European Arms Manufacturers Suffering Slump in Sales to Third World

West European arms manufacturers have suffered a painful decline in sales to the shrinking and increasingly competitive Third World weapons market, according to defense experts.

The recent slump ended a fat decade roughly corresponding to the Persian Gulf oil boom.

The decline has generated fears that European arms industries may have trouble operating at the swift rhythm necessary to meet the Continent’s own defense needs independently in an age of sophisticated and fast-changing weapons technology.

As a result, West European defense officials and experts increasingly have advocated joint production and procurement for major new weapons systems. This would allow European governments to share swelling research and development expenses, which are expected to be nearly a third of the cost of warplanes by the next decade, and to lower unit prices by selling more of each model within Europe.

After long delays, for example, Defense Ministers Andre Giraud of France and Manfred Woerner of West Germany last month announced readiness to develop a joint combat helicopter. France and Germany already are producing the Alphajet trainer plane together.

Another reaction has been the search for specialized, smaller-scale sales to neighboring European armies or even the United States. France’s Thomson electronics firm recently sold its Rita radio system to the U.S. Army, and French-made CFM-56 jet engines will power the U.S. AWACS reconnaissance planes sold to Saudi Arabia.

Thomas Olsen, an analyst at the Stockholm International Peace Research Institute, said some NATO countries are likely to renew aging conventional equipment in the coming few years, also partly compensating for the shrinkage in Third World sales.

Still, the export drop, which began in 1983 or 1984 and became readily apparent in 1986, has raised the specter of politically difficult layoffs unless new and unexpected sales prevent production from tapering off after current contracts end in the next few years.

Work on French arms exports employs more than 100,000 persons, experts have estimated, while the British government reported last year that its arms exports accounted for 120,000 jobs.

This is because Western European weapons manufacturers, unlike their American counterparts, have depended on exports for a high percentage of overall sales. As much as half of French and Italian arms production and a third of British and West German production have gone to overseas sales in recent years, defense experts calculate.

The United States, although vying with the Soviet Union as the largest military exporter, has such high domestic weapons sales that exports have accounted for only 10% to 20% of total production in recent years, making shrinkage in Third World markets less of a blow to the industry, these experts say.

The most obvious reason for a decline in Third World arms sales by Europe is the drop in oil revenues in countries of the Organization of Petroleum Exporting Countries. From about $280 billion in 1981, these earnings dropped to about $80 billion last year.

The oil nations, particularly Saudi Arabia and its Persian Gulf neighbors, were Europe’s best arms customers as they spent lavishly to build and equip military forces swiftly. Aside from declining revenues, defense experts pointed out, gulf countries thus have acquired or contracted for most of the weaponry they can absorb in the near future.

Other Third World countries, such as those of Latin America, have accumulated heavy foreign debts that make further purchases from European arms industries difficult. Modern weapons deals tend to have built-in advance payments to cover development and production costs years before delivery, adding to the financial burden of weapons purchases in these strapped nations.

In addition, European manufacturers recently have faced more competition from smaller countries that previously were unable to export arms. Such countries as China, Brazil, Israel, South Africa, India and North and South Korea have increased their share of world arms transfers from less than 5% to nearly 19% from 1973 to 1984, Thomson’s Francois Heisbourg pointed out at a recent conference on European defense industries.

This is part of the reason U.S. defense companies have opposed further U.S. aid to Israel for development of the Lavie fighter, which could compete with U.S. plane sales abroad, one specialist said.

Britain’s $8-billion sale last year of 132 Tornado fighter-bombers to Saudi Arabia provided a major exception to the slide. The size of the deal removed Britain temporarily from the European trend of declining Third World sales.

According to the U.S. Congressional Research Service, Britain’s arms-transfer agreements with the Third World amounted to $1.5 billion in 1981, $1.4 billion in 1982, $570 million in 1983 and $540 million in 1984 before moving back up in 1985 and 1986 because of exceptional sales.

France’s export sales have declined more clearly, particularly since Saudi Arabia picked Tornados over the Dassault aviation company’s Mirage 2000. From more than $7 billion in 1984, French arms exports have dropped to about $4 billion last year, according to Pierre Lellouche of the French International Relations Institute. Similarly, the Congressional Research Service calculated that West German arms sales to the Third World fell from $1.7 billion in 1981 to $155 million in 1985.

These declines could be altered for at least one country by another exception expected to be announced later this year: Saudi Arabia’s tender for a submarine fleet. The deal, for $1.8 billion, is scheduled to include a number of submarines, plus training and base construction.

French efforts to land the submarine contract are an important part of the backdrop at the outset of a two-day visit to France by the Saudi monarch, King Fahd. Saudi officials have said their decision is likely to be revealed later this year, with France, Britain, West Germany and the Netherlands high in the running.