Military Aircraft, Arms Play Diminished Role at Air Show

The Paris Air Show, the world’s largest showcase for advanced military aircraft and equipment, has been devoid of new weapons displays and the intrigue that often characterized the past when arms dealers and military intelligence officers surreptitiously roamed the exhibit halls.

The debut of such landmark weapons as the U.S. B-2 stealth bomber and Russia’s MIG-29 fighter made the Paris show a barometer of the world arms market, which for much of the last century has favored the advanced technology controlled by U.S. contractors.

The subdued quality of the defense industry at this year’s show, which began Sunday, reflects an industry that is uncertain about its future as governments across the globe look to cut spending on weapons, analysts said.

“I’ve been going to the Paris Air Show for more than 20 years and I thought this was the most uneventful show ever,” said Jon B. Kutler, president of Quarterdeck Investment Partners Inc., a Los Angeles-based defense and aerospace investment bank. “Lots of people were just trying to read the tea leaves.”

Ironically, there was little letdown in the number of defense companies attending the show. Organizers said a record number of exhibitors, some 1,800 from 43 countries this year, were attending the event. Gilbert Speed, publisher of a newsletter on the aerospace industry, said many of the smaller companies were looking for buyers, not for their weapons but for their businesses.

“They realize they can’t survive on their own and so they’re looking for partners or someone who can take them over,” Speed said. “They’re checking each other out because there are fewer and fewer contracts to go after.”

Despite hopes immediately after the Cold War ended that weapons exports would increase in an unstable world, military exports languished throughout the 1990s.

The State Department’s Bureau of Arms Control reports that worldwide arms exports, which mirror imports as well, dropped from $81.5 billion in 1987 (adjusted for inflation) to $54.5 billion a decade later.

It hit bottom in 1994 when world exports hit $42.1 billion before it began to recover and has been gaining modestly since then. As a percentage of all world trade, arms exports have dropped sharply, falling from 2.5% of all world trade to just about 1%.

At the same time, the Defense Security Cooperation Agency, a part of the U.S. Defense Department that licenses and regulates arms exports from the United States, reported that in 1999, the United States signed foreign military sales agreements for $12.2 billion, down from a post-Cold War peak of $31.2 billion in 1993.

“Some have described this environment as a crisis for the industry,” said Dain M. Hancock, president of Lockheed Martin Corp.’s aeronautics unit. “I don’t see ‘crisis,’ but I do see trends that the industry must watch and respond to as necessary.”

Although regional wars have exacted enormous human tolls in recent years, the strife has not translated into the kinds of sustained and costly arms races that fueled the industry in the past. Indeed, the Stockholm International Peace Research Institute, which collects data on world military spending, reports that worldwide military spending from 1990 to 1999 dropped by 3.7%, not adjusted for inflation.

What’s more, the Bush administration has emphasized a broad reorganization of current priorities that may not result in products with significant export potential. The emphasis on missile defense, though it may help contractors in their domestic business, will develop technologies either not approved for export or too expensive for foreign customers.

European companies are particularly interested in acquiring smaller U.S. companies as a way to get entry to a market that may be the only one growing again under the Bush administration’s push to bolster defense spending, Speed said.

Larger U.S. companies are responding by signing limited alliances with European counterparts as a way to open up new markets, analysts said.

At the show, Northrop Grumman Corp. announced it signed an agreement with EADS, a European consortium, to market the Global Hawk unmanned aerial reconnaissance aircraft, and Raytheon Corp. said it formed a venture with Thales of France to market electronic products in the United States and abroad.

In a modest but expansive exhibit, the China National Aero-Technology Import and Export Corp., was trying to sell the FC-1, a single-seat fighter it has been developing and hoping to deploy by 2003.

Main features are its “high performance but low cost,” the Chinese say. The plane would cost about $10 million, according to the Federation of American Scientists, and would be aimed at Third World countries including Iran, which is reportedly interested in acquiring several FC-1s.

An older U.S.-made F-16 costs about $20 million.

Meanwhile, headline-grabbing announcements by Boeing Co. and its archrival Airbus Industrie in a continuation of their bitter feud seemed contrived to some analysts and other aerospace watchers.

Airbus said it got 10 orders for its new A-380 superjumbo jet, although the deals were struck long before the show. And with much fanfare Boeing unveiled a 6-foot model of the Sonic Cruiser, a passenger airplane that the company said would be able to fly at a higher speed than current jetliners. Boeing has yet to decide if it will go ahead with the program. Indeed, shares in Boeing have fallen 11% this week, reflecting its lackluster showing in Paris and worries that air travel is starting to slow down.

But notwithstanding the lack of arms deal making, the show promises to be one of the more successful in terms of attendance when it ends Sunday.

When the weeklong show closes, a record estimated 270,000 spectators will have attended, peering at 243 aircraft that were on display and some 60 planes that show their flying capabilities on an adjacent runway, show organizers said.