Defense Industry’s Team USA on the Ground in Singapore

Executives from the nation’s top military contractors and a bevy of federal government officials will be in Singapore this week in a bid to help Team USA win not gold medals but arms deals.

The Singapore Air Show that kicks off Feb. 11 is Asia's largest aerospace and defense trade show, with 900 exhibiting companies from 50 countries, official delegations from 70 countries and nearly 45,000 attendees.

For the U.S. government, the show carries high stakes asU.S. companies make a big push to increase exports to the region, and compete for a piece of Asia Pacific’s rising military budgets.

The Pentagon’s top weapons acquisition official, Undersecretary Frank Kendall, will lead the U.S. delegation.

“The U.S. government will have a significant presence,” said Dak Hardwick, director of international affairs at the Aerospace Industries Association. The group serves as a coordinator for U.S. firms at the show.

“Kendall is making it a point to be in Singapore for a number of days, to make sure he makes the rounds with his foreign counterparts and with U.S. industry,” Hardwick said during an online conference hosted by the consulting firm Avascent.

Companies have been impressed by the unified effort of the U.S. government in helping promote American industry, he said. Officials from the Defense, State and Commerce Departments, and the Federal Aviation Administration have worked in coordination, rather than in the traditional agency stovepipes, Hardwick said. “We are seeing the U.S. government transitioning from a department-by-department approach to an air show to more of a Team USA approach.”

Officials will be on the ground in Singapore to promote U.S. industry, he said. “We are seeing government acknowledgment that advocating for U.S. industry in foreign markets is key to accelerating international growth.”

The Asia-Pacific region registered 24 percent of the $1.5 trillion spent on arms worldwide last year, said a report by IHS Jane’s. The study projected that by the end of the decade, Asia’s share will tick up to 28 percent. The United States accounts for about 38 percent of the global arms market.

Top U.S. defense contractors increasingly view the Asian market as a golden ticket during a time of Pentagon cutbacks. The opportunities are there, said Aleksandar Jovovic, senior associate at Avascent.

“Defense spending in Asia has mirrored the steady economic rise of the region in past decades,” he said. Estimated arms deals over the next decade could reach $110 billion, not including China, a market that is off limits to U.S. defense contractors.

Over the next five years, Avascent projects $380 billion in defense investments by Asia’s leading markets such as Japan, India, South Korea and Australia. “Roughly a third of these funds remains uncommitted to specific providers or programs, making the region highly attractive to global defense and aerospace firms," Jovovic said.

These countries’ wish lists include strike weapons, tactical aircraft, surveillance systems, unmanned vehicles, undersea and electronic warfare systems.

Much of what is driving weapons buys in Asia is the rise of China, as other countries seek to counter its influence. “Defense spending in the region has grown, first and foremost as a result of China’s impressive defense modernization, as well as its neighbors’ response to these developments, said Jovovic. According to Avascent analysts, China’s defense budget reached nearly $200 billion in 2013 and, by 2029, China would achieve military spending parity with the United States.

Japan is becoming a crucial customer for U.S. arms makers, said retired Marine Corps Lt. Gen. Wallace “Chip” Gregson Jr., former assistant secretary of defense for Asian and Pacific security affairs.

“Japan is the foundation of our presence in Asia,” he said. The nation recently announced new defense strategy and new national security council to better coordinate efforts with the United States. This is good news for U.S. industry as Japan is “placing great importance on interoperability across air land and sea with U.S. forces,” Gregson said.

India also is increasing military spending, but it is much tougher market for U.S. suppliers because it demands significant industrial offsets, he said. “India not for the weak of hearts. Not for those looking for immediate success.”

Jon Barney, managing director at Avascent, said the Asian defense market is becoming a highly competitive landscape, with more complex challenges for U.S. companies. “Local industry is getting more assertive and more sophisticated,” he said.

Since the Obama administration announced its Asia pivot strategy two years ago,U.S. defense industry has lobbied for closer trade partnerships with Asian nations to ease the export of military systems.  

Executives have called on the administration to work with Japan and other close allies on export controls.

“Export controls are a challenge for U.S. firms,” Barney said. “With big markets like India, the lack of an agreement has been a challenge.”

Obama administration officials began reforming U.S. export regulations in 2009 to help ease administrative burdens that, according to American firms, put them at a competitive disadvantage.

The reforms shifted into high gear last year as many non-sensitive items — such as dual-use technologies that are not military unique — are moving from State Department control to Commerce Department oversight. The removal of items from the so-called munitions list to Commerce’s export administration is taking place a few categories at a time.

But U.S. officials cautioned that these reforms should not be misinterpreted as a policy shift that will liberalize arms sales. Non-proliferation and human rights concerns take precedence over trade, officials said.

“All arms exports will be authorized based on a coordinated review of risks and rewards,” said Tom Kelly, acting assistant secretary for political military affairs at the State Department. “The United States doesn’t simply allow arms to flow from its borders in response to global demand,” he said last week at the Center for Strategic and International Studies. “I want to dispel the myth that export control reform equals decontrol of arms exports.”

Topics: Aviation, International