Americans Get Creative In Opening Arms Markets

By Jonathan Landay

Christian Science Monitor, 4/17/97

Free F-16s? Sounds too good to be true.

But that's essentially what the United States is offering the leading Eastern European contenders for membership in the North Atlantic Treaty Organization.

In fact, the Clinton administration is giving Poland, Hungary, and the Czech Republic a choice: They can lease used F-16s or F-18s, of which the US has hundreds in mothballs, for five years at no cost. The only cash they would have to spend would be for maintenance equipment.

These Publishers-Clearinghouse-like offers symbolize a new fight between US and European firms for footholds in the world's emerging arms markets. A fierce competition is also beginning in Latin America amid expectations that the Clinton administration is about to end an almost two decades-old unofficial ban on the sales of advanced US weaponry to the region.

Neither market offers the kind of multibillion-dollar deals that marked the international arms business during the cold war. At the most, the prospective NATO member Eastern Europeans may need to buy 200 aircraft over the next eight years, while Chile is looking for 20 right away. But the intensity of the rivalries for the sales underscores how the massive contraction in the market - from a high of $83 billion in 1987 to $31.8 billion in 1995 - has arms merchants scrambling for whatever business they can get.

Thus the prospective free-lease deals for prospective NATO members: US firms figure that once they get their planes on emerging market air bases, they will have a huge advantage in future competitions for actual sales.

"It's such a buyer's market," says Laura Lumpe of the Arms Sales Monitoring Project, sponsored by the American Federation of Scientists. 'Arms firms are fighting for scraps, although it's real money. The 200-plus aircraft deals of the early '9Os are a thing of the past."

In fact, some analysts say that the international market for fighter aircraft has shrunk so much that US contractors are now out to drive their European and Russian rivals out of business.

'American aerospace companies are very competitive and it's the nature of competition to want to dominate the market," says industry analyst Richard Aboulafia "They want to become plane makers to the world."

Its finger on the national political pulse, the Clinton administration is doing all it can to help US arms firms. The White House argues that it must preserve jobs in the US defense industry, which has shed hundreds of thousands of workers amid consolidations and closings caused by the post-cold-war sales crunch.

But critics, including arms-control advocates, reply that the US still controls about 50 percent of the market. It is reckless, they say, to play to the hunger of the prospective NATO members and Chile for advanced weapons. In the case of Chile, they warn that it could ignite a new arms race that could hamper economic growth in Latin America by diverting resources from development to defense. As for Eastern Europe, they say that while the prospective new NATO members have made huge strides in building market economies, they cannot afford advanced weapons that they mostly desire for prestige. Their limited resources would be better spent on the training and communications systems they need to integrate into NATO. If ever threatened, they could count on the air power of alliance allies. Some US officials agree.

"These countries have scarce resources and they really need to put them into other areas," says a defense official, speaking on condition of anonymity.

He points out that a new F-16 or F-18 costs about $20 million. The Czech Republic is looking at both aircraft as well as the French-made Mirage 2000 and Swedish made Gripen. But its annual defense budget is only $1 billion and will rise by only 1 percent a year until 2000. At the same time, it wants to modernize its tanks and buy new antiaircraft and antitank weaponry, communications gear, and reconnaissance systems.

The Czech Republic, along with Poland and Hungary, is expected to be tapped this summer in the first round of NATO enlargement. Therefore, they want to replace old Warsaw Pact equipment with new Western gear to meet alliance standards.

The US firms acknowledge the Eastern Europeans' financial straits. But they say they are working with them on payment plans and other incentives. For instance, McDonnell-Douglas in December agreed that should Warsaw buy F-18s, it would set up in Poland an assembly plant that would also produce aircraft for Hungary and the Czech Republic. At the same time, it offered to buy parts for the plane from the Czechs.

Such arrangements, known as offsets, are now standard industry practice for winning sales. Contractors say offsets help customers meet the costs of weapons. But critics say they deprive US workers of jobs and will not generate the resources Eastern Europeans need.

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