Arms Makers Look Overseas to Make Profits

With the U.S. defense budget practically in free fall, the American arms industry is pursuing the strategy that worked so well for the cigarette companies when sales fell at home: It is increasingly looking overseas to peddle its wares.

But weapon makers, unlike cigarette manufacturers, need government approval before they can sell so much as a rifle to a foreign buyer. They are resorting to all the tricks of the political trade--lavishing campaign contributions on key decision-makers in both parties and lobbying hard in the administration and Congress--to win friends in high places.

So it was that the Clinton administration snapped to attention last November when the top executives of five major U.S. arms makers wrote to the president, pleading for permission to bid on a contract to sell $4 billion worth of attack helicopters to Turkey.

The State Department had blocked such permission because of Turkey’s sorry record on human rights. But the five signatories represented firms that had contributed a total of $1.7 million to the Democratic Party and its candidates in the 1996 elections.

In five weeks, just before the year-end deadline that Turkey had set for bids for its helicopter contract, the State Department reversed course and gave the companies the green light.

Most recently, Loral Space & Communications Ltd. captured the headlines. Earlier this year, the administration gave Loral special permission to launch a communications satellite atop a Chinese rocket, even though the Justice Department was investigating whether a report by Loral engineers on a failed 1996 launch had illegally provided U.S. technological secrets to China.

With contributions of $632,000, Loral Chairman Bernard L. Schwartz was the biggest individual donor to Democrats in the 1996 elections. He has denied seeking favors from President Clinton.

To America’s arms merchants, the end of the Cold War came as a sharp blow to the solar plexus. The Defense Department has slashed its weapon purchases by more than half (after adjustment for inflation), from a peak of $97 billion in 1985 to $44 billion in 1997.

The industry turned to foreign markets as part of a strategy that also included mergers (such as Boeing’s purchase of McDonnell Douglas Corp.) and diversification into some unlikely lines of business. Lockheed Martin Corp., for example, runs welfare offices in Florida and Texas and is replacing parking meters destroyed by vandals in the District of Columbia with a model that it touts as vandal-proof.

As a result, the arms industry is more successful now than during the Cold War. Profits hit a record $7.7 billion in 1996, and, although that figure dipped to $6.6 billion last year, it is still about double the total industry profits in 1985.

In 1990, the United States supplanted the Soviet Union as the world’s leading arms exporter. By 1996, it accounted for 35% of all international arms sales, more than double that of runner-up Great Britain’s 15%.

Arms companies make greater profit margins on overseas sales than they do from the Defense Department, which can control company profits in its contracts. “You had a monopoly buyer,” said Joel Johnson, vice president of the Aerospace Industries Assn. “And, as a result, companies lost on a lot of Department of Defense contracts.”

President Clinton has made it clear that the industry’s well-being, though far from his only consideration, figures large when his administration decides whether a company may supply a foreign buyer. In 1995, the administration formally adopted a policy of considering “the impact on U.S. industry and the defense industrial base” when arms manufacturers ask to sell abroad.

Laura Lumpe, director of the arms-sale monitoring project of the Federation of American Scientists, said the policy means that “the Clinton administration has largely bought into what [the arms makers] want.”

Whether industry campaign donations have directly contributed to the arms industry’s triumphs is never easy to determine.

“There is an assumption that companies are getting a lot by being contributors,” said an arms industry analyst who asked not to be identified. “But companies tend to look at it as if they have to contribute when asked.”

These companies depend heavily on the government for contracts and for permission to sell abroad, the analyst said.

In the case of the Turkish helicopter contract, as in most such instances, the evidence of a link between contributions and government support is circumstantial.

The State Department and private human rights agencies have long accused Turkish security officials of raping, torturing and killing people. On top of this, Turkey has used American-made helicopters to wage war on Kurdish separatists in southeastern Turkey and northern Iraq.

Once the letter from the five American executives reached the White House, however, Turkey found it easy to allay the administration’s concerns.

After Prime Minister Mesut Yilmaz met with Clinton in mid-December, deputy State Department spokesman John Foley told reporters that the administration was impressed by Yilmaz’s determination to make human rights a top Turkish goal.

“It is entirely appropriate, we believe, for [North Atlantic Treaty Organization] allies to have sophisticated U.S. military equipment in their inventories,” Foley said.

He did not mention campaign contributions and the Clinton administration, which is committed to a healthy arms industry and to a secure and stable Turkey, might have authorized the bids even without political contributions.

Nevertheless, the signers of the letter--Boeing Chairman Philip M. Condit, Textron Chairman James F. Handyman, General Electric Vice Chairman Eugene F. Murphy, Lockheed Martin Vice Chairman Vance D. Coffman and Northrop Grumman Chairman Kent Kresa--could surely look on the campaign contributions as wisely spent.

Those five companies plus three other major arms manufacturers--Raytheon Co., McDonnell Douglas and General Dynamics Corp.--contributed $6.8 million to political candidates and parties in the two years leading up to the 1996 elections, according to a survey by The Times and a private research firm, Campaign Study Group. Of the total, $4.3 million went to Republicans and $2.5 million to Democrats.

Contributions appear to be growing for the 1997-1998 election cycle. With the major political-giving season still ahead, the big eight arms companies already had contributed more than $3.9 million as of March 31, according to the latest available figures, compiled and released by the Campaign Study Group.

William D. Hartung of the World Policy Institute, a private think tank, estimated that the arms industry as a whole made $11.8 million in political contributions during 1995 and 1996. He predicted that before the Nov. 3 elections, the arms industry will have given at least $12 million.

Some of the leading arms manufacturers have made political contributions far out of proportion to their size. The Times survey of the 544 largest U.S. corporations in 1995 showed that Textron Inc., though only the 165th largest company as measured by sales, was sixth in its political contributions. Lockheed Martin ranked 27th in sales but seventh in contributions.

General Dynamics, 405th in sales but 46th in contributions, was even more generous. It spent $171 on political contributions for every $1 million of company sales. Only two top-500 companies--Beneficial Corp. and Federal Express Corp.--spent more.

Clearly, the arms makers give more to their friends in Congress than their enemies.

In 1995, for example, the House defeated an amendment to eliminate funding for the B-2 bomber. According to the Center for Responsive Politics, a nonpartisan research group, the main contractor, Northrop Grumman, and its subcontractors contributed an average of $3,285 during 1995 and 1996 to each of the 219 representatives who voted for the bomber and an average of only $1,305 to the 203 who voted to get rid of it.

Similarly, the Senate defeated an attempt in 1995 to eliminate a program that subsidized arms sales abroad. Hartung said that the 58 senators who voted for the subsidy program received an average of $18,113 each from the arms industry in campaign contributions during 1995 and 1996, while the 41 senators who tried to eliminate the program received an average of $7,731.

But Johnson called these numbers “meaningless.”

“Members of Congress who are in key positions to help the industry are in key positions to obtain [campaign] funding,” he said.

In their quest for overseas business, the arms industry hankers after one more change. The State Department issues licenses to sell weapons abroad, while the Commerce Department approves the sale of “dual-use” material that has civilian and military applications.

In congressional testimony last year, Johnson proposed that all arms export control decisions be made by the Commerce Department. Arms control advocates, however, believe that the Commerce Department, whose mission is to promote American business abroad, would give short shrift to foreign policy considerations.

Sen. John F. Kerry (D-Mass.) has long advocated a new “code of conduct” under which American arms could not be sold or donated to foreign countries that are undemocratic, armed aggressors, indifferent to human rights or unwilling to list their weapon purchases on an open United Nations register.

The House approved such a bill last year, but it died in the Senate, where the arms lobby argued that the code would merely leave the arms export field wide open to foreign manufacturers.

To no avail, Kerry proposed coupling the code with instructions to the president to seek international arms controls. “The United States should lead the way,” Kerry said, “and stop selling arms to nations that ignore the rights and needs of their citizens and that use those arms to bully their neighbors or their own populations.”

* LATIN AMERICA DILEMMA: President Clinton wrestles with Latin America arms policy. A20

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Arms Makers as Campaign Contributors

Political contributions of the nation’s eight biggest arms manufacturers:

*--*

Company Democrats 1995-96 1997-present** Textron $490,000 $98,000 Lockheed Martin $545,000 $294,000 General Electric $372,000 $247,000 Boeing $229,000 $249,000 General Dynamics $275,000 $169,000 Raytheon $233,000 $184,000 McDonnell Douglas $209,000 $108,000 Northrop Grumman $137,000 $163,000 Total $2,490,000 $1,512,000

*--*

****

*--*

Company Republicans 1995-96 1997-present** Textron $996,000 $162,000 Lockheed Martin $929,000 $532,000 General Electric $549,000 $340,000 Boeing $611,000 $442,000 General Dynamics $364,000 $217,000 Raytheon $374,000 $191,000 McDonnell Douglas $383,000 $246,000 Northrop Grumman $81,000 $267,000 Total $4,287,000 $2,397,000

*--*

****

*--*

Company Total* 1995-96 1997-present** Textron $1,486,000 $261,000 Lockheed Martin $1,474,000 $826,000 General Electric $930,000 $587,000 Boeing $849,000 $691,000 General Dynamics $639,000 $386,000 Raytheon $613,000 $375,000 McDonnell Douglas $598,000 $354,000 Northrop Grumman $232,000 $430,000 Total $6,821,000 $3,910,000

*--*

* Totals sometimes exceed sum of Democrats and Republicans because of contributions to third parties.

** Dec. 31, 1997, for some categories of giving; March 31, 1998, for others.

Source: Campaign Study Group