As US Defense Cuts Take Hold, Armsmakers Step Up Sales Abroad

TAIWAN is buying F-16s. Saudi Arabia wants F-15s - and may well soon get them. Suddenly, fighter jets are America's hottest export.

Presidential politics are a big factor in the White House's sudden enthusiasm for such sales. But underlying economics are at work as well: As the Pentagon budget dwindles, more and more defense firms are looking overseas to bolster their business.

From airframes to tank shells, many defense manufacturers feel they don't have much choice. Their domestic orders have dried up, they have already pared their work forces, and the administration's view for their future is survival of the fittest. Pressure to sell abroad

"We're going to see continued pressure to sell abroad, because there's no overall industrial policy," said US Rep. Les Aspin (D) of Wisconsin, House Armed Services Committee chairman, at a reporters' breakfast last week.

Generally, the United States public isn't comfortable with the concept of arming the world. But that's a vague feeling, Representative Aspin noted. The voting minority whose economic future is affected by weapons contracts is often more vociferous, organized, and politically effective.

The pressure for the latest fighter sales is coming as much from affected states (Texas, for General Dynamics's F-16s; Missouri, for McDonnell Douglas's F-15s) as from the international customer, Aspin said. He added that Congress is unlikely to block the sales, as it can in the case of large overseas contracts.

The reason why business-development officials at armsmakers look overseas is clear after examining their numbers.

According to one internal industry estimate, the current US defense budget - about $280 billion - will shrink at least 5 percent in real terms over the next five years. Yet total international arms sales will rise from about $640 billion to $700 billion.

Long-standing regional conflicts, such as that between India and Pakistan, are seen by analysts as the force behind this increase.

The annual reports of weapons firms are now filled with ambitious goals for overseas business. Raytheon, for instance, has recently opened a sales office in the Gulf nation of Dubai. In the mid-1990s, the company is reportedly planning on getting 40 percent of its business, instead of 20 percent today, from outside the US. Indeed, its Patriot and Hawk air-defense missiles are much sought after, with recent sales to Kuwait and Saudi Arabia, among others.

The big US airframe manufacturers have been doing well in foreign competition of late, even before President Bush announced his approval of the sale of F-16s to Taiwan last week. Besides Saudi Arabia's pending F-15 order - which the Bush administration has yet to rule on, but appears to favor - Finland and Switzerland have decided to buy McDonnell Douglas F/A-18s. (A December national referendum could kill the Swiss order.) Israel is running a contest to decide whether it wants to buy more F-16s or the F /A-18. Greece is thinking about buying F-16s.

In the short run, these orders will ease the pain of Pentagon downsizing. Perhaps 6,000 jobs have been saved, for now, by the Taiwanese F-16 order. But long term, the number of planes sold to foreign nations will not come near the number sold in the US. And the Pentagon is now focusing attention and cash on next-generation systems such as the F-22.

For defense firms, foreign sales "are not going to be a salvation at all. They're way too optimistic," says Paul Nisbet, a respected defense-business analyst for Prudential Securities.

There is also the question of whether pursuing such arms sales is good long-term policy. One critic argues that by selling its top-of-the-line weapons overseas, the US increases the chances that it might someday have to face an adversary as well-armed as it is. Best jets available In decades past, the US would sell older-design models such as F-4 jets to foreign customers, while the Pentagon armed itself with F-16s. Now the US is selling F-16s, and the US Air Force does not yet field any newer fighter.

"The biggest risk to an American pilot is somebody else flying an American plane, or shooting off an American antiaircraft missile," says Natalie Goldring, deputy director of the British American Security Information Council.

Selling fighters and tanks overseas also blatantly undermines attempts to curb the world arms bazaar, critics complain. The US, Britain, France, Russia, and China have attempted to agree on restrictions on Middle East weapons sales. This was a US idea.

Yet China, in protest over sale of F-16s to Taiwan, is threatening to pull out of negotiations. "The Chinese certainly haven't been the most constructive party, but it has been important to have them aboard," Dr. Goldring says.