Every afternoon in early June at precisely 2:58 p.m., an F16 jet fighter roared off the tarmac at the Paris Air Show and muscled straight up into the heavens for several thousand feet before looping back into a graceful figure 9.

On the sunroof atop General Dynamics Corp.'s chalet, the 10-minute display of aerobatics invariably triggered hearty applause from a gallery of beribboned generals and deputy defense ministers from around the globe.

Three hundred yards to the west, the noisy preen of the F16 Falcon rattled the glass doors of Northrop Corp.'s chalet, a gloomy reminder of what might have been. The F20 Tigershark, Northrop's underdog challenger to the F16, had crashed into the forests of Labrador on its way to Paris, leaving Northrop with only a plywood cockpit mockup and a four-minute film of the Tigershark in happier times.

Nonetheless, thanks partly to a dazzling public relations campaign, Northrop is closer than ever to selling the F20, which so far has cost the company $800 million without returning a penny. At the air show, where arms merchants biennially flock to the world's foremost weapons supermarket, giant General Dynamics is fretful.

Buttonholing any sheik or Third World colonel who will listen, the two firms typify an increasingly frantic hunt for buyers in an increasingly saturated market.

The salad days of arms peddling are over for now, strangled by the end of the oil boom, penury among developing nations and the emergence of rival arms makers from Singapore to Brazil. Third World arms purchases are half what they were five years ago.

But that curbed appetite has hardly calmed the developed world's peddling imperative. Arms makers in the West, building ever more expensive weapons, must find customers abroad to subsidize their costs at home.

"To me, export is literally 'export or die,' " Sir Raymond Lygo, chief executive of British Aerospace, said in a recent interview.

That same urgency has swept from corporate board rooms to the defense ministries of Europe. Governments can no longer outfit their armies and navies without shifting some of the astronomical costs of weapons to foreign buyers.

Sir Frank Cooper, British undersecretary of defense until 1982, noted recently that rising costs have halved the number of ships and planes in the Royal Navy and Air Force since 1960. "We cannot defend ourselves if the number of our fighting equipments goes on falling as fast as in the last 25 years," he added.

With an arms budget 10 times larger than Great Britain's, the United States has yet to experience quite so striking a crunch -- or follow Europe into the consequent desperate dependence on foreign sales. But the trends in the Pentagon are familiar if viewed from abroad: soaring costs; fewer and fewer weapons purchased for more and more money; fewer types of planes being developed; a growing impulse to export.

"It happened to the Brits. They've gone through what I call structural disarmament, and it's beginning to happen to us," said Sen. Sam Nunn (D-Ga.), ranking minority member of the Senate Armed Services Committee. "We're the big one, we're the last one to fall. But it's happening.

"The only way they can possibly stem that tide, or at least slow it down," Nunn added, "is to have very large foreign military sales. So we are competing with our allies to see who can do the most selling around the world." Cutthroat Competition ----

At the Paris Air Show, as one aerospace executive put it, "the food is flowing, the wine is flowing, the blood is flowing."

"While everybody's talking about cooperation at the front door," Sir Frank said, "out the back door they're cutting each other's throats as fast as they can."

Lockheed Corp., McDonnell Douglas Corp., General Dynamics and other U.S. firms that snubbed the air show two years ago this spring decided to spend the $1 million or more that a presence here requires.

"We're all down now to nibbling crumbs," one U.S. defense executive grumbled. "This binge that we went through in the '60s and '70s has equipped most of the world with modern airplanes . . . . The damn oil boom has gone, and there's not much money around anymore. The world in general is bankrupt."

Although many developing countries still spend a phenomenal slice of their budgets on defense, annual growth in their military spending declined from 12 percent in the early 1970s to 2 percent now, according to the U.S. Arms Control and Disarmament Agency.

Consequently, the peddling of warplanes, never a genteel business, now has the flavor of trench warfare. Nowhere was that more evident than in Paris, where F20 and F16 partisans sniped at each other while wooing the same customers.

Officially, for example, General Dynamics was sympathetic about the crashes of two of the three F20s Northrop has built. Aerospace analysts said the crashes have less of a chilling effect on the market than a layman might expect.

But that didn't prevent F16 boosters from murmuring privately that the crashes may suggest "stability" problems; nor from reminding listeners that General Dynamics built two F16 prototypes "and never lost either of them"; nor from wondering aloud whether Northrop left its sole surviving F20 at home because the crashes would have forced maneuver restrictions which, "while the F16 is flying, could be rather embarrassing."

In their chalet, Northrop officials were equally eager to question the F16's reliability to a parade of Koreans, Omanis and others who dropped by for duck with peach sauce. With no airplane to demonstrate, company executives talked a little faster, sold a little harder.

Northrop, in fact, had embarked 18 months earlier on what a competitor described ruefully as "the most indescribably masterful campaign . . . something that's going to become a Harvard Business School classic."

The F20, painted fire-engine red to catch the eye at the last air show, had been repainted "BMW gray, right from the paint chip," to subliminally suggest engineering superiority. Chuck Yeager, the former Air Force test pilot deified in "The Right Stuff," was hired as a consultant to chat up the plane and use the F20 as a background prop in television commercials for spark plugs.

The F20 found a cameo role in the movie "Starman," as the Air Force interceptor used to shoot down an alien spaceship. For a long time, that was as close to the Air Force fleet as Northrop could get; when the firm painted the official "stars-and-bars" insignia on an F20 before the 1983 air show, the Pentagon ordered it stripped.

Still, the company did everything it could to link itself to the Air Force, aware that the F16's role as a mainstay of the U.S. force has been key to sales abroad, a seal of approval. Although the Air Force has yet to buy any F20s, Northrop's promotion film in Paris featured a cast of blue-suiters clambering over the plane. Newspaper ads proclaimed, "All materials and spare parts provided to U.S. Air Force Logistics Command at a fixed price for 20 years," without mentioning that the arrangement is only a proposal.

Above all, Northrop -- 10 years ago the "bad boy" of the defense world because of overseas bribery scandals -- deftly harnessed public and congressional resentment of General Dynamics, this year's whipping boy. Depicting the F20 as the "obverse of the $600 toilet seat," Northrop stressed reliability, integrity, frugality.

General Dynamics was hardly willing "to go like a lamb to slaughter and concede the business," as one New York analyst put it. Company executives warned their subcontractors, many of whom also were at the air show, "Gentlemen, we have a major threat on our hands and it constitutes a threat to take away a lot of business from you."

At the General Dynamics chalet, where visitors consumed Texas barbecue, St. Louis beer and -- in a stunning commentary on French cuisine -- frozen Sara Lee pastry flown in from the States, the company pointedly emphasized "known reliability" and "proven operational capability." A Belgian F16A parked behind the chalet had been repainted to display flags of the dozen countries that have bought the plane.

Nevertheless, many industry observers believe the counterattack will fail. Joseph Campbell, a New York aerospace analyst, predicted that Northrop's strategy will pay off, with the U.S. Air Force an early customer.

"They're going to sell the F20 partly because of all the atmospherics in Congress about competition," Campbell predicted, "partly because General Dynamics got in trouble."

Once the U.S. military is on board, Campbell continued, other countries -- Egypt, Jordan, South Korea, possibly Saudi Arabia -- will line up, too. At $15 million per copy, the plane is portrayed by Northrop as just the ticket for Third World countries -- rarely in the shop and easy to fix when it is.

General Dynamics, in rebuttal, scoffs at reliability claims based on only three F20 prototypes -- and claims that it could produce, for $10 million, a version of the F16 comparable to Northrop's Tigershark.

Amid the daggers at the air show, the relative merits and costs of the airplanes seemed secondary.

"On a checklist of one to 10," said a British Aerospace official standing on the sidelines, "the technical capabilities of the plane probably rate less than a five. More important are politics, money and the image of the seller nation in the world." Times Have Changed -----

It was only a few air shows ago, one U.S. executive recalled last month, that a Middle Eastern leader strolled into the General Dynamics chalet eager to buy F16s.

"He whipped out his checkbook and said, 'How much for a squadron?' " the executive recalled. "I said, 'No, you don't understand. We don't sell F16s; the government does. You've got to talk to them.' So he said, 'Well, okay. How about just one?' "

Times have changed. Even a relatively wealthy country such as Austria, after considering F16s and French Mirages, is buying used fighters from Sweden. Developing countries are even more strapped.

"The Sudans and Moroccos just don't have the cash," said William Schneider Jr., undersecretary of state for security assistance.

Consequently, despite promoting arms sales far more fervently than did President Jimmy Carter, the Reagan administration has presided over dwindling U.S. sales abroad.

Arms contracts to the Third World from all sources fell from $62 billion in 1980 to $32 billion last year, according to figures adjusted for inflation by the Congressional Research Service. The United States, which shares the lead among exporters with the Soviet Union and France, sold $14.6 billion in weapons to developing countries in 1979, but only $7.2 billion in 1984.

The result is a kind of global elbowing among ostensible allies that almost makes Northrop and General Dynamics seem collegial. Each country claims to be the only one playing on a level field, accusing the others of tossing beer bottles from the stands.

"They're a whole century behind us -- it's called mercantilism," Richard N. Perle, assistant secretary of defense for international security policy, says of the Europeans. "The government is a heavy player in European sales . . . . It's not unusual for a European minister to pay a visit when a country is on the verge of clinching a big deal . . . . We don't do it that way."

"That's ridiculous," says Francois Heisbourg, until recently a top adviser to the French defense minister. "It is always amusing hearing this argument coming from the American side."

"The biggest load of absolute codswallop I've ever heard," agrees British Aerospace's Sir Raymond Lygo. "We have no foreign military aid in this country . . . . I've got to carry the whole of the financial costs myself as a private company. And yet the companies in the States that are selling under this scheme suffer nothing at all: They suffer no risk, they suffer no loss, they suffer no exposure."

In fact, every exporting nation aids and subsidizes arms sales abroad, each in its own idiosyncratic fashion. President Francois Mitterrand came to office determined to modify France's reputation as the country that would sell anything to anyone; when he toured his first Paris Air Show in 1981, missiles and bombs were discreetly hidden away.

This year, the bombs were displayed, prominently. Mitterrand, aided by his brother Jacques, head of one of France's largest weapons firms, resumed sales virtually everywhere except Chile and South Africa.

"He quickly realized that the export of armaments means jobs, and also French independence," a French defense official said. "We cannot stay independent without exporting arms."

Despite U.S. disdain for European tactics, Washington also lends its contractors a leg up. The Defense Department recently built computer models to help Turkey choose the right fighter for its defense. (The computer said Turkey should buy some F16s and some F20s, according to Perle, but the Turks opted for all F16s anyway.)

More significantly, the United States has more than $21 billion in outstanding loans provided on generous terms to help other nations pay for U.S. arms. That debt once was backed by a Guarantee Reserve Fund that the Defense Department could tap to repay the Treasury when nations defaulted; the fund now is so minuscule compared to the debt that the Pentagon this year asked Congress to replace it with a "permanent indefinite appropriation."

Selling abroad has been complicated by customer demands to buy something in return or share the production work. Some investigators suggest these "offset" arrangements occasionally supplant the scandalous bribes of the 1970s.

"You look at who is selling you the grapes or the olives and you find the general or the general's wife or the general's kid," one congressional investigator said.

Furthermore, a dozen new players have entered the weapons game in the past decade, helping erode the U.S. and Soviet dominance of the world market from 80 percent in 1980 to 62 percent last year. Chile now sells cluster bombs to Iraq; Brazil teams up with a firm from Northern Ireland to sell trainer airplanes to the British; Israel, Romania, Poland, Argentina are shouldering into the military aircraft market.

All of this is disconcerting to Europeans trying to equip their own armies by selling to others. The French, who sell 40 percent of their arms production abroad, have exported all but 300 of the 2,200 Exocet antiship missiles built, according to Jean-Claude Salvinien, a retired French air force colonel now working for Exocet manufacturer Aerospatiale.

In Britain, too, arms makers mull over the Third World market from the moment they begin dreaming up a new system. The Hawk fighter was designed to carry three times the payload normally lugged by the Royal Air Force, which uses the plane for training, in order to fulfill the combat needs of countries such as Kuwait, Kenya and Zimbabwe, according to British Aerospace.

No one suggests that the United States, which now exports about one-tenth of its arms output, will be as dependent on overseas sales any time soon. But the near doubling of U.S. spending on missiles in the past four years -- while increasing the number of missiles by only 6 percent -- is the kind of portent that gives U.S. strategists clammy hands.

"All of us are losing our ability to produce weapons economically and efficiently," Sen. Nunn said. "So in my opinion, we've got the wrong incentive system in terms of making rational decisions about who we sell equipment to and what type of equipment we sell."

Thus, developed countries are often willing -- even eager -- to peddle weapons to those lacking the money and technical prowess to keep them working. The "rusting hulks" of Soviet tanks litter Egyptian army bases, Schneider said, a sight also common in Libya. In Peru, according to aerospace analyst Wolfgang Demisch, "Once a year they could make maybe 20 percent of the air force fleet serviceable for Armed Forces Day."

"The finance minister is under the delusion that when he buys the airplane his problems are over," Demisch added, "when in fact he's only made a 20 percent down payment on the lifetime cost of the plane."

But selling to the Third World can provide a bonus even more valuable than hard currency -- real combat, the ultimate advertisement. Nothing cheers an arms maker more than to boast in its brochures, "Combat-Tested."

"When the Mideast cooks up, people look around and say, 'Well, the Triple A farm team is at it again. Let's see how this stuff works,' " financial analyst Campbell said.

It was at the time of the 1981 Paris Air Show, in fact, that Israeli F16s bombed an Iraqi nuclear reactor with devastating accuracy.

"We tried very hard to stay clear of it," one F16 partisan said. "But all over Paris, people would come up to you and congratulate you on the performance of the airplane. A hell of a lot of people came in and asked for briefings."

Staff researcher James Schwartz contributed to this report