Tensions with China stoke purchases in the region.
An F-16 fighter jet.
Photograph: Damien Simonart/AFP via Getty Images
Since
it first rolled out of a Fort Worth factory in the 1970s, the F-16 has
been a symbol of U.S. military power. If its manufacturer, Lockheed
Martin, manages to win a big overseas contract, though, the F-16 might
become the latest U.S. product to get offshored.
Lockheed is vying for a contract to sell fighter jets to India, part of Prime Minister Narendra Modi’s $150 billion plan to modernize the country’s armed forces. To sweeten the deal, Lockheed is willing to shift F-16 production to the country. “What we are doing is putting India as the center of the supply base,” says Randall Howard, director for aeronautics business development at Lockheed. Rivals Boeing and Saab have made similar offers to move production to India.
Such proposals show the lengths U.S. military suppliers are willing to go to win customers worldwide. With Pentagon spending hurt by sequestration, the across-the-board budget cuts that took effect in 2013, the biggest U.S. contractors are hunting for new markets. Foreign buyers accounted for 24 percent of sales for the five biggest U.S. contractors last year, according to Bloomberg Intelligence, up from 16 percent in 2009. Last year contractors’ sales to foreign customers jumped 10 percent, while U.S. revenue declined 2.4 percent. Raytheon expects international sales to account for 35 percent of revenue in 2016, up from 31 percent last year. “Our global growth strategy continues to pay off,” says Chief Financial Officer Toby O’Brien. “The bookings were really strong.”
Asia is buying fighter aircraft, as countries such as Japan, the Philippines, and Vietnam respond to moves by China to assert territorial claims in the East and South China seas. India, which has its own border disputes with China and Pakistan, is concerned about Chinese attempts to expand Beijing’s influence in South Asia. And all countries in the region worry about unpredictable North Korea. Kim Jong Un’s military on Aug. 24 fired a ballistic missile that flew about 300 miles and landed inside Japan’s air defense perimeter, the first time a North Korean missile has reached Japanese waters. Prime Minister Shinzo Abe called the launch “impermissible and outrageous.”
On Aug. 31, Abe unveiled his latest defense budget, proposing to raise spending by 2.3 percent—the fifth consecutive annual increase for the Self-Defense Forces. Japan was the biggest customer for U.S. military contractors in 2013 and 2014, according to Bloomberg Government, spending a combined $36.5 billion on aircraft, missiles, military electronics, and other equipment.
Lockheed has orders to supply Japan with 42 of its F-35 fighters, with most assembly taking place in Nagoya. The $379 billion F-35 program is the Pentagon’s costliest, and Lockheed is depending on Japan, Australia, and other U.S. allies to account for at least 20 percent of orders.
India is the world’s largest arms importer, according to the Stockholm International Peace Research Institute, and depends on imports for 60 percent of its defense requirements. During the Cold War, India was a reliable customer for Russian-made gear but is now more open to buying from the U.S. Lockheed already builds cabins for the company’s S-92 helicopter as well as tail sections for its C-130J transport aircraft in India. There should be more opportunities for U.S. contractors as Modi tries to modernize the military. “Quite a number of legacy systems are reaching their desperate sell-by date,” says Bernard Loo, a professor at the S. Rajaratnam School of International Studies at Singapore’s Nanyang Technological University.
U.S. Defense Secretary Ash Carter on Aug. 29 met with his Indian counterpart, Manohar Parrikar, and talked of the two countries working together on jet engines, aircraft carriers, and other military projects. “That collaboration will surely bring further cooperation, co-development, and co-production,” Carter said at a news conference.
South Korean defense spending last year accounted for 2.6 percent of gross domestic product—more than Japan or China—and President Park Geun Hye plans on spending even more. Last October she announced a budget that increased military expenditures 4 percent, outpacing overall growth in government spending. In a move that’s angered China, South Korea is deploying Lockheed’s Terminal High-Altitude Area Defense missiles. Beijing says the system’s radar can reach into China and threatens its security.
Lockheed is vying for a contract to sell fighter jets to India, part of Prime Minister Narendra Modi’s $150 billion plan to modernize the country’s armed forces. To sweeten the deal, Lockheed is willing to shift F-16 production to the country. “What we are doing is putting India as the center of the supply base,” says Randall Howard, director for aeronautics business development at Lockheed. Rivals Boeing and Saab have made similar offers to move production to India.
Such proposals show the lengths U.S. military suppliers are willing to go to win customers worldwide. With Pentagon spending hurt by sequestration, the across-the-board budget cuts that took effect in 2013, the biggest U.S. contractors are hunting for new markets. Foreign buyers accounted for 24 percent of sales for the five biggest U.S. contractors last year, according to Bloomberg Intelligence, up from 16 percent in 2009. Last year contractors’ sales to foreign customers jumped 10 percent, while U.S. revenue declined 2.4 percent. Raytheon expects international sales to account for 35 percent of revenue in 2016, up from 31 percent last year. “Our global growth strategy continues to pay off,” says Chief Financial Officer Toby O’Brien. “The bookings were really strong.”
Asia is buying fighter aircraft, as countries such as Japan, the Philippines, and Vietnam respond to moves by China to assert territorial claims in the East and South China seas. India, which has its own border disputes with China and Pakistan, is concerned about Chinese attempts to expand Beijing’s influence in South Asia. And all countries in the region worry about unpredictable North Korea. Kim Jong Un’s military on Aug. 24 fired a ballistic missile that flew about 300 miles and landed inside Japan’s air defense perimeter, the first time a North Korean missile has reached Japanese waters. Prime Minister Shinzo Abe called the launch “impermissible and outrageous.”
On Aug. 31, Abe unveiled his latest defense budget, proposing to raise spending by 2.3 percent—the fifth consecutive annual increase for the Self-Defense Forces. Japan was the biggest customer for U.S. military contractors in 2013 and 2014, according to Bloomberg Government, spending a combined $36.5 billion on aircraft, missiles, military electronics, and other equipment.
Lockheed has orders to supply Japan with 42 of its F-35 fighters, with most assembly taking place in Nagoya. The $379 billion F-35 program is the Pentagon’s costliest, and Lockheed is depending on Japan, Australia, and other U.S. allies to account for at least 20 percent of orders.
India is the world’s largest arms importer, according to the Stockholm International Peace Research Institute, and depends on imports for 60 percent of its defense requirements. During the Cold War, India was a reliable customer for Russian-made gear but is now more open to buying from the U.S. Lockheed already builds cabins for the company’s S-92 helicopter as well as tail sections for its C-130J transport aircraft in India. There should be more opportunities for U.S. contractors as Modi tries to modernize the military. “Quite a number of legacy systems are reaching their desperate sell-by date,” says Bernard Loo, a professor at the S. Rajaratnam School of International Studies at Singapore’s Nanyang Technological University.
U.S. Defense Secretary Ash Carter on Aug. 29 met with his Indian counterpart, Manohar Parrikar, and talked of the two countries working together on jet engines, aircraft carriers, and other military projects. “That collaboration will surely bring further cooperation, co-development, and co-production,” Carter said at a news conference.
South Korean defense spending last year accounted for 2.6 percent of gross domestic product—more than Japan or China—and President Park Geun Hye plans on spending even more. Last October she announced a budget that increased military expenditures 4 percent, outpacing overall growth in government spending. In a move that’s angered China, South Korea is deploying Lockheed’s Terminal High-Altitude Area Defense missiles. Beijing says the system’s radar can reach into China and threatens its security.
—With NC Bipindra, Anthony Capaccio, and Rick CloughThe bottom line: To win business, U.S. defense contractors are willing to move production of aircraft and other equipment to Japan and India.
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