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Foreign Sales by U.S. Arms Makers Doubled in a Year
By LESLIE WAYNE
New York Times, p. B3
November 11, 2006
Sales of military weapons by United States contractors to foreign
governments doubled in the last year, as countries like Pakistan, Australia
and Greece stepped up purchases of armaments and the United States
government loosened policies to allow more American weapons to be sold on
the world market.
A total of $21 billion in arms sales agreements were signed from September
2005 to September 2006, compared with $10.6 billion in the previous year,
according to new data compiled by the Pentagon. Foreign military sales
agreements have typically ranged from $10 billion to $13 billion a year
since 2001.
A number of factors are behind the surge in sales. Since Sept. 11, 2001, the
Bush administration has used arms sales as a way to reward allies and cement
international relationships. Middle Eastern countries, flush with oil
revenues, have become big buyers.
Countries like India, Pakistan and Indonesia that were once barred from
buying American weapons have had those bans lifted, and some have placed big
orders.
For military contractors, the sales have provided a welcome source of new
revenue at a time when the Pentagon has indicated that the era of record
military budgets is ending.
Because many of the weapons sold overseas are mature products, the profit
margins to American arms makers are high, since the initial development
costs have long been recuperated.
And in the case of some planes, like the F-16 Fighting Falcon fighter jet
and the C-17 Globemaster cargo plane, foreign military sales are a way to
keep open production lines that might close for lack of Pentagon orders.
`There have been a remarkable number of orders placed,' said Howard Rubel,
an analyst at Jeffries & Company. `It's another arrow in the quiver of
military contractors.'
One of the biggest orders was placed by Pakistan, which had been barred from
buying most American weapons because of its nuclear program. That ban was
lifted last year and the country placed a $5 billion order for advanced F-16
jets made by the Lockheed Martin Corporation.
A similar ban on India was also lifted, opening up a potentially lucrative
market to American contractors. India is currently looking to buy up to 126
new fighter jets, and American contractors have been flying to India to show
off their wares.
Oil profits are also behind some of the orders. Saudi Arabia said in July
that it planned to spend $5.8 billion on American weapons to modernize its
National Guard and will also put in more than $3 billion in orders for Black
Hawk helicopters, Abrams and Bradley armored land vehicles, new radio
systems and other weapons.
In the gulf region, Bahrain, Jordan and the United Arab Emirates have filed
plans to buy Black Hawk helicopters - for a total of $1 billion. Oman plans
to buy a $48 million anti-tank missile system. The Emirates plans to buy
rocket artillery equipment and military trucks for $752 million and Bahrain
will purchase Javelin missiles for $42 million.
Bahrain alone has accounted for $1 billion in foreign military sales in the
five years since 9/11.
`The rise in oil prices has allowed countries like Saudi Arabia and the
United Arab Emirates to increase their arms purchases dramatically,' said
William Hartung, director of the arms trade project at the World Policy
Institute, which is part of the New School in New York.
For contractors, Mr. Hartung added, these sales `are a welcome windfall, not
just icing on the cake.'
These new big gulf region orders, like the Saudi deal, were not included in
the $21 billion tally for 2006. They will be carried over into the 2007
tally and are a sign that next year will be as robust as this one.
`We've got a good start on 2007,' said Lt. Gen. Jeffrey B. Kohler, director
of the Defense Security Cooperation Agency, which manages foreign military
sales.
Besides Pakistan and India, since 9/11, bans on arms sales have been lifted
on Tajikistan, Serbia and Montenegro, Armenia and Azerbaijan as these
countries have been identified by the State Department as critical allies in
the war on terror. They have turned into buyers, although on a much smaller
scale than the big Pakistani or Saudi orders.
Armenia, Azerbaijan and Tajikistan had no American arms purchases before
9/11. But as a group, they have bought $32 million in weapons under the
foreign military sales program, according to statistics from the Center for
Defense Information.
Foreign military sales are negotiated directly between the United States and
other governments and are overseen by the State Department, the Pentagon and
Congress.
Other strategically situated countries have also stepped up their purchases.
Nepal, for instance, bought $1.1 million of American weapons in the full
decade before 9/11, and $22 million in the five years since.
Similarly, Yemen, Djibouti and Uzbekistan bought $16.4 million combined in
the decade before 9/11, and $73 million of American weapons since.
`Foreign military sales are a good hedge against potential further cuts in
Pentagon procurement,' said Mark T. Esper, executive vice president for
defense and international affairs at the Aerospace Industries Association, a
trade group.
In a conference call with analysts, Christopher E. Kubasik, chief financial
officer of Lockheed, estimated that foreign sales account for 15 percent -
or $5.5 billion - of Lockheed's sales, which were $37 billion in 2005.
`They're valued customers, and we plan to continue to grow in that area,' he
said.
Foreign sales have importance to military contractors beyond the dollar
value of the contract. Once a country buys a weapon system, it will need to
continue to buy spare parts or upgrades.
`In the next couple of years,' said Cai von Rumohr, an analyst with Cowen &
Company, `foreign sales as a percentage of company revenues will be tracking
up.'
Foreign sales can also keep endangered weapons programs alive.
For instance, when Boeing made some announcements that it might begin to
close production of its C-17 cargo line, Canada and Australia quickly
stepped in to place orders: Canada's deal is valued at $1.3 billion and
Australia's at $2 billion. Orders for the F-16 from Turkey, Greece and
Pakistan are pumping $11 billion into that program at a time when the Air
Force is phasing out of it.
For that reason, the Aerospace Industries Association has been pressing
Congress to relax rules so more foreign deals can be done outside of
government scrutiny - an effort that has, so far, been rebuffed in Congress.
Last month, the industry association, along with representatives from the
Boeing Company and the Northrop Grumman Corporation, met at the Heritage
Foundation, a conservative Washington research group, to outline their plans
to pursue this effort.
http://www.nytimes.com/2006/11/11/busines s/11military.html?ex=1163912400&en=536ae1f1aee f4bce&ei=5070
By LESLIE WAYNE
New York Times, p. B3
November 11, 2006
Sales of military weapons by United States contractors to foreign
governments doubled in the last year, as countries like Pakistan, Australia
and Greece stepped up purchases of armaments and the United States
government loosened policies to allow more American weapons to be sold on
the world market.
A total of $21 billion in arms sales agreements were signed from September
2005 to September 2006, compared with $10.6 billion in the previous year,
according to new data compiled by the Pentagon. Foreign military sales
agreements have typically ranged from $10 billion to $13 billion a year
since 2001.
A number of factors are behind the surge in sales. Since Sept. 11, 2001, the
Bush administration has used arms sales as a way to reward allies and cement
international relationships. Middle Eastern countries, flush with oil
revenues, have become big buyers.
Countries like India, Pakistan and Indonesia that were once barred from
buying American weapons have had those bans lifted, and some have placed big
orders.
For military contractors, the sales have provided a welcome source of new
revenue at a time when the Pentagon has indicated that the era of record
military budgets is ending.
Because many of the weapons sold overseas are mature products, the profit
margins to American arms makers are high, since the initial development
costs have long been recuperated.
And in the case of some planes, like the F-16 Fighting Falcon fighter jet
and the C-17 Globemaster cargo plane, foreign military sales are a way to
keep open production lines that might close for lack of Pentagon orders.
`There have been a remarkable number of orders placed,' said Howard Rubel,
an analyst at Jeffries & Company. `It's another arrow in the quiver of
military contractors.'
One of the biggest orders was placed by Pakistan, which had been barred from
buying most American weapons because of its nuclear program. That ban was
lifted last year and the country placed a $5 billion order for advanced F-16
jets made by the Lockheed Martin Corporation.
A similar ban on India was also lifted, opening up a potentially lucrative
market to American contractors. India is currently looking to buy up to 126
new fighter jets, and American contractors have been flying to India to show
off their wares.
Oil profits are also behind some of the orders. Saudi Arabia said in July
that it planned to spend $5.8 billion on American weapons to modernize its
National Guard and will also put in more than $3 billion in orders for Black
Hawk helicopters, Abrams and Bradley armored land vehicles, new radio
systems and other weapons.
In the gulf region, Bahrain, Jordan and the United Arab Emirates have filed
plans to buy Black Hawk helicopters - for a total of $1 billion. Oman plans
to buy a $48 million anti-tank missile system. The Emirates plans to buy
rocket artillery equipment and military trucks for $752 million and Bahrain
will purchase Javelin missiles for $42 million.
Bahrain alone has accounted for $1 billion in foreign military sales in the
five years since 9/11.
`The rise in oil prices has allowed countries like Saudi Arabia and the
United Arab Emirates to increase their arms purchases dramatically,' said
William Hartung, director of the arms trade project at the World Policy
Institute, which is part of the New School in New York.
For contractors, Mr. Hartung added, these sales `are a welcome windfall, not
just icing on the cake.'
These new big gulf region orders, like the Saudi deal, were not included in
the $21 billion tally for 2006. They will be carried over into the 2007
tally and are a sign that next year will be as robust as this one.
`We've got a good start on 2007,' said Lt. Gen. Jeffrey B. Kohler, director
of the Defense Security Cooperation Agency, which manages foreign military
sales.
Besides Pakistan and India, since 9/11, bans on arms sales have been lifted
on Tajikistan, Serbia and Montenegro, Armenia and Azerbaijan as these
countries have been identified by the State Department as critical allies in
the war on terror. They have turned into buyers, although on a much smaller
scale than the big Pakistani or Saudi orders.
Armenia, Azerbaijan and Tajikistan had no American arms purchases before
9/11. But as a group, they have bought $32 million in weapons under the
foreign military sales program, according to statistics from the Center for
Defense Information.
Foreign military sales are negotiated directly between the United States and
other governments and are overseen by the State Department, the Pentagon and
Congress.
Other strategically situated countries have also stepped up their purchases.
Nepal, for instance, bought $1.1 million of American weapons in the full
decade before 9/11, and $22 million in the five years since.
Similarly, Yemen, Djibouti and Uzbekistan bought $16.4 million combined in
the decade before 9/11, and $73 million of American weapons since.
`Foreign military sales are a good hedge against potential further cuts in
Pentagon procurement,' said Mark T. Esper, executive vice president for
defense and international affairs at the Aerospace Industries Association, a
trade group.
In a conference call with analysts, Christopher E. Kubasik, chief financial
officer of Lockheed, estimated that foreign sales account for 15 percent -
or $5.5 billion - of Lockheed's sales, which were $37 billion in 2005.
`They're valued customers, and we plan to continue to grow in that area,' he
said.
Foreign sales have importance to military contractors beyond the dollar
value of the contract. Once a country buys a weapon system, it will need to
continue to buy spare parts or upgrades.
`In the next couple of years,' said Cai von Rumohr, an analyst with Cowen &
Company, `foreign sales as a percentage of company revenues will be tracking
up.'
Foreign sales can also keep endangered weapons programs alive.
For instance, when Boeing made some announcements that it might begin to
close production of its C-17 cargo line, Canada and Australia quickly
stepped in to place orders: Canada's deal is valued at $1.3 billion and
Australia's at $2 billion. Orders for the F-16 from Turkey, Greece and
Pakistan are pumping $11 billion into that program at a time when the Air
Force is phasing out of it.
For that reason, the Aerospace Industries Association has been pressing
Congress to relax rules so more foreign deals can be done outside of
government scrutiny - an effort that has, so far, been rebuffed in Congress.
Last month, the industry association, along with representatives from the
Boeing Company and the Northrop Grumman Corporation, met at the Heritage
Foundation, a conservative Washington research group, to outline their plans
to pursue this effort.
http://www.nytimes.com/2006/11/11/busines s/11military.html?ex=1163912400&en=536ae1f1aee f4bce&ei=5070