Defense contractors look overseas as Pentagon trims spending

11/17/2013 3:41 PM

11/18/2013 7:52 AM

Though it’s been more than a decade since the U.S. military bought any of Lockheed Martin’s F-16 fighter jets, manufacturing continues at the defense giant’s plant in west Fort Worth.

About 400 workers turn out as many as two dozen planes a year, thanks to buyers that have included Israel, Oman and Iraq.

“International is the business that keeps the F-16 production lines open,” says Patrick Dewar, executive vice president of Lockheed Martin International, a division that the world’s largest defense contractor created this year to boost foreign sales. “It was a recognition that our corporation had the capabilities to do more and deliver better to those customers.”

U.S. military spending is dwindling after more than a decade of war in Iraq and Afghanistan, and the automatic federal budget cuts known as sequestration are imposing still deeper reductions. Lockheed said last week that it’s cutting 4,000 jobs, part of an effort to reduce overhead that has shrunk the Bethesda, Md.-based company’s workforce to 116,000 employees from 146,000 in 2008. The job cuts will not affect aeronautics division jobs in Fort Worth.

To make up for at least some of the U.S. defense pullback, American defense contractors are looking overseas more aggressively.

“We’ve now turned up the heat on an already focused sales team to balance the sequestration effect,” says Robert Kokorda, vice president for sales and marketing at Sikorsky Aircraft, part of United Technologies.

Sikorsky, which designs and builds helicopters such as the globally popular Black Hawk, gets 15 percent of its sales from overseas, a share that may double in the next decade, Kokorda says.

International sales at Boeing Co.’s defense division made up 24 percent of the company’s $33 billion in defense revenue last year, up from 7 percent in 2004, spokesman Daniel Beck said. Raytheon, the world’s largest missile maker, raised its foreign revenue share to 26 percent last year, from 16 percent a decade earlier.

“They’re all looking for opportunities for growth at a time when the U.S. defense budget is declining,” said Remy Nathan, vice president for international affairs at the Aerospace Industries Association, a trade group based in Arlington, Va. “You go where the money is.”

Yet finding overseas buyers for expensive weapon systems may become more difficult.

Last year, global defense spending contracted for the first time in 15 years as countries such as India and China slowed the growth of their militaries, said Siemon Wezeman, senior researcher at the Stockholm International Peace Research Institute’s arms transfers program. The group reported that worldwide military spending fell last year, to $1.75 trillion, a drop of 0.5 percent in real terms and the first decline since 1998.

As the market gets smaller, competition between U.S. companies and those abroad is getting stiffer.

Turkey, a member of NATO, said in September that it would buy a long-range air defense system, the FD-2000, from China — passing up Raytheon’s Patriot system and rival offerings from Europe’s MBDA and Russia’s arms export agency, Rosoboronexport.

“That surprised a lot of people,” said Graham Smart, a defense consultant who works mostly with European companies trying to compete in the U.S.

U.S. contractors may never find enough foreign sales to make up for lost domestic business.

But such doubts don’t trouble Lockheed, where a backlog of orders for its F-16 Fighting Falcon jet will keep the Fort Worth plant busy at least through 2017.

International sales amounted to about $8 billion last year, or 17 percent of the company’s revenue. That share could grow to 20 percent within a few years, Dewar says. And the F-16 may serve as a role model of sorts for the F-35 joint strike fighter.

Over the next five years alone, Dewar anticipates that almost half the orders for the F-35 will come from overseas. “The demand is there,” he said.

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