Two months after the collapse of the Iranian monarchy that closed off a major market for American arms, U.S. defense contractors have been buoyed by developments at home and abroad assuring strong demand for their weapons.
As a byproduct of the Middle East peace settlement, the Carter administration has agreed to expedite delivery of 75 F16 fighter-bombrs to Israel and opened a new arms supply channel to Egypt that could result in at least $1.5 billion in government-aided shipments there over the next several years.
Pentagon sources say the Israel-bound F16s could come from the first batch of 160 planes originally ordered by Iran. That order was canceled by Tehran during the turmoil there.
An analyst of the U.S. aerospace industry said last week that Egypt's need for modern weapons eventually could outstrip Iran's.
"The beauty of this is that Iran is a drop in the bucket," he said. "The military and commercial cycles of the companies are clicking on all cylinders."
In addition to seeing a strong worldwide demand for a new generation of U.S. military aircraft and missiles, industry sources say the believe Congress is considerably more receptive to arms sales and increased U.S. defense spending than it was several years ago.
In 1976, Congress placed a ceiling on all arms sales, only to have the legislation vetoed by President Ford. In May 1977, President Carter established a limit on annual arms sales to countries other than Japan, Australia, New Zealand and members of the North Treaty Organization.
In fiscal 1979 the limit is $8.6 billion. Some have suggested that, given the new Middle East commitments, the administration might have had trouble keeping to its ceiling if the flow of arms to Iran had not been interrupted.
As evidence of the new mood, industry sources cite President Carter's decision to waive a requirement for congressional review when he ordered accelerated weapons shipments to the Arabian peninsula during the short-lived border war between North and South Yemen.
There was no substantial congressional reaction against the stepped-up Arabian arms aid. Sen. Frank Church (D-Idaho), chairman of the Senate Foreign Relations Committee, said at the time that Carter's critics had been urging action to counter Soviet moves, and that there was a mood in Congress to go along with him.
"There is a reaction across the country to these little tests in Afghanistan, Iran and Yemen," said the Washington representative of a large arms builder. He said this was likely to be reflected in political support for continued arms shipments to areas where the balance of power appears to be shifting against the United States.
There was initial concern in the arms trade when the government of then Iranian Prime Minister Shah-pour Bakhtiar announced cancellation of $7 billion of the $12 billion of military equipment and services on the shah's shopping list. Pentagon officials say further cancellations are possible.
Among the items Iran said it would not need were 160 of General Dynamics' F16s; Phoenix missiles by Hughes Aircraft; two Spruance-class destroyers by Litton Industries; seven Airborne Warning and Control Systems (AWACS) reconnaissance plances by Boeing with Westinghouse radar; 16 McDonnell Douglas F4 Phantom fighter-bombers, as well as helicopters and ships.
The cancellations affected several thousand U.S. technicians on assignment in Iran for defense contractors. Hard hit was Textron Inc., whose helicopter subsidiary had a backlog of uncompleted sales and plans to construct a helicopter plant in Iran.
However, industry sources say that the impact of the cancellations on most of the giant, multinational defense and aerospace companies that were involved will be relatively minor.
Many of the deals, such as Boeing's sale of the seven AWACS, were not yet in the contract stage and the equipment was not scheduled for production until the 1980s.
Now, much of the equipment in the pipeline to Iran will be diverted to the Middle East, to other foreign markets or to U.S. forces.
"We're sorry we're not going to sell those seven (AWACS) airplanes, but there's no direct monetary impact on Boeing," said a company official. He expects a good market for the huge radar-equipped aircraft.
"Nobody else has a radar station that moves at 600 miles an hour and can see over the horizon," he noted. NATO countries already have expressed an interest in the aircraft.
The Defense Department has asked Congress to approve a $764.9 million supplemental appropriation to enable it to purchase two guided-missile destroyers, 55 F16s and Phoenix, Harpoon and Standard missiles under contract to Iran.
Litton is building the destroyers at Pascagoula, Miss., in the home state of Sen. John C. Stennis (D-Miss.), chairman of the Armed Services Committee.
The cancellation of the F16 order is unlikely to have any impact on General Dynamics, which produces the ultramodern plane. In addition to the 1,388 F16s that the Air Force wants over the next few years, Spain and Canada have expressed interest.
Last week Egyptian Defense Minister Kamal Hassan Ali presented to the Carter administration a request for 300 F16s. Although the Pentagon has said it won't grant this request now, it left open the possibility that Egypt might get the F16s later.
The opening of the Egyptian arms market could provide an unexpected bonus for McDonnell Douglas, which plans to end production of its F4 Phantom in June. Pentagon officials have hinted that the F4, a highly versatile plane developed in the 1950s, might be suitable for the first stage of modernization of the Egyptian air force.
McDonnell Douglas representatives say the production line could be kept going for Egypt if necessary.
The company "didn't lose that much" in Iran, they add. Last year's earnings were $4.14 a share. And the company hopes to keep its plants busy building 15 F/A18 fighter bombers for the U.S. Navy and 60 F15s for Saudi Arabia between now and 1981.
The biggest market for the defense companies is still the U.S. armed forces, which are preparing to buy new generations of planes, ships and missiles. Total U.S. military exports in 1979 are expected to be $14 billion-about the same as the Department of Defense spends on military procurement.
In addition to the boon of promising arms markets in Egypt and the Arabian Peninsula, a number of major defense companies also are helped by strong demand for such nonmilitary products as commercial jetliners and helicopters.