WASHINGTON — The U.S. State Department has set a new one-year record for clearing weapon sales, with $75.9 billion cleared by the department and announced by the Defense Security Cooperation Agency in fiscal 2017.
That total covers all announced cleared weapons packages from Oct. 1, 2016, through Sept. 12, 2017, leaving two more weeks for that number to increase before the end of the fiscal year.
The previous record for the Defense Security Cooperation Agency, or DSCA, sales announcements was $68.6 billion, set in fiscal 2012 following the approval of a series of massive weapons packages for Saudi Arabia. In comparison, in fiscal 2016, DSCA cleared $33.6 billion in potential weapon sales.
While the numbers are large, there are important caveats on these figures. These are sales sent to Congress for final clearance, and then the actual agreement must be negotiated, so this total does not represent done deals. During negotiations, the dollar figure and quantity can change; in some cases, announced sales are never completed.
Just how much of an impact the DSCA notifications have on actual sales, and therefore on the health of American industry, is somewhat up for debate. Byron Callan, an analyst with Capital Alpha Partners, described the total as something full of “sentiment” but unlikely to correspond directly to industry growth due to how the reporting is handled.
As an example, Callan pointed to a 2009 DSCA notification for 28 F/A-18E Super Hornet aircraft for Brazil, with an estimated worth of $7 billion. That notification was done ahead of Brazil’s fighter selection, and the country ended up going with the Saab Gripen in 2013.
Making that point even more clear, part of FY2017’s record-setting number came from a Sept. 12 announcement for 18 F/A-18E/F fighters to Canada, worth an estimated $5.23 billion. However, while the Canadian government has said it is interested in procuring F/A-18s, there is still back and forth about how many or if the country will ultimately change its mind and once again decide to procure the F-35 instead.
But Roman Schweizer, an analyst with Cowen, said the DSAC number is a “good indicator for what’s in the pipeline for negotiations. It doesn’t represent final, signed contracts, but it should be a decent leading indicator.
“It’s a good sign and reflects growing global defense spending, regional threats and the desire for U.S. systems,” Schweizer said.
Remy Nathan, vice president of international affairs with the Aerospace Industries Association, comes down in between. While “the number is simply an indicator,” he said, “any growth in defense trade is positive. It supports high-skill, high wage American jobs [and] funds innovation; lowers unit costs; and delivers a better deal for the taxpayer.”
The State Department has cleared $45.2 billion in sales in just three months.
A State Department official declined to address setting the record directly, instead noting that “strengthening the defense capabilities of U.S. allies and their ability to partner with our forces is a smarter approach to protecting the United States, is a force multiplier for the U.S. warfighter, and ultimately, benefits U.S. industry by driving new innovation and creating high-quality American jobs.”
Lt. Cdr. Patrick Evans, a Pentagon spokesman, said DSCA would not comment on total figures until the end of the fiscal year but noted that “sales continue to be strong and continue to indicate the interest of our partners in seeking the quality products and services we offer. Additionally, we have said in the past that when you examine the three-year moving sales averages, you can see the continuing, growing sales trend over the last decade.”
As in 2012, the vast majority of dollars approved came from a few huge notifications. The sale of F-15s to Qatar ($21.1 billion), F/A-18E/F fighters to Kuwait ($10.1 billion), the Canada F/A-18 agreement ($5.2 billion) Patriot PAC-3 weapons to Romania ($3.9 billion), CH-47 Chinooks to Saudi Arabia ($3.51 billion) and Apache AH-64E for the UAE ($3.5 billion) all helped push the total to record highs.
Overall, 17 of the 73 DSCA notifications announced through Sept. 12 total $1 billion or more. Roughly $47.1 billion in potential sales were approved by the Obama administration, with another $28.7 billion approved under the Trump White House. However, at least some of those announced by the Trump administration began under the previous White House team.
Given the high-dollar figure attached to fighter jet deals, it is no surprise that the Middle East leads the way for DSCA announcements, with 27 announced sales worth an estimated $52 billion.
Because the total is so inflated by a few high-priced items, it is unlikely that DSCA’s FY2018 will match the levels of 2017. But there are still some opportunities for big-ticket items out there. Schweizer highlighted tactical air, helicopters, missile defense and guided munitions as areas that will continue to be in demand.
Callan, meanwhile, highlights potential deals for further THAAD (perhaps to Poland) and Aegis Ashore (publicly being sought by Japan) missile defense systems in 2018, as well as interest in new fighters from Belgium, the UAE, Israel, Japan and South Korea.
Nathan, however, is concerned that the lack of a coordinated security cooperation strategy across the whole U.S. government will affect America’s ability to continue to dominate the international arms trade.
“While a record number of DSCA announcements shows positive momentum in security cooperation, reflecting our government is working with partners to approve these important sales, it does not reflect the fact that the system is facing challenges in supporting the growing pace and scope of U.S. foreign policy, national security and economic objectives,” Nathan said. “We collectively have to do more to accelerate security cooperation improvements if we want to grow the return on investment for the American economy and our international alliances.”
“Resourcing and reforms of this system will arguably have a much bigger, more sustainable impact on sales figures than any particular transaction,” he concluded.