was a loyal customer - weapons systems that aren't one-off purchases but decades-long political and financial commitments - now threatened the very basis of that arrangement. Many of Europe's most sought-after arms, including the Eurofighter jets of which Saudi Arabia had ordered almost 48, are produced by a consortium that includes the European aerospace company Airbus. Its manufacturing relies on cooperation from all major European countries, as components may be produced in German factories but assembled in Britain, for instance.

But when the German government halted all arms exports, it really meant all arms exports. That included components that may not be considered arms themselves but were used to manufacture the expensive planes and ships that Europe exports to the Saudis.

Oil-rich Saudi Arabia with a population of only about 33 million was the world's third-largest arms spender last year, behind the United States with a population of 327 million and China with 1.37 billion people, according to numbers released by the Stockholm International Peace Research Institute (SIPRI) on Monday. Over the last decade, its arms expenditure has increased by 28 per cent - with much of it flowing to the United States, Britain and France, which export more arms to Saudi Arabia than any other nations.

Airbus announced that its net income fell almost 90 per cent during the first quarter of 2019. Photo / Bloomberg

By this spring, however, the mood in France and Britain had turned from initial amusement about the German moves to barely hidden panic over the unanticipated consequences. One unnamed European arms supply professional told the Financial Times: "We'll soon get to the point where the Saudis can't fly their planes anymore." Meanwhile, Airbus said it was searching for options to produce helicopters and fighter jets without any German components in the future. In the case of the Eurofighter planes, that would mean replacing a third of all high-tech elements.

The reasons Airbus executives were so vocally critical of the German government - despite it being a shareholder in the company - became clear Tuesday. In its first-quarter results for 2019, the company said it had lost US$213 million (190 million euros) "as a consequence of the prolonged suspension of defense export licenses to Saudi Arabia by the German government."

Other reasons cited to explain why net income had fallen so dramatically were currency fluctuations, as most planes are sold in US dollars, as well as development costs. But such factors are usually considered in the calculation of the tight margins that companies like Airbus operate on, so those two factors were not as significant as the German arms exports halt, Airbus indicated. The company still said it was expecting to sell more commercial planes this year.

Chances are that Airbus will also make up for the losses in its defense sector.

Amid the immense fallout - which appeared to also have come as a surprise to members of Merkel's team - the German coalition government was looking for ways out earlier this spring. France and Britain had considered the arms halt unacceptable from the very beginning, but in Berlin, Merkel's coalition partner, the Social Democratic Party, was initially determined to save face after promising its voters multiple times that it would stop arms exports to Saudi Arabia.

The party's resistance ended earlier this month, when it reportedly agreed to resume the delivery of German components, and thus reverse the most controversial and impactful part of the move last October.

If that decision remains unchanged, it would constitute a major blow to human rights advocates who had hoped that the German government would stand by its bold, if costly, stance.

But it increasingly appears more likely that the half-year-long exports halt will become a future case study for researchers on how world leaders theoretically could halt arms sales to authoritarian regimes, if they were willing to accept the consequences.