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Arms makers eye exports to offset Pentagon cuts

Washington, September 6, 2011

Lockheed Martin Corp's political backers are stepping up a drive to meet Taiwan's request for 66 new F-16 fighter jets, a sale that would help the Pentagon's largest supplier weather possible cuts to its big-ticket weapons programs.

Such a sale, valued at more than $8 billion, would anger China, which deems self-ruled Taiwan a wayward province subject to unification by force if necessary.

Arms sales will be among the subjects explored at the annual Reuters Aerospace and Defense Summit in Washington September 6-8.

Company executives, Pentagon officials and analysts will discuss projected cuts in US military spending that nearly doubled in the decade after the September 11, 2001, attacks.

Notwithstanding the possible harm to US-China ties, nearly half of the 100 US senators and 181 of the 435 members of the House of Representatives have urged President Barack Obama to move quickly to meet Taiwan's F-16 request, informally pending since 2006.

'We are deeply concerned that further delay of the decision to sell F-16s to Taiwan could result in closure of the F-16 production line,' 45 senators said in a May 26 letter to Obama.

Economic arguments in favor of sensitive arms sales may gain traction as the US jobless rate is stuck above 9 per cent and campaigning for the 2012 elections is starting in earnest.

The Obama administration has begun consulting Congress on plans to sell Global Hawk spy planes made by Northrop Grumman to South Korea, Reuters reported this week.

This would require a waiver of the Missile Technology Control Regime (MTCR), a voluntary arms control pact involving at least 34 countries.

Then-Defense Secretary Robert Gates said in October 2008 that the US was 'very sympathetic' to South Korea's interest in the high-flying drone but that there were MTCR issues to overcome.

The Global Hawk's range and payload capacity subject it to the pact created in 1987 to curb the spread of unmanned systems that could be used to deliver weapons of mass destruction.

The State Department declined to comment on a possible MTCR waiver pending formal notification of Congress of any such proposed Global Hawk sale.

Northrop Grumman chief executive Wes Bush complained in an August 17 speech that export curbs on unmanned systems were harming US industry without making the country any safer.

'The good news,' he said, 'is that the Defence Department is promoting what is clearly the best export reform policy -- build higher walls around fewer things.'

Arms sales to the Middle East, India and East Asia have always been freighted with diplomatic and political considerations, including maintaining balances of power.

Now they are increasingly important to US and European arms makers preparing for security-related spending cuts sparked in part by an August 2 debt-ceiling deal between President Obama and Congress.

The Pentagon is trimming at least $350 billion from its previously projected spending through the next decade under that deal.

Additional defence-related cuts of up to $600 billon are set to kick in if Congress fails by the end of the year to find at least $1.2 trillion more in deficit reduction over the same period - a 'doomsday mechanism,' as current Defence Secretary Leon Panetta puts it.

Such cuts may mean there is not enough work to go around for Western firms, on top of a recent round of defence-related budget belt-tightening in Europe.

Foreign military sales are 'clearly a way to grow to fill the revenue gap which is expected,' said Tom Captain, head of global aerospace and defense business at professional services company Deloitte.

Boeing, the Pentagon's No.2 supplier by sales, is aiming to boost its defence, space and security-related sales toward 25 per cent by 2015 from about 17 per cent in 2010.

Defence unit Boeing Military Aircraft expects its foreign sales to account for as much as 40 per cent of Boeing's total warplane sales by the end of next year, up from 25 per cent in 2010, said Jeffrey Kohler, a Boeing vice president for business development.-Reuters




Tags: Exports | Pentagon | Taiwan | job cuts | US arms makers | missile program | F 16 jets |

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