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Pentagon's Global View

U.S. Increasingly Looks Abroad For Competitive Defense Contracts

By Renae Merle
Washington Post Staff Writer
Tuesday, March 8, 2005; Page E01

The Pentagon is increasingly shopping overseas for its weapons, ending a long made-in-America tradition that assured U.S. defense contractors of nearly exclusive sales to their best customer.

The Navy's recent selection of a British-Italian design for the president's next helicopter demonstrated the breadth of the move toward foreign suppliers. The U.S. incumbent, Sikorsky Aircraft Corp., surprisingly lost to an international team led by Lockheed Martin Corp. In another blow to Buy America advocates, the Army will base the design of its newest spy planes on Brazilian-made Embraer jets instead of Georgia-built Gulfstream aircraft.

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Yesterday's announcement that BAE Systems PLC of Britain will acquire Arlington-based United Defense Industries Inc. further emphasizes the interplay between foreign and American defense companies.

The new openness raises the prospect that the Air Force will seriously entertain a European bid to replace its refueling tanker planes after a Boeing Co. deal collapsed last year in an ethics scandal at the company. Sikorsky will face two foreign rivals -- the British-Italian company AgustaWestland Inc. and Eurocopter, the world's biggest helicopter maker -- in a $10 billion Air Force competition to build search-and-rescue choppers. Also on the horizon is an Army decision on whether to replace the M16 rifle, designed by Connecticut-based Colt Defense LLC, with a German-designed gun.

"I have often said that we in the United States have never had a global monopoly on good ideas or on innovation," said Suzanne D. Patrick, the deputy undersecretary of defense for industrial policy.

The consolidation of the defense industry in the 1990s reduced the number of domestic defense companies so sharply that the Pentagon has been forced to widen the field of bidders to keep costs down, industry analysts said. For some products, only one U.S. manufacturer exists. Chicago-based Boeing Corp. is the last domestic maker of wide-body jets, forcing the Pentagon to consider Europe's Airbus SA if it wants a competition. With the Pentagon's budget squeezed by war costs and deficit concerns, military leaders are increasingly willing to buy a foreign product rather than pay more to develop a U.S. alternative, analysts said.

The Pentagon's purchases overseas could have a silver lining for American contractors: Foreign governments may be more willing to buy U.S. products.

Like its counterpart in the United States, the European defense industry also has consolidated and developed expertise, and is aggressively pursing work with the Pentagon, which is still flush with cash compared with their nations' defense departments. Last year, the United States spent $454 billion on defense, including the wars in Iraq and Afghanistan, while NATO spent $172 billion and Britain spent only $38 billion, according to figures collected by the Center for Transatlantic Relations at Johns Hopkins University.

"The policy paradigm in the late 1990s was that the formation of transatlantic defense industry teams could help ensure competition in consolidating defense markets," said Jeffrey P. Bialos, executive director of the Johns Hopkins program, who was deputy undersecretary of defense for industrial affairs in the Clinton administration. "The truth is, this administration has shown few intentions of following through on that design." The presidential-helicopter award "is a hopeful sign," he said.

Some in Congress worry that relying too much on foreign military suppliers would hurt domestic industries and raise national security concerns. They contend that foreign governments could choose to slow or stop production of U.S.-bound products when the Pentagon needs them most. "The average taxpayer pays $1,000 a year for the Defense Department's budget," said Rep. Duncan Hunter (R-Calif.), chairman of the Armed Services Committee. "There is an equity argument to the effect that the people who pay for the defense of the free world . . . should have the right to build the defense system of the free world, or at least the American defense systems."

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