As sales drop at home, U.S. arms firms are finding a ready market abroad

January 02, 1994|By Los Angeles Times

FORT WORTH, Texas -- In the middle of the Lockheed aircraft plant here, a set of massive double doors slides open nearly once each workday and a new F-16 fighter is towed out to the nearby runway.

Ever since World War II, the plant has produced front-line combat aircraft for the U.S. Air Force.

But the Pentagon plans to end its orders this year. Then, for the first time in history, the plant's production would be exported to foreign military customers.

The same is true on the McDonnell Douglas F-15 jet-fighter line in St. Louis, the Air Force's other current-generation fighter program. It will soon be supported entirely by foreign orders.

The General Dynamics plant in Lima, Ohio -- the nation's only remaining tank plant -- already exports all its production.

When the Cold War ended, it was widely assumed that arms sales were headed for a worldwide collapse that paralleled the end of the superpower arms race.

International deliveries of weapons have dropped since their peak in the 1980s. But there are signs that orders for future arms deliveries are back on the rise and that the United States has emerged as the dominant global arms merchant.

U.S. defense firms, through security-assistance agreements negotiated by the State Department, signed up $32 billion worth of weapons orders in fiscal 1993, up from $28 billion in 1992 and $12 billion in 1991. (Those orders will be filled over several years.)

U.S. defense spending continues to tumble. More than a million U.S. defense jobs are expected to be lost by the mid-1990s, underscoring the importance of the foreign defense market.

The foreign market cannot fully offset the drop in Defense Department purchases, which went from a peak of about $118 billion in 1985 to about $57 billion in 1993, after adjustment for inflation.

But without the $32 billion of additional foreign orders last year, the industry's current slump obviously would be far worse.

How long foreign sales can continue growing is less clear. Some industry executives and analysts say 1993 marked a sales peak, attributable to nations in the Middle East replenishing their forces after the 1991 Persian Gulf war.

But others cite rising arms sales in Asia and the potential for heavy purchases in Eastern Europe and South America.

In addition, the former Soviet Union had exported $28 billion worth of weapons a year in the mid-1980s, but Russia's sales have collapsed to just a few billion dollars.

The U.S. military withdrawal from Asia and Europe will leave those regions needing to provide more of their own security.

As the sole remaining superpower, the United States has never been in a stronger position to sell weapons. Since the collapse of the Soviet Union, U.S. firms' share of the world arms export market has climbed to about 50 percent.

The U.S. defense industry is undergoing a redefinition, from focusing almost exclusively on the Pentagon's needs to a global market.

Wolfgang Demisch, aerospace analyst at BT Securities in New York, says the new international orientation of U.S. companies is a "very promising strategy."

He believes that most foreign nations may be compelled by regional instability to raise their defense spending from the immediate post-Cold War lows.

With global economic output at $25 trillion, Mr. Demisch says, nations could be spending $750 billion on military needs -- an enormous market that U.S. contractors have not yet tapped fully.

So far, the Clinton administration has given no hint -- other than unofficial statements about the need for restraint in arms trade -- that it intends to stop the growth of U.S. weapons exports.

But the United States' role as the leading supplier of weapons around the world is raising troubling questions for a society that has never had to rely on such big arms transfers for its economic well-being.

The Cold War battle against communism had for more than 40 years provided an ideological basis for U.S. security assistance to friends and allies, whether democracies or dictatorships. Virtually every arms transfer was legitimized by the Cold War.

But with the collapse of the Soviet Union, it is not yet clear what policy rationale, other than the economic benefit to U.S. workers and defense industry, will guide American arms sales in future years.

"These are issues of national identity -- whether we want to be the arsenal of democracy or the arsenal of the world," said Kenneth H. Watman, a RAND Corp. analyst directing a study of arms assistance for the Army. "There is a lot at stake here, politically and financially."

In recent Senate hearings, State Department and Defense Department officials all but sidestepped explaining U.S. policy, saying the matter is under review. Both agencies turned down requests for interviews, because of the policy study.

Industry executives say they have seen little change from the Bush administration's policy, which substantially lifted the tight restraints on arms sales clamped on by President Jimmy Carter.

In 1990, Lawrence S. Eagleburger, deputy secretary of state, issued an internal memo ordering U.S. embassies to "get on board" in supporting U.S. arms exports, countering a long-standing directive by Mr. Carter. About the same time, the State Department's Office of Munitions Control, which had thwarted many deals, was reorganized as the Center for Defense Trade.

But many defense executives are not convinced that the international market has much growth left or that it has any potential to significantly offset Pentagon budget cutbacks in the next few years.

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