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U.S. Weapon Sales

US on Track for Record Foreign Weapon Sales

WASHINGTON – In just three short months, the US State Department has blown past its dollar total of foreign weapon sales cases for all of last year -- but a close look at the numbers shows that industry should temper its expectations for the rest of 2017. 

Through Dec. 23, the State Department has ok’d 21 foreign sales cases, worth an estimated total of $45.2 billion dollars. For all of fiscal year 2016, DSCA cleared $33.6 billion. In other words, it took the State Department less than three months to clear roughly $12 billion more of foreign military sales cases than it did all of last year.

If those trends hold up, 2017 would be on pace to beat the $68.6 billion record in total foreign weapons sales, set in 2012.

A few caveats are involved when discussing foreign sales. These are sales that are sent to Congress for final clearance, and then the actual agreement must be negotiated, so this total does not mean that the sale gets done. Additionally, the dollar figure can change as negotiations occur. However, the total foreign military weapon sales cases cleared by State is a widely used figure to judge the health of American defense exports, and so is notable.

So what’s driving the early surge? In this case, it’s quality over quantity.

The 21 sales through the first three months of the fiscal year are actually less than the 28 cases cleared in the first three months of FY16, but slightly more than the 18 cases cleared in the first three months of FY15.

But a pair of sales account for $31.2 billion, or a full two-thirds of the weapon sales for this year. And those two sales —72 F-15QA fighters for Qatar and 32 F/A-18E aircraft to Kuwait – were widely expected to be cleared in fiscal year 2016 but were delayed. (That’s actually similar to the 2012 situation, when a massive package of Saudi fighter jets and helicopters was finally cleared by State, and which drove the giant spike in value that year.)

Subtract the Qatar and Kuwait sales and deals cleared by the State Department for the first three months of FY17 come to just over $14 billion – less than the $18.1 billion cleared in the first three months of FY16.

Still, while a pair of big sales may account for the majority of the value, Daniel Yoon, an analyst with Avascent, notes that “sales are sales.”

“Of course, this would mean that 2012 was a blockbuster year, and that 2015/2016/2017 are not indicative of an upward trend that suggests international partiality toward American defense wares, per se. What is worth noting is that the volume of FMS deals, when viewed in a five-year increment, certainly suggests an upward trend,” Yoon said, noting foreign weapon sales totals struggled to break $20 billion until 2008, and has done so every year since.

In fact, the spike from the occasional foreign fighter sale should not be downplayed, Yoon argues, because such high-end equipment remains America’s defining edge over foreign competitors.

“No country will be able to touch the United States in the highest end of the market for at least another generation,” Yoon said. “So, therefore, fighter aircraft sales should remain in our calculations when considering the success of American defense exports, even if they only come around once every handful of years and make trends like this spikey.”

Remy Nathan, vice president of international affairs with the Aerospace Industries Association, says the early 2017 numbers are a good sign, but says it is important to take a step back and look beyond the dollar figure.

“It’s also important to the question on ‘where were we unsuccessful in securing the sale? And also from a US government foreign policy and national security perceptive, have those record sales allowed us to advance all of our security cooperation priorities?’” Nathan said. “And if not, and I’m pretty sure the answer is no, we have to keep asking ourselves what’s next.”

He points out the FY17 total could be significantly higher had a jet fighter sale to Bahrain also been cleared. Instead, it ran into hurdles from the White House and its fate is in limbo. Meanwhile, Nathan raises concerns that while the US remains the global leader in foreign weapons sales, the growth rate has slowed over the last four years.

“Our direct competitors, and in some cases countries that don’t share our same perspectives or foreign policy, their growth rates are advancing quite considerably,” Nathan said. “That’s both a tech issue and a geographic issue we need to be paying attention on.”

Doug Berenson, also of Avascent, agrees that the US needs to be aware of increasing competitiveness for foreign weapon sales.

“The rest of the world is increasingly competitive. That includes more than just ‘the usual suspects’ like Russia, France, Germany, and the U.K.  Firms in South Korea, Israel, Singapore, Turkey, Brazil and other countries are increasingly active in various sectors of the global defense market,” Berenson warned. “Over time, they will make their presence felt even more strongly.”

A side benefit of these numbers coming through so early could be that it captures the attention of the incoming administration of president-elect Donald Trump, which has made a number of statements about wanting to focus on increasing manufacturing work inside the US, Nathan said.

“One could envision as much as our president elect is interested in trying to support high paying, high skill manufacturing in the country, these defense sales for allies and partners very much fit the bill,” Nathan said, before reiterating a call, first put forth by AIA head David Melcher in a Defense News editorial, for a robust national security cooperation strategy.

Overall, the Gulf region accounts for the vast majority of sales this year. 11 deals have been cleared for a total of 41.1 billion, or roughly 90 percent of the weapon sales this year. While that’s driven by the two big fighter sales mentioned above, there were also major deals cleared for CH-47F Chinooks to Saudi Arabia and Apache AH-64Es for the UAE. Both those deals were for roughly $3.5 billion.

Other major deals include a decision from Norway to buy five P-8 maritime surveillance aircraft ($1.75 billion), modernization of Abrams tanks for Kuwait ($1.7 billion), and procurement of ten Predator B unmanned systems for the UK ($1 billion).

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