U.S. Weapons Manufacturers Capitalize on Rising Demand in Asia

The five largest arms importers over the past five years — India, South Korea, Pakistan, China and Singapore — now account for 30 percent of global sales. The growing arms race in Asia could be a boon for U.S. suppliers of military hardware, according the newly released annual report of the Stockholm International Peace Research Institute.
U.S. manufacturers, which still rank as the world’s top arms sellers, have seen exports increase by 24 percent from a year ago, says the SIPRI report. Asia and Oceania are the largest recipients, accounting for 45 percent of U.S. exports, followed by the Middle East (27 percent) and Europe (18 percent).
Aircraft made up 63 percent of U.S. sales between 2007 and 2011, the SIPRI data shows.
U.S. sales made in 2011 include 64 combat aircraft — 11 F-15Es to South Korea, seven F-15SG frigates to Singapore, nine F/A-18E combat jets to Australia, 12 F-16Cs to Turkey and 16 F-16Cs to Morocco. The most significant order placed in 2011, and the largest arms deal for at least two decades, was Saudi Arabia’s order for 84 new F-15SG combat aircraft and the rebuilding of 70 existing F-15Es to the same standard.
India is now the world’s largest recipient of arms, accounting for 10 percent of global imports, SIPRI reports.
The success of U.S. arms sales, however, does not translate directly to domestic jobs, a SIPRI analyst says. Many of the Asian deals require licensing agreements so that local firms can build the equipment. “Major Asian importing states are seeking to develop their own arms industries and decrease their reliance on external sources of supply,” says Pieter Wezeman, senior researcher with the SIPRI Arms Transfers Program. “A large share of arms deliveries is due to licensed production.”
The trend in China has been a shift from imports to exports. It was the largest recipient of arms exports in 2002–2006, but fell to fourth place in 2007 to 2011. The decline in the volume of Chinese imports coincides with the improvements in China’s arms industry and rising arms exports, the SIPRI study says. The volume of Chinese arms exports has increased by 95 percent from a year ago. China now ranks as the sixth largest supplier of arms in the world, narrowly trailing the United Kingdom. “This is largely a result of Pakistan importing more arms from China,” says Paul Holtom, director of the SIPRI Arms Transfers Program.
Analysts have concluded that the Arab spring has had limited impact on arms transfers, although major suppliers have continued to deliver weapons to countries affected by the events of the Arab Spring. “Despite a review in 2011 of its arms transfer policies towards the region, the United States remains a major supplier to both Tunisia and Egypt,” the report says.
The biggest buyer of foreign weapons, India, has seen its imports increase by 38 percent over the past year. Purchases for the 2007–2011 period include 120 Su-30MKs and 16 MiG-29Ks fighter aircraft from Russia and 20 Jaguar S attack aircraft from the United Kingdom. India’s growing appetite for weaponry partly is a result of rising tensions with its neighbor Pakistan, which is the third largest arms import, accounting for 5 percent of sales. The SIPRI study says Pakistan took delivery of a significant quantity of combat aircraft during this period: 50 JF-17s from China and 30 F-16s from the United States. Both India and Pakistan have purchased and will continue to take delivery of large quantities of tanks.
News about India’s top ranking as an arms importer come as the country prepares to host one of the region’s largest weapons trade shows,Defexpo India 2012, in New Delhi, from March 29 to April 1.
U.S. manufacturers are expected to display an array of big-ticket equipment. Several of the Pentagon's top suppliers will participate in the upcoming U.S. India Business Council Executive Mission to India March 26 to March 31. Karen Davies, senior vice president of munitions manufacturer ATK, will participate in a panel discussion on the topic of return on investment in the India defense market, according to an ATK news release. The panel will also feature representatives from India's Ministry of Defense and other defense industry executives.
ATK will be marketing precision-guided munitions for artillery and mortars, artillery fuzing, ammunition and accessories for law enforcement and special operations forces, missile warning systems, small-caliber ammunition and illuminating flares. It will also be promoting its Mk44 30mm cannon and the Apache helicopter's 625 round-per-minute M230 30mm chain gun.
BAE Systems also will be at Defexpo as part of a joint venture called Defence Land Systems India. The company will be offering its CV90 family of armored vehicles, BvS10, and the M777 155mm Lightweight Field Howitzer with a model of the Type 45 naval destroyer.
Despite a growing U.S. dominance of the global arms market, the Obama administration is hoping to increase weapon exports in the future, and has proposed a number of export-control reforms designed to expedite the sale of military equipment to foreign allies. Some U.S. firms insist that current rules are too restrictive as they were conceived during the Cold War, before the globalization of high technology.
During a February hearing of the House Foreign Affairs Committee, titled, “Export Controls, Arms Sales, and Reform: Balancing U.S. Interests,” several lawmakers praised the administration’s effort to ease sales by removing non-sensitive technologies from the restricted “munitions list” of items for which is it much tougher to obtain an export license.
“The Obama administration has taken on the Herculean task of being the reform of the U.S. export control system,” says Rep. Howard Berman, D-Calif. “After three years of work, the administration is now beginning to publish the draft changes it seeks to make in the U.S. munitions list. These changes, once enacted, would mean that literally tens if not hundreds of thousands of defense items that the administration deems to be less militarily sensitive would be moved to a new sublist of the Department of Commerce's commerce control list.”
Some Republican lawmakers have resisted reforms, out of concerns that valuable U.S. technology might fall into the wrong hands. Rep. Dana Rohrabacher, R-Calif., cautions that “dangerous items are going to dangerous countries. … We have to remember that there are some countries that should be treated differently. … A lot of American business is making huge money with China and various human-rights abusers who may well be an enemy of the United States in the future. … We should not be treating dictatorial, potential enemies, like China, in the same way we treat Belgium or Brazil.”
U.S. industry is hopeful that reforms will lead to increased exports, especially as the Pentagon begins to scale back spending on new weapons, says Tom Captain, vice chairman of the defense and aerospace sector at Deloitte LLP. “We are competing increasingly with European companies that have the same challenges with defense budgets and need to sell,” Captain says in an interview. “The world continues to buy weapons,” he says. “India will spend $80 billion over the next five years on arms. Much of that will be imported from United States, United Kingdom, France and Germany.”
To do business in that country, he says, “Uou have to create joint ventures.”
The comprehensive annual update of the SIPRI Arms Transfers Database is available at www.sipri.org

Topics: Armaments, Aviation, Tactical Aircraft, Business Trends, International