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Analysis: U.S. arms sales to Asia set to boom on Pacific "pivot"

BF-3, a short take-off and vertical landing F-35 Lightning II, releases an inert 1,000 lb. GBU-32 Joint Direct Attack Munition (JDAM) separa
BF-3, a short take-off and vertical landing F-35 Lightning II, releases an inert 1,000 lb. GBU-32 Joint Direct Attack Munition (JDAM) separa

By Jim Wolf

WASHINGTON (Reuters) - U.S. sales of warplanes, anti-missile systems and other costly weapons to China's and North Korea's neighbors appear set for significant growth amid regional security jitters.

Strengthening treaty allies and other security partners is central to the White House's "pivot" toward a Pacific region jolted by maritime territorial disputes in China's case, and missile and nuclear programs, in North Korea's.

The pivot "will result in growing opportunities for our industry to help equip our friends," said Fred Downey, vice president for national security at the Aerospace Industries Association, a trade group that includes top U.S. arms makers.

Demand for big-ticket U.S. weapons is expected to stay strong for at least the next few years, the trade group said in a 2012 year-end review and forecast released in December.

Fears resulting from China's growing military spending should lead to enough U.S. sales in South and East Asia to more than offset a slowdown in European arms-buying, according to the forecast.

The trade group, whose members include Pentagon suppliers Lockheed Martin Corp, Boeing Co and Northrop Grumman Corp, did not put numbers to its 2013 forecast. Nor did the Pentagon's Defense Security Cooperation Agency, which has overseen a boom in worldwide deals under President Barack Obama.

The security agency, in response to a Reuters request, said sales agreements with countries in the U.S. Pacific Command's area of activity rose to $13.7 billion in fiscal 2012, up 5.4 percent from a year before. Such pacts represent orders for future delivery.

In 2012 there were about 65 notifications to Congress of proposed government-brokered foreign military sales with a combined potential value of more than $63 billion. In addition, the State Department office that regulates direct commercial sales was on track to receive more than 85,000 license requests in 2012, a new record.

Overall, the United States reached arms transfer agreements in 2011 totaling $66.3 billion, or nearly 78 percent of all such worldwide pacts, according to the nonpartisan Congressional Research Service. The 2011 total was swollen by a record $33.4 billion deal with Saudi Arabia. India ranked second with $6.9 billion in such agreements.

Rupert Hammond-Chambers, who consults for U.S. arms makers through BowerGroupAsia, an advisory with 10 offices in the region, predicted Southeast Asian defense budgets would expand steadily as a hedge against Chinese assertiveness in disputes in the South China and East China seas.

DECEMBER ELECTION

December's election of conservative, pro-American leaders in Japan and South Korea could further fuel sales, demonstrating U.S. solidarity with allies and partners.

The Obama administration says arms sales are an increasingly critical and cost-efficient arrow in its quiver to defend U.S. worldwide interests.

Such transfers reinforce diplomatic ties and promote long-term partnerships. They also are prized by Washington because they make it easier to fight side by side in places like Afghanistan and help allies do more for their own defense.

"This potentially reduces the burden that falls on our shoulders," Andrew Shapiro, the State Department's top official for partner strengthening, said in a December 5 speech.

The Pentagon is aiming to boost intelligence, surveillance and reconnaissance capabilities in the Asia-Pacific along with the introduction of more unmanned systems.

Such dispersed capabilities would help avert accidents and misunderstandings while fostering cooperation, Navy Admiral Samuel Locklear, the Hawaii-based commander of U.S. forces in the Pacific, told a forum in Washington.

Contractors such as Lockheed, Boeing, Northrop and Raytheon Co expect regional demand for their products and services to help them offset Pentagon belt-tightening forced by U.S. deficit-trimming measures.

These four companies are best-placed to benefit because of their work with satellites, radar, tracking stations and missile interceptors, said Richard Whittington, an aerospace and defense research analyst at Drexel Hamilton, a broker-dealer.

GLOBAL HAWK

In a move that could fuel a new market of its own, the administration in December formally proposed a $1.2 billion sale of Northrop Grumman's high-flying RQ-4 "Global Hawk" spy drones and related gear to South Korea.

The Global Hawk carries cloud-piercing Raytheon sensors to scan large areas for enemy forces by day or night. It would boost Seoul's ability to monitor North Korea.

Seoul had shown interest in the Global Hawk system for more than four years. The White House delayed proposing it until now, partly for fear of stirring a regional arms-race dynamic.

A Global Hawk purchase by Seoul would mark its first sale in the Asia-Pacific. Australia, Japan and Singapore each have shown interest as well, according to Northrop Grumman.

The notice of the possible South Korean purchase came less than two weeks after North Korea, on December 12, advanced its missile program with a long-range rocket launch that put a satellite in space, in defiance of U.N. resolutions. The North is banned from testing missile or nuclear technology under sanctions imposed after its 2006 and 2009 nuclear weapons tests.

Japan has emerged as the most important U.S. partner in crafting a layered shield against ballistic missiles of all ranges and in all phases of flight.

The administration told Congress two days before Pyongyang's rocket launch that Tokyo was seeking a potential $421 million "Aegis" system upgrade for a pair of guided-missile destroyers to better defend against ballistic missile attacks.

Japan also has agreed to host a second land-based X-Band radar station - a possible prelude to purchase of Lockheed's Terminal High Altitude Area Defense system, designed to intercept enemy missiles inside the atmosphere and in space.

F-35 JOINT STRIKE FIGHTER

The highest-profile U.S. offering now is Lockheed Martin's radar-evading F-35 Joint Strike Fighter aircraft, whose three variants make up the Pentagon's costliest arms program.

Japan already has selected the F-35 to replace aging F-4s as its next mainstay fighter, a deal valued at more than $5 billion. The F-35 is being considered by Singapore and South Korea, which is also weighing rival bids from the Eurofighter Typhoon and Boeing's F-15 Silent Eagle. The Korean competition is for a 60-plane order valued at more than $7 billion.

U.S. arms sales to India, now at a cumulative $8 billion from near zero in 2008, are expected to keep on booming. India plans to spend about $100 billion over the next decade to upgrade its arsenal, partly as a counter to China. India and China fought a brief, high-altitude border war in 1962.

RETROFITTING TAIWAN

Taiwan, meanwhile, is retrofitting all of its 145 existing F-16A/B fighters with cutting-edge radar capabilities, advanced electronic warfare suites and other upgrades. Lockheed Martin received a $1.85 billion contract to start the work.

The White House is also mulling options to help plug a growing shortfall in Taiwan's fighter aircraft versus Beijing's forces, including a possible sale of advanced F-16C/D models long sought by Taipei.

Army Major General Sampson Lee, who heads the military mission of the Taipei Economic and Cultural Representative Office in Washington, said Taiwan would seek to go on buying defensive systems to meet "persistent military threats."

China deems self-ruled Taiwan a breakaway province subject to a return to the fold, by force if necessary. The United States is committed under a 1979 law to supply Taiwan the arms it needs to maintain a "sufficient self-defense capability."

Locklear, of the U.S. Pacific Command, said central to his part of the "rebalance" to the Pacific will be to modernize and strengthen U.S. treaty alliances with Australia, Japan, South Korea, the Philippines and Thailand - work that he said has already begun in earnest.

(Reporting By Jim Wolf; Editing by Ros Krasny and Steve Orlofsky)

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