Magazine article National Defense

Pentagon Lobbies for Broader Base of Suppliers

Magazine article National Defense

Pentagon Lobbies for Broader Base of Suppliers

Article excerpt

At the Defense Department, officials increasingly recognize that the market for military equipment has become "global" much like other commercial industries such as aerospace and computers.

They envision an open arms market where U.S. and foreign contractors compete even-handedly for military work here and abroad.

The rhetoric, however, is clashing against the realities of protectionist trade practices on both sides of the Atlantic and contradictory government policies that, on the one hand, seek to broaden market competition but, on the other hand, regulate over who can do business with whom.

The Pentagon, additionally, is unhappy about the lack of compatibility between its weapons systems and the equipment used by U.S. allies. A compelling case in point surfaced during the recent air war in Kosovo, where the United States used precision and all-weather munitions in about 90 percent of the strikes against Yugoslavia. But only 10 percent of NATO's European warplanes are equipped to fire these weapons.

But even though Europe's collective defense expenditures equate to about two-thirds of what the United States spends on its military, the current school of thought at the Pentagon is that both the government and its contractors will benefit from the expansion of the defense marketplace beyond national borders.

European governments, however, are skeptical of U.S. alleged support for global markets. Some European contractors, additionally, are consolidating into larger companies that can compete more equally with U.S. conglomerates-exacerbating the cut-throat competition that currently exits for global weapon sales.

"I very much fear that we are seeing the emergence of a Fortress Europe in the defense industry," said Deputy Defense Secretary John J. Hamre. In remarks to a conference in Arlington, Virginia, Hamre explained his fears are driven "by the positive elements of the economic consolidation that's under way in Europe right now and by the negative forces of paranoia about America's defense industry.

"I think these things are coming together and pushing European companies together into a single integrated entity," Hamre told the conference, which was sponsored by the American Institute for Aeronautics and Astronautics (AIAA).

The United States also is guilty of protectionism, experts said. This nation should abide by the principle that, "if it's good enough for you, it's good enough for me," said Francis M. Cevasco, a defense industry consultant at Hicks & Associates, McLean, Virginia. "We have to show evenhandedness by opening the U.S. market because the United States can't have it both ways," Cevasco said in an interview.

Recent developments in Europe have caught some observers by surprise.

"A year ago, I thought the Europeans would never consolidate, and it would be 20 years before they gained momentum," said James McAleese, president of a McLean law firm that represents defense contractors. He cited a number of events in Europe that potentially could threaten U.S. clout in the marketplace:

* The $12 billion takeover by British Aerospace of General Electric's Marconi electronics and missiles business, which creates a formidable competitor in the growing market for defense electronics.

* Ongoing discussions between British Aerospace and French and Italian companies to create a multi-national missile producer. …

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