BUSINESS

Guns and profits

The Gulf War may spur weapons sales

ANDREW PHILLIPS April 1 1991
BUSINESS

Guns and profits

The Gulf War may spur weapons sales

ANDREW PHILLIPS April 1 1991

Guns and profits

The Gulf War may spur weapons sales

For five days in November, the glittering Dubai World Trade Centre will play host to a trade show with a difference. The International Aerospace and Defence Exhibition, known as Dubai ’91, will give the world’s major arms manufacturers a chance to show off their star weapons in the region where many have just been battle tested for the first time. And despite growing calls to stop the flow of deadly hardware to the Gulf region, the arms industry is aggressively pursuing new sales. More than 400 firms from 40 countries, including the makers of the high-tech missiles, warplanes and smart bombs that defeated Iraq, are set to attend. “It’s really taken off,” says Virginia Kern, a London-based trade-show organizer who is helping to coordinate the arms exhibition.

Even though an informal Gulf War ceasefire is in place, Saudi Arabia, Egypt and other Middle East countries are lining up to buy new weapons from the West. But that does not necessarily mean that arms manufacturers are about to reap large profits. On the contrary, most analysts say that the anticipated increase in weapons purchases in the region is unlikely to offset the larger downturn in arms sales in the United States and Europe, where governments have been cutting back their defence spending as a result of budgetary pressures and the end of the Cold War. And for some arms makers, the

pressures of selling in such a highly competitive and politically sensitive market as the Middle East may well outweigh the benefits. Says Jerry Cantwell, a defence industry analyst with the investment firm Wertheim Schroder in New York City: “The incremental business that they get will be very hard fought for—both economically and politically.”

The political pressures are already clear. Dismayed by their countries’ roles in arming Iraq during the 1980s, an increasing number of North American and European politicians are urging their governments to impose new restrictions on weapons sales to the Middle East. Germany, embarrassed by revelations that some German companies helped Iraq develop its missile and chemical-weapons industries, further tightened its own export laws in February by giving customs officers extra powers to investigate companies suspected of illegally selling arms. In Canada, Prime Minister Brian Mulroney has called for a world summit to study ways of limiting the spread of weapons.

The U.S. government, however, has sent out conflicting signals. On March 13, the White House suspended a $23-billion re-armament deal for Saudi Arabia, but last week announced plans to sell it $1.1 billion worth of military spare parts and engineering support. As well, the administration authorized the sale of a Patriot missile battery to Israel for $400 mil-

lion. Bush has also asked Congress to authorize the U.S. Export-Import Bank to underwrite foreign military sales for the first time since the mid-1970s.

That decision followed intense lobbying by U.S. defence contractors, whose markets in the United States and Europe are steadily shrinking. In addition, Bush administration officials say that U.S. manufacturers are losing ground to their competitors in such countries as France, which already offers export subsidies. “It’s not a rosy picture for the industry anywhere,” says Brian Lowe, director of Britain’s Defence Manufacturers Association. “There is less demand at home and more competition for export markets.”

Those factors are certain to make life difficult for many arms producers—but they may also make it harder for governments to impose new limits on the international arms race. Armscontrol experts voice fears that the increased competition in foreign markets will undermine attempts to set up an international system to monitor sales to Third World countries. Says Paul Rogers, a military analyst at Britain’s Bradford University: “The defence industry is hurting, so it will pressure governments not to exert too much control on exports.”

Even in that harshly competitive climate, some companies are sure to benefit from the performance of their weapons in the war against Iraq. Vickers PLC, a British arms manufacturer, saw its Challenger tanks perform well in desert conditions, a factor that should help the company in its campaign to persuade the British government to order a new Challenger model. In the United States, the big winners appear to include Raytheon Co., prime contractor for the Patriot system; Martin Marietta Aerospace, which manufactures the LANTIRN night-vision system for F-15 and F-16 fighterbombers; McDonnell Douglas Corp., which makes the F-15; and General Dynamics Corp., manufacturer of the F-16 fighter and the U.S. army’s main battle tank, the M1A1.

Other companies are also trying to cash in on their contribution to the war. One television commercial, currently being aired in the Washington area, features a group of workers assembling electronic systems that, according to the voice-over, “make sense today.” Only at the end do viewers find out that the ad is for the Grumman Corp., which makes F-14 carrierbased fighter planes.

Previous conflicts have shown that favorable publicity for successful weapons can be a major factor in subsequent sales. After the 1982 Falklands war, in which Argentinian forces used a French-made Exocet missile to sink a British destroyer, other countries rushed to buy Exocets. “It can become a question of fashion,” says Donald Kerr, a military analyst at London’s International Institute for Strategic Studies. Still, with the pressures that they face in the aftermath of the Cold War and the Gulf War, arms makers will take any edge that they can get.

ANDREW PHILLIPS

BEN BARBER