By Tim Smart
February 18, 1999
Fort Worth, Texas - At a sprawling 710-acre manufacturing complex west of town, workers at Lockheed Martin Corp. produce the needle-nosed F-16 Fighting Falcon, a champion of the 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 Lockheed Martin, based in Bethesda, Maryland, and its 11,000 workers here dependent on other military forces around the world to keep the $25 million F-16 in production
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 Al Gore - will keep the plant in business for another decade. But 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.
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 that are half as big as they were at the height of the Cold War.
''Is the basis of our business going toward international sales?'' Bill Anderson, a Lockheed Martin executive, asked. ''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.
Since 1995, when President Bill Clinton approved a change in arms export policy to allow economic concerns to be given equal weight with 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 signed a $1 billion deal to provide Greece with its Patriot air defense system.
Air Force Lieutenant General 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 competing with their 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. companies 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.
Mr. Davison said arms exports were still governed by foreign policy objectives, but he said there was a broader benefit to the United States in selling arms abroad: It spreads the cost of weapons over a broader base.
''This is not a primary driver,'' Mr. 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. companies 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.
Most of these arms have been sold to developing nations. At the beginning of the decade, it was the oil-rich nations of the 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 that, at least until their currency crisis broke out in 1997, had the cash to spend. 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 say 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 weapon-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
