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Archive for Sunday, June 14, 2009

Weapons makers looking overseas

Defense contractors seek business as U.S. cuts back on costs

June 14, 2009

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— Foreign governments looking to kick the tires of fighter jets and cargo planes at this week’s air show in Paris will likely hear a clear message from U.S. defense contractors: We need your business now more than ever.

With the United States looking to cut defense costs and rethinking the way it fights wars, many defense companies are looking for international buyers to take the big, pricey weapons that the Pentagon no longer wants or needs fewer of. U.S. contractors are chasing some lucrative deals, but could also face some legal and political hurdles as they hawk weapons overseas.

Boeing Co. and Lockheed Martin Corp. are competing to sell fighter planes to countries such as India and Brazil. Boeing is trying to spark international interest in its C-17 cargo plane. Middle Eastern nations fearful of threats from Iran are bulking up on missile defense equipment from Lockheed and Raytheon Co.

“This is a world market right now,” says Chris Chadwick, Boeing’s president of military aircraft.

Globalization is nothing new for many U.S. industries, which often use overseas operations and sales to tap into fast-growing areas like China and as a hedge against domestic downturns. Some of the nation’s biggest manufacturers, companies like Caterpillar and General Electric, make more than half of their sales overseas.

But the defense industry is closely tethered to one primary buyer — the U.S. government. It has been a lucrative relationship. Defense spending is up more than 40 percent over the past eight years, fueled in part by spending on wars in Iraq and Afghanistan. Much of the money flowed to defense contractors that supply the Pentagon with everything from warships to bullets.

Overseas arms sales represent a relatively small segment of defense contractor sales. But many are turning to the global markets for growth now that the appetite for big and expensive weapons is waning in the United States. The push is helped by countries worried about security threats from nations such as North Korea and Iran. Many European allies need to upgrade their aging equipment, and are turning to U.S. companies as likely suppliers.

However, budgets for big weapons are getting tighter as costs like personnel expenses eat up more Pentagon resources. Defense Secretary Robert Gates proposes spending more money on tools like unmanned drones to fight insurgencies instead of big and pricey equipment like $140 million apiece for F-22 fighters jets meant for more conventional wars.

In the 2008 fiscal year, the military spent $164 billion to buy weapons. For the 2010 fiscal year, the Pentagon proposes spending only $131 billion, though that number will probably grow when Congress adds weapons spending as it reviews the budget.

Big defense companies would take a hit. Lockheed will have to shut down its assembly line at its big Marietta, Ga. plant, putting thousands of jobs at risk. Boeing, which gets 80 percent of its defense unit sales from the Pentagon, could stop selling the $276 million C-17.

“There is a softness in the home market right now,” said Richard Aboulafia, an aerospace analyst with the Teal Group.

That could grant some new life to programs that would be cut under the Pentagon’s new budget.

Defense companies will display their jets, engines, missiles, pilotless drones and other hardware for several days this week at an airfield outside Paris. The show is one of the biggest that brings together contractors and militaries from around the globe to broker weapons deals.

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