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  August 5, 2020 | International, Land

  To keep weapon sales in place, US offers new options for payment

  By: Aaron Mehta WASHINGTON — The United States is developing new options for arms customers as a way to ensure allies and partners don't drop planned procurements as the world economy remains in shock from the impacts of COVID 19. Among the options, according to outgoing Defense Security Cooperation Agency head Lt. Gen. Charles Hooper, are allowing foreign countries to finance arms procurement through U.S. bank loans and altering existing payment schedules to stretch the costs over time. “The bottom line here is, we are willing to work with our allies and partners, when they raise the challenges that they have, to find ways for them to continue to buy American and to ensure that they can pay for the equipment along a payment schedule that reflects their own economic conditions,” Hooper said. During an exclusive exit interview with Defense News, Hooper declined to say which countries have already approached his agency about economic impact from the disease, but said that there are “certainly” customer nations that have reached out. “There are partners that, we're already seeing that they are having challenges. So we're standing ready to work with them. As soon as we can gain an appreciation and the understanding of the challenges, we can find ways to help them,” Hooper said. Hooper talked with Defense News two weeks before his Aug. 3 retirement. He is succeeded by Heidi Grant, the head of the Defense Security Technology Administration, a move that marks the first time a civilian has led the office since a previous agency was recognized into the current DSCA structure in 1998. The general expressed no concerns over that move, in large part, he said, because of Grant, a fixture in the international security cooperation world. Grant will have to hit the ground running, given the potential impact from COVID on the world economies. The good news, Hooper said, is that by March, DSCA had concluded that the global economy would be hurt by the disease and set up an interagency working group, called the Operations Planning Group, to study program-level impacts from global trends and develop solutions. The first step Hooper's team took was to revise the collection process of foreign payment in order to make them “a bit more flexible, to accommodate those partners that may be having some economic difficulties or may have reprioritized their budgets towards for example, economic recovery and away from defense.” Those options include delaying payments on planned procurements to future years, creating new payment plans for ongoing procurement efforts, and returning funds currently on deposit with the United States to the customer nations as well as new financing strategies. “One of the things we did is we are allowing our partners to draw on standby letters of credit from foreign banks operating in the United States, according to U.S. banking rules,” Hooper explained. “That offers a nation an opportunity to draw, for example, in that case, a standby letter of credit on one of their banks that operates in the United States, under United States banking rules, which ensures that there's no fiduciary risk to the United States.” DSCA officials had been considering adding such an option for some time, but the economic downturn pushed the agency to start offering it for customer nations, Hooper added. Lucie Béraud-Sudreau, director of the Arms and Military Expenditure Programme at the Stockholm International Peace Research Institute, said that option sounds different from funding plans that have existed for some time in Europe, where specific entities in countries are responsible for guaranteeing arms-recipient states' loans thanks to the state treasury. “There are a number of economic factors globally, that we anticipate will likely have an impact on country's abilities to move forward,” Hooper said. “Obviously, energy prices are lower, and those countries all over the world that specialize in energy are going to see a fall in revenue. We see countries that, as a result of the pandemic, are having to shift funds from their defense budgets to more domestic missions like economic recovery and other things.” In addition to oil-reliant nations in the Middle East, Béraud-Sudreau said to watch the Pacific region, where “many countries have already decided to cut their military spending for this year, and planning decreases for 2021.” Indonesia, Thailand, South Korea, and the Philippines are among the nations that have already announced plans to cut defense spending, while Singapore is seeing delays in weapon deliveries due to supply chain issues. “If there are limited orders in 2020-2021, there will be repercussions later on, as these companies work on long-term projects. Hence the pressure, on both sides of the Atlantic, for the defense sector to be part of economic recovery packages and high levels of military expenditure,” she said. Over the course of his time at DSCA, Hooper oversaw almost 18,300 Foreign Military Sales actions, including 5,800 new agreements and various amendments and modifications to existing agreements, according to agency figures. He reduced three different surcharges on customers, saving customers millions of dollars as well. Also, timelines shrunk, with DSCA offering 50 percent of all new FMS cases that flow through the process to partner nations in 49 days or less by Hooper's exit. And while Hooper did not want to preview what weapon sales totals for fiscal 2020 will be, he did say that the United States remains “on a very positive trajectory... We remain the global partner of choice. And I'm very optimistic that we're going to continue to see positive trends in our foreign military sales this year and in the years to come.” https://www.defensenews.com/pentagon/2020/08/04/to-keep-weapon-sales-in-place-us-offers-new-options-for-payment/

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  January 11, 2021 | International, Aerospace, Naval, Land, C4ISR, Security

  IISS analysts: Russian and Western defense firms face greater competition

  By: Tom Waldwyn and Haena Jo Over the next decade, companies from emerging defense industrial nations will provide greater competition for the Western and Russian firms that have previously assisted in their development. Successive Turkish, South Korean, Brazilian and Polish governments have invested heavily in their defense industries over the past decade, leading to much-improved capabilities and the introduction of complex platforms. While many of these are license-builds of Western equipment, a growing share is of original designs. However, their reliance on key subsystems from Western and Russian companies will likely continue for much of this period, presenting a potential vulnerability. License-building platforms with technology transfer has been used as a means of developing a local industrial capability with a more realistic chance of success than starting from scratch. For example, in the 1980s and 1990s, Turkey and South Korea assembled hundreds of F-16 fighter jets, and both have also license-built German submarines, as has Brazil. Significant investment in these programs has meant that these countries now have the industrial capability to produce an increasing number of platforms with original designs. South Korea's T-50 Golden Eagle (a trainer and light-attack aircraft with multiple variants) was developed based on both the country's experience and technology transfer from assembling F-16s. Poland's initial license-build of Finnish armored personnel carriers has now led to several local variants based on that design, and Turkey has begun to design a new attack helicopter based on its experience building the Italian-designed T129. This has gone hand in hand with procurement and industry reform. South Korea created the Defense Acquisition Program Administration in 2006 to manage procurement and develop industrial capability. Poland consolidated most of its state-owned industry under the PGZ holding company in 2015. South Korea's threefold increase in defense exports over the past decade — $1.52 billion in 2019 with a record high of $2.36 billion in 2016 — has been boosted by its companies winning contracts against European and Russian competitors. The aforementioned T-50 family has won competitions in countries such as Iraq, Indonesia and Thailand at the expense of Western and Russian aircraft. Similarly, South Korean shipyards have now signed deals to export frigates and tankers to a variety of countries including Thailand and the U.K. Significantly, in 2011, a South Korean shipyard secured a contract to supply Indonesia with submarines, beating the German original equipment manufacturer that transferred technology to South Korea in the 1980s for license-production. Although Turkey's high-profile export successes have largely come due to its political relationships rather than success in open competition, it too has seen its defense and aerospace (including civil) exports more than treble during this time, reaching $2.78 billion in 2019. Brazil's export successes ($1.3 billion in 2019) have largely come in the aerospace sector with the A-29 Super Tucano trainer/light-attack aircraft being widely exported. Recently the country has begun to secure the first sales of its KC-390 transport aircraft. Despite strong growth in defense manufacturing capability (both South Korea and Turkey report overall localization rates of around 70 percent, for example), these nations continue to rely on Western and Russian suppliers for key subsystems, with high-end electronics and engines being particular weaknesses. Attempts to fit a locally designed power pack into the K2 Black Panther main battle tank have been wracked with difficulty, forcing South Korea to order additional engines and transmissions from German suppliers. Similarly, Poland's production of its Krab howitzer ran into problems early on due to technical issues with the chassis and engine, forcing a switch to South Korean and German replacements, respectively. Turkey provides a case study of what can happen when a reliance on foreign subsystems clashes with those countries taking a dim view of your actions. Since the mid-2000s, development of the Altay main battle tank proceeded relatively smoothly, in part because the prototypes were fitted with proven German power packs. However, arms embargoes since 2016 have derailed series production. A 2015 contract to develop a local propulsion system was canceled in 2017 when the Austrian company selected to assist pulled out. Similar issues have hampered the sale of attack helicopters to Pakistan (an Italian design fitted with American engines) as well as the production of armed UAVs (Canadian sensors and engines). Beyond these emerging challengers for defense exports, other nations also warrant consideration. Japan, a country with a high localization rate since the 1990s, produces a variety of advanced platforms across different sectors. However, changing government and business practices to support export campaigns will take time. India has also invested heavily in its industry, yet bureaucratic conflicts and technical challenges have made fulfilling local requirements a challenge. The United Arab Emirates has begun to export equipment, albeit low-tech materiel. All this being said, the impact of COVID-19 on government spending will likely be felt for several years, with some importer nations already postponing programs. Whether local demand in exporter nations can make up for this remains to be seen. Tom Waldwyn is a research associate for defense and military analysis at the International Institute for Strategic Studies, where Haena Jo is a research analyst for defense and military analysis. https://www.defensenews.com/outlook/2021/01/11/iiss-analysts-russian-and-western-defense-firms-face-greater-competition/

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  August 4, 2020 | International, Land

  US weapon sales boss talks China, arms exports and his agency’s future

  By: Aaron Mehta WASHINGTON — After years of working various jobs related to security cooperation, Lt. Gen. Charles Hooper took over the U.S. Defense Security Cooperation Agency in August 2017. It was an appointment that coincided with a major push by the Trump administration to increase weapon sales as an economic driver. Three years later, as he gets ready to retire, Hooper sat down with Defense News for an exclusive exit interview. This interview was edited for length and clarity. You came in as DSCA director in 2017, when the Trump administration was making a concerted push to increase arms sales abroad. Has that push been successful? Certainly I think the answer to that question is: “Yes, absolutely.” When I assumed responsibility at DSCA, we saw a convergence of three authorities that helped to create conditions that would help us to move forward and to elevate security cooperation. The first one was the fiscal 2017 National Defense Authorization Act, which [gave me] responsibilities in the Department of Defense to reform security cooperation, in ways that would make it more efficient and effective. The second one was the revision and the updating of the administration's arms transfer policies. And the third was the National Defense Strategy with which has three lines of effort, the second of which was strengthen alliances and attract new partners. So those three authorities created by convergence — what I call a perfect storm of authorities — and conditions to allow us to elevate and push for security cooperation and foreign military sales. And I made it my mission to take advantage of those conditions to move it forward. You have talked often about the need to both trim time and cost for partners and allies buying American systems. What are some highlights for you? In 2018, we lowered the admin surcharge rate from 3.5 to 3.2 percent. And since the new rates have gone into effect, our partners have saved $250 million on FMS cases. Next, we reduced the transportation rates in 2018. And since that reduction has gone into effect, since Aug. 15, 2018, our partners saved about $15 million. Then this year, we reduced the FMS contract administration surcharge from 1.2 percent to 1 percent. Although we don't have enough data as of yet to determine actual savings, we estimate that our allies and partners will save about 17 percent on contract administration over the life of each FMS case, which averages about seven or eight years. That perfect storm of authorities allowed us to move forward with many of the initiatives that we've been able to accomplish over my tenure as DSCA director. And then the Defense Security Cooperation University. I'm very proud of that, and we were able to bring that online in less than two years: The establishment of a civilian career field for security cooperation specialists, so that we are able to train and educate a cadre of people specifically focused on security cooperation, and foreign military sales through their mid-career and all the way to their capstone years. We all know one big FMS case can skew an entire year's numbers, but do you feel confident that enough has been done to ensure FMS sales will continue to grow? Although we tell everyone what the total value was of the cases that were implemented in that year, we think a three-year running average is a much more accurate measure of the success of FMS over time. And if you look at the three-year running average, over the past three years we're actually up around 16 percent, I believe. So the answer to your question is, yes, I think that we're still on a very positive trajectory. And I think that's the result of many of the changes that have taken place over the last three years that were made possible by the authorities that we were given. So for example, we looked at those surcharge [changes], we revised our financial collection policies to align collections with the actual anticipated billing requirements. And so by decreasing those early collections, foreign partners will experience less financial strain, aligning FMS procurement with fiscal realities. And we've also introduced new flexible financing options for our allies and partners to fit their own unique national budget and fiscal requirements. I'm very optimistic that we're going to continue to see positive trends in our foreign military sales this year, and in the years to come. The DSCA job is moving from a three-star role to a civilian job, with Heidi Grant taking over. You've often talked about the benefit of having years of relationships, going back to your younger officer days, with officers from other countries. Do you see any downside with the position being civilian? What's most important about this position is the person coming into it, and Heidi Grant has all the qualifications that you would need to be an exceptional DSCA director. She has time in combatant commands; of course time on the Air Force secretary's [staff]; her time as the director of the Defense Technology Security Administration. So it is the right person, with the right skill set, to be an upstanding director of DSCA and, frankly, I'm excited to see all the accomplishments that she's going to have. There is speculation that a potential Biden administration could roll back some of the arms control changes made under the Trump administration. If that were to happen, what would be the impact? I'm not going to hypothesize here about what ifs. What I can say is that we're clearly on a very positive trajectory as a result of the three steps that have taken place. And I think that the results that have come forward — I mean, the results that we've seen today are a reflection of the NDAA, the conventional arms transfer policies and National Defense Strategy. Future administrations will of course consider things as they will consider them. And I wouldn't want to speculate on that. But I think the progress we've made today speaks very, very strongly toward the effectiveness of the measures in place. We hear a lot about Russia and China looking at foreign arms sales as a way to exert influence around the globe. Are they successful in pushing the U.S. out of certain markets? Both of our main strategic competitors are mounting challenges to the United States, and I think we see that in a number of places all over the world. But I would say that the proper characterization of this is that they are challenging us. They are competing with us. Certainly they've mounted challenges around the world and in providing goods and services that are not quite the quality of the United States, trying to replace the United States as the partner of choice. Whether it's been successful or not, I think that we have recognized that they've mounted this challenge and we've taken some of the steps that I've articulated for you here that we've done to ensure that we remain the partner of choice and that we complicate their efforts to compete with us. In addition to providing partners with the hardware, our approach ensures that we strengthen these institutions — logistics, doctrine, infrastructure, institutional support, financial management — so that they can learn how to pay the people who will actually fix the equipment. And this is what makes our approach so unique. And this is why we will win this great power competition. Our values set us apart from the other great power competitors. You were the defense attache to the embassy in Beijing for two years, and obviously have a view on China's efforts from your current spot. How do you asses the country's defense export capacity? Certainly, the Chinese are going to look across the spectrum, but certainly they're looking in areas where they think they can challenge us. We know, of course, that the Chinese have marketed UAVs and other things. So they'll look for market niches in areas where they think they can be competitive with the United States. They have economic reasons for doing so, as well as strategic reasons for doing so. But once again, their approach stops at the point of sale. And this is the inherent weakness in their approach and the inherent strength in our approach. Do you think UAVs will be the main area that China targets? No. I used that solely as one example. We've seen attempts by the Chinese to compete across the spectrum, from small arms, small missile sets and others all the way up to more sophisticated equipment such as UAVs and others. We've seen a comprehensive effort by the Chinese to compete across the spectrum of defense articles and services. And I think we've seen a comprehensive effort on their part to try and market systems that replicate U.S. systems and U.S. capabilities across the spectrum, from small arms through artillery systems and other things. So I think we have to be vigilant across the spectrum of defense articles and services to where the Chinese are probing. I think the Chinese will generally try to press forward in areas where they sense that the U.S. position is perhaps a bit weaker, and they will push forward in those areas. And I think rather than having a strategy of competing in any particular sector of defense articles and services, I think that they're more interested in trying to compete across the spectrum, where what they perceive to be potential areas where they might be able to make some advances, and moving forward in those. In what areas is the U.S. potentially vulnerable, and are those where the U.S. needs to increase sales? I don't look at it that way. Defense exports are driven by a rapidly evolving security environment and emerging threats. And so we can't really predict this system or that system, or this category of systems. That said, we know what our military leaders are saying: that [the capabilities] they need in the field to ensure our strategic and operational edge [is what] our allies and partners will want as we move into the more modern areas of conflict. In the past, there was a lag between when the United States would introduce a system and when our allies and partners would ask for us to export it, and those days are behind us. We're in a world where interoperability is the key to success, and we cannot afford to have delays in when we introduce new technology and when we consider exporting them. Now, there are inherent challenges here, between conducting the cost-benefit analysis of risk versus gain, but we have the talent and the ability to rapidly assess these, and to move forward and provide our partners their defense articles and services that they want and that they need, and that will make them better allies and partners for the United States. So rather than predict any particular segment, I would say that the steps that we're taking to improve our overall approach will ensure that whatever the evolution of systems and the evolution of threats is, we will be able to respond and react quickly, and work with our allies and partners to provide them those defense articles and services in a timely fashion. Both the commercial and defense industries are investing heavily in new technologies, including artificial intelligence, which can be tricky to export. How does this work going forward? That's a great question. And I'll tell you, early this year I took a visit out to Silicon Valley and Stanford, and had an opportunity to talk to some of the people out there. Ever since I came back from that trip, I've been thinking about this question and related questions. And, to be honest with you, I think we've yet to determine — we know that this will be one of the principal challenges for security cooperation moving forward. We absolutely know this. And I'm confident that we're thinking deeply about this because I've had this discussion with my colleagues and others. I don't have any solutions for you right now. But I think we've all come to the conclusion that the rapid evolution of technology is going to require us to conduct risk assessments and cost-benefit analysis more quickly, without sacrificing the due diligence necessary to determine the relative cost and benefits of whether or not we want to move forward with [exporting] a certain technology. We all recognize that we have a challenge to come together and determine how we will move forward in the security cooperation realm to address space, cyber, artificial intelligence and other emerging technologies. Should there be a hard and fast rule for whether technology like AI can be exported, given its nature? Listen, never ever forget that security cooperation is a policy function at its core. That's why DSCA resides in the Office of the Under Secretary of Defense for Policy. And policy is a process of adjudicating on a case-by-case basis, based upon a number of economic, diplomatic and political factors, as well as the right steps to take to secure the security of the United States. Just as security cooperation now is a case-by-case consideration of a number of factors, I don't see why, as the technology evolves, it would be any different. All of this, everything we do, is on a case-by-case basis because our national security is predicated on a comprehensive assessment of the situation as it exists, the factors impacted on that situation and the ramifications of a decision for the security of the United States. https://www.defensenews.com/interviews/2020/08/03/us-weapon-sales-boss-talks-china-arms-exports-and-his-agencys-future/