American management guru Peter Drucker once said, “The purpose of business is to create and keep a customer.” Increasingly, it seems, the U.S. is now taking his advice to heart.
With federal spending caps or automatic budget rescissions known as sequestration looking politically permanent for years to come, defense officials are taking their exports push to a new level. No longer content with the long-running bilateral nature of country-to-country foreign military sales (FMS), officials more and more are looking to identify and catalyze new consortia of foreign buyers for U.S. weapons and systems.
“Modern weapons systems are becoming more expensive over time . . . and it is becoming harder to afford the development of them over time, for everybody, not just us,” says Richard Genaille, Jr., deputy director of the Defense Security Cooperation Agency (DSCA). As a matter of course, the U.S. should be looking for ways to spread development and acquisition costs across a larger number of countries, he suggests.
While the most prominent example so far as has been the nine-nation Joint Strike Fighter (JSF) under, consortia for such “high-end” weapon systems probably would be few and far between, Genaille told the ComDef 2013 industry conference here this month. On the other hand, with hundreds of developing and emerging nations around the world, “low-end” technology offerings might be better products for groups of countries in Africa, South America and parts of Asia with “limited” defense budgets.
In turn, one of DSCA's initiatives to that effect is to see if it can put together multinational letters of offer and acceptance (LOA), versus operating under the current policy of one LOA per country. “If we could somehow come up with a tool, like a multinational LOA, where a number of countries would be signatories to it and essentially be acquiring, jointly, a particular capability, then they could potentially afford it much easier then if they decided to do it on a bilateral basis,” Genaille says.
Indeed, a more recent example than the U.S.-led JSF—and even more successful—is NATO's Strategic Airlift Capability acquisition of threeGlobemaster IIIs. The three heavy airlifters, based at Papa AB in Hungary, have become critical to the 10 nations in its partnership, particularly those withdrawing forces from Afghanistan.
According to Heidi Grant, deputy undersecretary of the Air Force for international affairs, her armed service is looking into the possibility of forming an aerial-refueling consortium similar to the NATO C-17 partnership. Meanwhile, the Air Force has identified about 15 weapons and systems that are most sought after by current and potential FMS customers. Officials are trying to work in advance to be ready to push those deals through, instead of starting each FMS case from the beginning, even when the product is the same, she told the conference.
Genaille concurs in describing the DSCA's initiatives, including the new LOAs. “We [know that] to get to the next level where we can really increase the speed at which we deliver capabilities to our partners, there is more we need to do.”
The DSCA counts an ongoing portfolio of FMS worth around $400 billion, averaging about $41 billion in new business annually. “The $41 billion in new business each year is like having a fourth military service acquisition program,” he says. “This infusion of funds helps sustain our own industrial base and lowers the cost of our own defense acquisition.”
Ever since the Obama administration unveiled a massive export effort, defense officials and executives have posited that without such international sales, U.S. national security would be at greater risk. “Millions” of technical and skilled jobs could be threatened by letting that FMS portfolio slip, Genaille estimates, and it would lead to an increase of 20-30% in procurement costs to the U.S. military.
Still, there exists some fear the U.S. already is pricing itself out of the ability to wage conventional war. “Weapons acquisition and support costs, and the cost of military personnel, have risen faster than the rate of inflation, and this trend does not appear to be reversing,” Capital Alpha Partners analyst Byron Callan noted to investor clients in July.
“New weapons systems such as, and Ohio Replacement Program are more capable but are much higher priced in inflation-adjusted terms than weapons they replace.” Adversaries' offensive weapons are fractions of the cost to protect against them, Callan says, citing congressional and independent think tank data. It costs far more to protect against China's DF-21D missile and crude unguided missiles “fired by states that have GDPs smaller than the revenues of U.S. defense primes.”