Fighting for Foreign Sales Arms Firms Increasingly Dependent on Deals Abroad By Tim Smart Washington Post Staff Writer
FORT WORTH-At a sprawling, 710-acre manufacturing complex west of town, Lockheed Martin Corp. workers produce the needle-nosed F-16 Fighting Falcon, a champion of the Persian Gulf War that has become the best-selling jet fighter in the world.
Yet the United States plans to buy only one of the 1970s-vintage aircraft this year. This leaves Bethesda-based Lockheed Martin and its 11,000 workers here dependent upon foreign militaries to keep the $25 million F-16 in production.
Today, both the company and its workers are hoping that a $5 billion order from the United Arab Emirates -- announced with great fanfare during a visit last May by Vice President Gore -- will keep the plant in business for another decade. Yet the order has been postponed while the UAE and the U.S. government haggle over the level of electronics technology in the plane, a delay that contributed to Lockheed's missing its 1998 earnings estimates and helped send the company's stock on a downward slide.
The UAE deal and others like it illustrate problems with the defense industry's increasing reliance on foreign sales for its survival. Companies that once counted on a free-spending Pentagon for their livelihood now make do with procurement budgets half of what they were at the height of the Cold War.
"Is the basis of our business going forward, international sales?" Lockheed Martin executive Bill Anderson said. "The answer is yes. We're not embarrassed about that."
But this shift has brought its own set of problems to Lockheed Martin and rivals Boeing Co., whose F-15 fighter-bomber is dependent on foreign sales for its existence, and Raytheon Co. The collapse of oil prices and the Asian financial crisis have left some of their best customers -- the petroleum sheikdoms of the Middle East and emerging military powers in Southeast Asia -- strapped for cash at the moment the defense contractors need them most.
"What's keeping your subcontractor base and your skilled blue-collar workers [alive] is exports," said Joel Johnson, vice president for international affairs at the Aerospace Industries Association.
Beginning in 1995, when President Clinton approved a change in arms export policy to allow economic concerns to be given equal weight to national security considerations in promoting arms sales, the U.S. defense industry has been on an export extravaganza.
With U.S. defense spending down dramatically from Cold War levels, the industry and the government have become willing partners in pushing high-tech U.S. arms on nations that lust after the latest lethal weapons and appear to be able to afford them.
"I think the Commerce Department has been more proactive in its support for international sales, as has the State Department," said John Weaver, president and chief executive of Raytheon's international division. The company recently inked a $1 billion deal to provide Greece with its Patriot air defense system.
Air Force Lt. Gen. Michael Davison, who heads the Pentagon's foreign-sales marketing office, said it was his agency's mission to "level the playing field" for U.S. arms makers in competing against their global rivals in Europe and elsewhere. While the Pentagon does not side with particular U.S. manufacturers in promoting their products, it tries to ensure that U.S. firms win international arms competitions such as one pending for fighter jets in Greece. And when things go sour, as they did recently with a sale of Boeing F/A-18s to Thailand, the Pentagon intervenes in an attempt to fix the problem.
Davison stressed that arms exports are still governed by foreign policy objectives, but he said there was a broader benefit to the United States in selling arms to foreigners: It spreads the cost of weapons over a broader base.
"This is not a primary driver," Davison said, "but there is a benefit that may come to the industrial base and indeed a benefit to the U.S. armed forces in that you get a better unit price."
This export tilt has left the United States the undisputed heavyweight among arms suppliers. In 1997, for the seventh year in a row, U.S. firms led the world in arms exports, snaring 44 percent of the $34.6 billion in weapons sold internationally that year, according to the Congressional Research Service.
Even though foreign arms buying has leveled off from the frenzied pace of the aftermath of the Persian Gulf War, when Middle Eastern nations friendly to the United States made some big-ticket purchases, the competition has only intensified.
"What you're basically doing is fighting harder for a shrinking pot," Johnson said.
While U.S. arms exports have held steady at $14 billion to $16 billion annually for about a decade, Pentagon procurement has fallen sharply, from a high of about $100 billion during the Reagan-era buildup to less than half that today. And, as the Soviet share of weapons sales shrank, the U.S. share rose from less than 17 percent in 1990 to 44 percent today.
Most exports have been sold to developing nations. At the beginning of the decade, it was the oil-rich nations of the Persian Gulf, worried about hostile regimes in Iraq and Iran, that purchased the bulk of the weapons. More recently, it has been the developing countries of Asia, which until the currency crisis of 1997 had the cash to spend, if not the military threat to justify, their arms-buying spree. Asian countries doubled their share of arms purchases in the 1990s from the previous decade, displacing the Middle East as the primary buyers of American weapons.
Critics of U.S. arms exports conclude that this increased reliance on foreign sales is being fueled more by the financial needs of defense contractors than by national security. They see this as an unholy alliance of industry and government working to hawk sophisticated weapons abroad as a way to keep factories open at home until the Pentagon can justify a new round of weapons buying.
"It's kind of reaching the point where the economic and industrial base arguments are driving the fervor for exports," said William Hartung, a longtime critic of arms policies at the World Policy Institute in New York. "It's a slightly dangerous game. Not all of our allies are as stable as they used to be."
Others contend that the export push, aided by the Pentagon, which often pays the cost of transporting the latest weaponry to air shows in such places as Santiago and Dubai, runs counter to interests of the countries buying the latest weapons.
"These countries are made to believe they need the highest, the greatest and most sophisticated weapons," said Tamar Gabelnick, acting director of the Arms Sale Monitoring Project at the Federation of American Scientists.
The sale of fighters to two Asian countries points out just how tricky selling arms abroad can be -- and the economic and national security issues that can surface with such deals.
Thailand ordered $600 million worth of Boeing F/A-18 fighters and then determined it could not afford them when the country's economy faltered in 1997. The Thai government grew reluctant to buy the F/A-18s and began looking for a way to cancel the purchase.
The Pentagon's Davison visited Thailand in January 1998 to discuss the order. "We learned they really didn't want the F/A-18s," he said.
The Marine Corps will now get the planes instead. Boeing will still prosper, but the cost of the planes will be borne by U.S. taxpayers after Congress approved additional funds to buy the airplanes.
While the Thailand deal shows how economics can influence arms exports, the decade-long saga of selling F-16s to Pakistan is an example of how domestic politics and national security concerns can also make relying on exports a hazardous business proposition.
Pakistan ordered 28 of the planes in the 1980s, arguing that it needed the weapons to defend the nation against a potential attack from neighboring India. U.S. officials approved the sale, in part because Pakistan bordered Afghanistan and the United States was trying to place indirect political pressure on the Soviets, who had invaded Afghanistan.
But opponents of the deal in Congress, including conservative Republicans, were angered that a purported nuclear power was gaining access to advanced fighters. They fought hard for legislation to block arms sales to countries the State Department could not certify as being free of nuclear weapons.
The planes were built by Lockheed, sold to the Pentagon and paid for by Pakistan -- but unable to be delivered. Instead, they were parked at an Air Force base in the Arizona desert.
When Pakistan exploded two nuclear devices last summer, that all but ensured the planes would never end up in the country. So the United States tried to find an alternate buyer, eventually brokering a deal in which New Zealand would lease the jets to partially offset the cost of the settlement. Last month, President Clinton agreed to pay Pakistan $464 million to settle the dispute.
Former Pentagon acquisitions czar Paul Kaminski said the issue of selling arms overseas was "hotly debated" by the leaders of the armed forces during his recent tenure. While he said the military brass largely backed selling advanced fighters to friendly countries, they worried about the spread of ancillary weapons such as Raytheon Co.'s AMRAAM air-to-air missiles.
"It's a case of greater vulnerability to see a [U.S.-made] missile coming at you," Kaminski said.
But as their arms purchases become more elaborate, the emerging nations of the world are demanding the latest in lethal weaponry.
That is what happened with Thailand and its F/A-18 order. The Thai government wanted the planes to come equipped with Raytheon's air-air missile, a weapon considered so deadly that it could be sold only to NATO countries. But in 1997, after Thailand's requirement that the AMRAAM be part of the Boeing F/A-18 deal, the Clinton administration reversed policy and approved the deal.
Helping sway the United States was Thailand's suggestion it would consider a comparable Russian fighter armed with that country's equally deadly air-to-air missile.
It's this kind of situation that Lockheed and other manufacturers cite when defending the industry's export push: If U.S. firms don't sell the weapons, others will. Indeed, France regularly battles the United States in sales to the world arms market, and Russia, after falling far behind, is once again back in the market.
Industry executives also point out that money from foreign sales helps modernize key weapons in the U.S. arsenal. Foreign buyers of the F-16, such as the UAE, are being sold a more modern version of the F-16 than U.S. pilots fly, although the plan is to begin updating the U.S. Air Force's planes.
"It's truly a dividend for the U.S. taxpayer," said Ralph Heath, who heads Lockheed Martin's international marketing for the F-16. "You get technology development bought on someone else's nickel."
But critics view this line of argument as another justification for continuing the global arms race, noting that the industry often lobbies the Pentagon by saying the military needs to stay one step ahead of its enemies technologically. Lockheed, for instance, is building the latest-generation fighter, the F-22, and is vying with Boeing to make the new Joint Strike Fighter, which will be the U.S. military's most expensive weapons program when it goes into production in the next decade.
"Your friend today could be your enemy tomorrow," said retired admiral Jack Shanahan, who has been active in promoting military reform. "We then have to turn around and build another plane in the U.S. to retain air superiority. It's a vicious cycle."
© Copyright 1999 The Washington Post Company
Carl Remick