PARIS – The defense industry has always been global, but international allies are increasingly looking to cash in more on the opportunity. AIA CEO Dave Melcher spoke about how that focus influences U.S. companies’ approach.
I’m hearing a lot of talk about militarizing commercial aircraft. That’s always been done. But are we seeing an increase?
Everyone is looking at all the options available to them at varying price points to bring capability forward. Sometimes militarizing an aircraft not originally intended for that is the answer for a particular country or customer compared to something that is much more expensive that they can’t afford.
We saw a dip in foreign military sales in 2016. Why?
You have to look at foreign military sales over a continuum [of] more than just one year. Normally when there’s a sale, be it big or small, it will roll out over a period of several years. If you took the rolling average of sales over a two to three year period, you would find it’s a steady trajectory moving upward. But there are big years, where it’s double what it was the previous, then there are some where it is a little less. I don’t get too excited about a particular drop in one year of FMS, because I know the general trend is up and I think the folks that handle FMS would agree with that.
Do you expect an uptick in 2017?
When you look at the big Saudi order, Qatar orders, I think FMS is ahead of where it was projected to be already, so I do expect [a] rise.
There’s a lot of demand from allies for U.S. companies to reinvest in their country, often industrial base specifically. Have U.S. companies responded?
Yes there is a general trend for more co-production, more investment in the country buying the capability. That is only natural when they want to try to develop their own indigenous industry and capability. But every deal is unique, in that the country will ask for certain things and the company will decide whether that’s possible in the context of the deal. Companies still have to maintain profitability, but do it in a way that builds partner capacity, and sometimes that means industrial capacity.
What are the systems you see the international community focusing on in terms of their own manufacturing?
Drones is one area. Some of that is due to the fact that we still have some restrictions on our U.S. ability to sell drones internationally because of missile technology control regime and ITAR restrictions and so forth. Our plea as an industry association is let’s make sure the playing field is level in terms of what’s already on the marketplace, what can be sold, so U.S. firms can be competitive. Space systems is another area where you’re seeing a lot of international competition; again, a somewhat regulated environment.
Are companies in the U.S. looking to those international companies for partnership? Are they taking advantage?
You’re seeing that, even in competitions like the [T-X] trainer. You’re seeing more U.S.-international partnership [for] blended capabilities that would be attractive not only to U.S. markets but international markets as well.
That’s a part of business decision making – [recognizing] that we’re not the only ones that can produce a capability.