U.S. Arms Merchants To NATO Newcomers: Accessorize!
(FORTUNE Magazine) – If you think Eisenhower's notion of a military-industrial complex has become outdated, you need only look to the expansion of NATO to see it come alive again, 1990s style. American defense contractors are fawning over the former Warsaw Pact nations, vying for the right to replace aging Soviet-era gear with more contemporary fashions. And the U.S. government is doing its utmost to ensure that designers and clients alike get everything their hearts desire.
First, no NATO neophyte can ever hope to really be a "member" without an entire new line of communications equipment. That'll run about $450 million per country over ten years, according to some estimates. Motorola would kill for these contracts; France's Thomson-CSF and Britain's Racal Radio are already outfitting the Polish army.
Bolstered radar and air defense systems are also musts for the well-appointed ally. Last year, Lockheed Martin won a $10.5 million contract from the U.S. government to create an Air Sovereignty Operations Center for Eastern Europe to control both civilian and military air traffic. And Hungary has expressed interest in the company's FPS-117 radar units, an early-warning accessory similar to the kind that Romania (which hopes to be the next NATO inductee) bought in 1995 for $82 million.
But nothing says "We've arrived" like a fleet of advanced fighter aircraft. Here the market may top $10 billion, and that's not counting the long-term contracts for service and parts. The American supermodels in this category are Lockheed Martin's F-16, going for $25 million to $30 million, and Boeing's F-18, at $32 million to $37 million a pop. No matter if Eastern European governments can't afford these jets--the U.S. taxpayer is standing by with an amazing credit offer: Foreign governments can lease F-16s and F-18s free from the Pentagon, and, when they're finally ready to buy, tap a $15 billion pool of loan guarantees, courtesy of Congress.
To help seal big defense deals, countries often insist that arms merchants make investments in the local economy known as "offsets." Lockheed, for example, is exploring offsets in Poland, and Boeing has purchased a 30% stake in Czech aircraft manufacturer Aero Vodochody for $27 million. Boeing spokesman Jim Schlueter contends the pairing is a perfect match--NATO or no NATO--but admits his company hopes the deal will also make the F-18 more attractive to the Czech air force. That was certainly the case for Textron: Its Bell Helicopter division bought 70% of a helicopter maker in Romania--then sold the Romanians 96 Cobra attack helicopters for $1 billion. (When the IMF questioned whether Romania could afford $1 billion without defaulting on its loans, the deal was postponed until Textron can help Romania find alternative financing.)
The Romanians and other aspiring NATO nations can rest assured that no one is more eager to see these smashing new weapons exported than their American designers and the people who represent them in Congress. The money will be found. And while the estimated cost of NATO expansion swings from $1.5 billion to $125 billion, one thing is certain: The profits are to die for.