High-Caliber Carnival

The Middle East market is stagnant; Asian sales are off; but flying down to Rio will boom your business -- if you're an international arms maker.

Ruth Harkin, a senior executive with defense manufacturer United Technologies and the wife of Sen. Tom Harkin (D-Iowa), kicks off the blue pumps that match her business suit and climbs into the cockpit of a Lockheed F-16 fighter. Wearing a look on her face that is somewhere between grim determination and mild embarrassment, Harkin taxis her fighter down the runway and takes off to confront two enemy jets. With just a flick of her hand, she fires off a pair of Sidewinder missiles from the F-16's wing. As the two enemy planes erupt in flames, Harkin coolly returns to base.

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Harkin's Top Gun prowess did not, of course, take place above the skies of Belgrade, but aboard a flight simulator mounted by Lockheed Martin at the Latin America Defentech, an arms show sponsored by the Brazilian government, which took place in April in Rio de Janeiro. About 200 firms from around the world came to town for the four-day exposition, in hopes of drumming up business with Brazil, the region's biggest arms importer, and other Latin American nations.

Defentech is one of about two dozen stops on the international arms circuit, which includes exhibition sites on every continent outside Antarctica. Though arms shows are largely a mixture of hype and machismo--at the International Defence Exhibition in Abu Dhabi, there's even a live-fire range where attendees can sip umbrella drinks while observing surgical strikes on dummy targets--they give industry personnel a chance to make the hard sell to potential clients.

Thousands of people milled through the invitation-only Defentech, including credentialed press and members of 18 official delegations stuffed with high-ranking defense officials from as far away as Saudi Arabia. Across 30,000 square feet of exhibit hall, would-be buyers cruised displays of the latest weapons and technology of war: British tanks, Finnish armored vehicles, South African and Russian helicopters, German air-defense electronics, American planes, Swedish torpedoes, Spanish warheads.

That so many diverse and sophisticated weapons are up for sale reflects the relatively tough times faced by arms makers since the Cold War came to a close. Indeed, Boeing sales reps were talking up the company's F/A-18 Super Hornet fighter, a plane that's still in production and that won't be fully deployed by the U.S. military for the better part of a decade. The company hasn't even received permission from the government to sell it abroad, but Boeing is wasting no time in drumming up interest since, one salesman told me, authorization of foreign sales down the road is a "slam dunk."

As Defentech got under way, industry representatives brightened at the news from Brazilian air force minister Walter Werner Brauer that his country planned to spend several billion dollars to buy 50 to 60 new fighter planes. Meanwhile, the Brazilian army and navy are drawing up more gradual "modernization" plans of their own. "That's why you see these companies here marketing like hell," said one Western diplomat. "There's a lot of money at stake."

Still, the depressed state of the global arms market produced a decidedly melancholy atmosphere at the show. "When the Berlin Wall came down there just wasn't an enemy any longer," Jan Olierook, a manager for the Dutch arms manufacturer RDM Technology, said disconsolately when I asked about sales prospects. And might the war in Yugoslavia have a beneficial effect on the market, a hope expressed by several attendees? "No, I'm afraid not," Olierook replied with a shake of the head, adding quickly, "I shouldn't say that."

curing the postwar blues
The end of the cold war and the collapse of the Soviet Union created a marketing nightmare for the arms industry. U.S. weapons manufacturers could once point to Moscow to justify massive domestic arms buildups, as well as sales to allies overseas. But by last summer, the once-feared Russian Army was in such abysmal straits that Russian officers were ordering troops to gather mushrooms, berries, and other foodstuffs growing in the wild. Meanwhile, the U.S. public remains dubious of the threat posed by "rogue" nations such as Libya, Iran, North Korea, and Iraq. The absence of any credible national security menace has brought about a dramatic shrinking in government funding for domestic weapons procurement. Between 1987 and 1994, the Pentagon's budget for new weapons fell by 55 percent.

The climate proved eerily similar to the one faced by U.S. arms makers at the conclusion of World War II. The fighting had brought unprecedented profitability for the aircraft companies--sales climbed from $250 million in 1939 to $16.7 billion in 1944--but when the shooting stopped, so did sales. "The companies have no idea where any real business is coming from," Robert E. Gross, then-president of Lockheed, said in 1946. "The commercial market has proved to be far less than one would have thought, and everybody of any standing is fiercely competing to get what orders are offering." From its No. 1 domestic economic ranking in 1943, the industry dropped to 44th by 1947.

In his book Harry S. Truman and the War Scare of 1948, Frank Kofsky described how the military-industrial complex bailed the arms industry out of its postWorld War II slump by drumming up a huge and vastly exaggerated Red Scare. Never mind that the Soviet Union was still recovering from devastating wartime losses, the threat inflaters argued, Stalin was poised to roll across western Europe. In mid-1948, Truman asked for, and got from Congress, a 30-percent increase in the Pentagon's budget. "No president since--not even Ronald Reagan at his most influential--has ever even come close to expanding military expenditures so spectacularly in time of peace," Kofsky wrote.

With no external threat--real or manufactured--sufficiently scary to justify huge new Pentagon purchases, the industry's solution in the 1990s has been to sell overseas. Just as it did after World War II, the government has graciously lent its assistance. In 1997, the Clinton administration spent $7 billion to underwrite foreign weapons sales, using the money to provide the industry with subsidized loans and tax breaks, as well as to assist with marketing efforts and promotional activities. Government support has helped the United States achieve a 55-percent share of the world arms market, with $23.5 billion in sales in 1996. Buyers range literally from A (Albania) to Z (Zimbabwe), with 165 countries in between.

The Middle East has long been the arms makers' chief cash cow, but plummeting oil prices have forced the region's countries to dramatically scale back on their purchases. From 1990 to 1997, U.S. arms sales to Persian Gulf nations plunged from an average $10.2 billion per year to less than $3.5 billion annually. The economic collapse in Asia, another big market for Boeing, Lockheed Martin, and other top U.S. arms makers, has further cut into sales opportunities. Latin America is in trouble, too, as a drop in commodity prices and the fallout from the collapse of Asia's financial markets have left governments in Latin America strapped. All the more disturbing that these countries shop for arms while their social programs go begging. From 1994 to 1997, Latin American nations ordered $5 billion worth of arms. That accounted for 6.9 percent of total purchases from developing countries, up from $4.1 billion (4.4 percent) during the previous three-year period. An opportunity for further expansion came in 1997, when President Clinton--in response to fierce industry lobbying--dramatically weakened a 2-decade-old ban on the sale of high-tech weapons to Latin America.

One way the U.S. government supports marketing and promotion efforts is to subsidize industry participation in international arms shows. Since 1991, the Pentagon has leased military equipment to companies for display at such shows and paid for a military escort to ensure the weapons' safety. "The rationale is that it demonstrates U.S. forward presence, the superiority of U.S. equipment, and general good will," says a Defense Department spokesman, explaining why the government backs arms exhibits.

Critics view the backing differently. Rep. Pete Stark (D-Calif.) is seeking support for a bill that would ban Pentagon participation in weapons exhibitions unless contractors cover all the costs. "These shows serve the interests of the industry," says a legislative aide on defense affairs to Rep. Stark, "but they certainly don't serve the national interest. The whole point is to proliferate weapons around the globe."

Other U.S. government agencies offer additional assistance. An informational packet sent by Reed Exhibition Companies (the organizer of Defentech) to defense firms that intended to display their products in Rio included a letter of encouragement from the U.S. Department of Commerce. Coming to Defentech would allow the firms "to evaluate this growing market [and] expand your overseas sales," stated the letter, promising further that commercial staff from the U.S. Consulate in Rio would be on hand "to facilitate contacts between exhibitors and Latin American business visitors."

the guns of ipanema
The opening of defentech coincided with a severe economic crisis in Brazil, leading some in the local press to question the country's sponsorship of the show and the government's plan to spend billions on new military equipment. One couldn't help wonder about the wisdom of those decisions on the hour-long drive out to Rio Center, the exhibit site on the city's periphery. The route I took--along Avenida Brasil to a highway called the Linha Amarela, or Yellow Line--is lined by a stretch of shantytowns that trails off not long before one reaches Rio Center.

The general consensus in the press is that the government's arms-spending plans are a sop to placate the military, which ruled Brazil between 1964 and 1985 and remains powerful. In fact, Vice President Marco Maciel, who served as a government minister and leader of a rubber-stamp Congress during the military dictatorship, officially opened the exposition.

All of the big First World arms-exporting countries sent large contingents to Defentech. An exhibit sponsored by the British army sported a tropical theme. Every few hours, a group of soldiers--with experience in places such as Bosnia and Northern Ireland--staged the setup of a jungle base camp complete with anti-aircraft guns, mortars, and communications and surveillance systems. Twelve firms from Germany came to Rio, accompanied by German deputy minister of defense Walter Kolbow.

The French also had a strong presence, led by aircraft maker Dassault. The company heavily promoted its Mirage-2000, one of Brazil's top four choices for its new fighter plane. (The others are Boeing's F/A-18 Hornet; Lockheed's F-16; and the Gripen, a joint venture by Saab and British Aerospace.) Yves Robins, Dassault's stylishly dressed vice president of international relations, seemed optimistic about future prospects. "We sign fewer contracts and sell fewer planes than we did [during the Cold War], but the aircraft are more advanced, and they carry a wider array of weapons," he said. "In the end, the budgets can be just as big as they were in the past."

Brazil, unlike some Third World countries, can at least shop for weapons at home. It is one of the few developing nations with a sophisticated arms industry, manufacturing everything from bullets to planes. Thirty-one Brazilian firms or organizations, including all branches of the armed services, attended Defentech. Condor, a Brazilian manufacturer of "nonlethal" weaponry such as tear-gas launchers, pepper spray, and rubber bullets, had (like other companies) hired a gorgeous local woman to stand in front of its booth to draw in business. (Sleek, sleeveless dresses and high heels seemed to be the unofficial uniform of the booth hostesses.) The Condor stand was also decorated with one poster showing urban rioters running amuck with the caption "Don't Lose Control," and another of a protest by peasants bearing the caption "Shoot But Don't Kill." A Condor salesman showed me some of the company's merchandise, including what he called "a very special thing"--a police baton that fires tear gas.

But much of Brazil's orders will be placed with foreign vendors. HeloPoint, an Israeli firm, drew crowds during demonstrations of its $200,000 video-sniper system. The device, the size of a small suitcase, broadcasts the images from eight separate rifle scopes on a video screen. "This allows a unit commander to decide which of his men has the best shot at the target," explained Mandy Rosenzweig, the company's vice president of engineering. HeloPoint's overseas clients include Poland, Turkey, and Greece.

At Defentech, police from Rio and the northern Brazilian state of Para expressed interest in purchasing the system. That's a chilling prospect. The Rio police killed an estimated 358 people in 1996, more than were killed by all U.S. police departments that year. Sixty-five percent of the victims had been shot from behind. In Para, police have been repeatedly called out to attack rural unionists and break up demonstrations by peasants. In one 1996 incident, Para police killed 19 peasants who were protesting the government's failure to carry out agrarian reform.

the eagle hawks its wares
The single biggest contingent at defentech, beating even the locals, came from the United States, which had 34 companies and organizations on hand--Lockheed Martin, United Technologies, Boeing, Raytheon, Pratt & Whitney, Northrop Grumman, Fairchild Defense, and a host of others. On the opening night of the exhibit, the U.S. Embassy hosted a dinner at Mario's, an upscale steak house on Copacabana Beach, and a military attache from the U.S. Consulate briefed the crowd on the defense market in Brazil.

The booth mounted by Sikorsky Aircraft, a United Technologies subsidiary, offered glossy photos of the company's hardware, including a shot of the top-selling Black Hawk attack helicopter flying by the Statue of Liberty. There was also a video display showing the helicopter in a variety of combat poses and boasting that the Black Hawk has been sold to 18 countries (including Turkey, where it's one of the government's weapons of choice in the war on Kurdish separatists). In 1997, Sikorsky sold four Black Hawks to Brazil, breaking France's longtime stranglehold on the local helicopter market. "On that contract, the [U.S.] ambassador became part of my team," Orlando Figueiredo, director of international programs for Sikorsky in Brazil, told me as we sat in the company's booth. "They gave us everything we asked for."

At the nearby Raytheon display, sales reps hawked such products as the TOW 2 antitank missile and the Stinger anti-aircraft missile. Raytheon's booth also featured extensive displays for its Amazon Surveillance System, a $1.4 billion reconnaissance installation the company is building for Brazil to monitor drug trafficking and gather resource information about the rain forest. That deal was almost scuttled in 1996 when a Brazilian newsweekly published transcripts of a phone call between top presidential adviser Júlio César Gomes dos Santos and José Afonso Assumpção, a sales representative for Raytheon. "That son of a whore [Sen. Gilberto] Miranda is fucking us over, screwing up everything," Assumpção told the official. "He doesn't want the project to go forward, he's creating difficulties." To which dos Santos replied, "Shit, didn't you already pay that guy?" (After the transcripts surfaced, dos Santos said his suggestion of a bribe was only a joke, and Raytheon dumped Assumpção.)

Boeing sent at least half a dozen employees to Rio, where they talked up the firm's Harpoon antiship missile (a package deal for 20, including back-up parts, carried a price tag of $40 million) and Apache helicopters ($24 million apiece). But the company is chiefly interested in convincing Brazil to buy its F/A-18 Hornet fighter jet. One sales rep, who spoke on condition of anonymity, estimated that Boeing sells about 20 percent of its F/A-18s abroad and enthused that the company's reputation had been bolstered by news from the Balkans, where its F-15 fighters had already shot down four Yugoslav planes.

Like other U.S. firms, Boeing brought consultants to Defentech to open doors to the locals. Boeing's advisers included a retired Brazilian air force colonel and Anthony Motley, a U.S. ambassador to Brazil during the Reagan years. Dressed in slacks and a polo shirt, Motley conceded that there is no overwhelming need for Latin American armies to upgrade their equipment. The threat of regional war is low--Ecuador and Peru recently resolved the hottest problem, a 140-year-old border war--and only Colombia faces major guerrilla battles. "There used to be a risk of conflicts between countries and internal threats from subversive elements associated with the Cold War," he said. "That's all gone."

The centerpiece of Lockheed's booth was its F-16 flight simulator. Ron Covais, a Lockheed executive and former Air Force colonel who handles all business in the Americas, let me take the plane out for a spin, but I was unceremoniously booted from the cockpit when two women from the Brazilian Justice Ministry stopped by and asked to have a chance.

Covais later chatted with me on a couch in the U.S. Embassy booth, a few doors down from his company's display. Foreign sales are a prime growth area for Lockheed, he said, praising the Clinton administration for weakening the ban on high-tech sales to Latin America. "We and the other countries worked two-and-a-half years to get that policy changed," he said. "Up until then, the Latin American governments didn't see the U.S. as a reliable business partner. It changed a lot of mindsets here and in the U.S., and it created a lot of business opportunities."

arms and the child
As the weapons industry prepares to face the new millennium, its strategy for keeping production lines open includes selling arms to Third World countries that don't necessarily have the money or need for them. Two weeks before the Defentech exposition opened, Brazilian president Fernando Henrique Cardoso announced that, after having made deep budget cuts due to the country's economic crisis, he was restoring part of the lost funding for social programs "that have a fundamental importance for Brazil." He then declared that he had come up with an additional $30 million for a program to reduce child labor.

Two weeks after Defentech, Swedish arms maker Celsius announced that Brazil had placed an order for the firm's high-speed torpedoes. By industry standards it was a fairly small deal--reportedly just $59.7 million. But it was still nearly twice what Cardoso could resurrect to keep kids from being exploited.

Daniel Burton-Rose assisted in the research and Tatiana M. Salvator provided Portuguese translation for the reporting of this article.

For more on how the United States and U.S. companies dominate the world arms trade, check out the MoJo Wire Arms Action Atlas.

Also, check out Congressman Pete Stark's (D, Calif.) bill that would end subsidies for foreign arms shows.