Remarks of Dean C. Borgman

Worldwide Conference

Defense Security Cooperation Agency

October 17, 2002

Alexandria, Virginia

Good morning, and thank you, Gen. Walters for that introduction.  Any day that starts with a three-star fixed wing guy saying nice things about a civilian rotorhead guy is going to be a good day!

I’ll repay the favor by saying some nice things right back to all of you about the work you do.  Not too long ago, you quite literally saved the life of Sikorsky Aircraft.  And, your continuing cooperation is vital to our business, to the defense industry, and to the nation.

But I’m not going to let you off scot-free.

There’s a trend you might not have noticed that threatens to put you in an uncomfortable position within a very few years.  I’d like to talk about that trend – which the helicopter industry seems to be leading – and what it might mean for you.

But we can’t address that without understanding the value of the partnership between DSCA and industry in the global defense business It is a good news story.  In fact, it is one of the great American success stories of the 1990s.

You all know that global trade grew dramatically during the last ten years.

To simplify comparisons, the numbers I’m about to give you are measured in constant, inflation-adjusted dollars.  They are drawn from the most recent State Department assessment of world military spending and arms transfers.

Using that measure, world exports and imports of all goods totaled just over $4 trillion in 1990.  That $4 trillion figure grew to $5.3 trillion by the end of the decade producing real annual growth rate of about 3.1 percent.

Yet over that same ten-year period the collapse of communism led to a global downturn in the arms trade.  Global arms trade stood at $67 billion in 1990, fell to $43 billion by mid-decade then recovered to only $52 billion by the turn of the millennium.

In percentage terms, that is a 36% drop in global sales, followed by only a 20% recovery.  By the end of the ‘90s, international arms sales were nearly 25% lower than they had been in 1990.

A shrinking market isn’t a kind market.  But with your help the United States maintained excellent market share and a strong position compared to our competitors.

While Russian and Soviet bloc military exports evaporated North American firms successfully rushed to fill that void.  By 1999, North American companies more than doubled their share of the global arms market accounting for a full two-thirds of all arms exports.

At the same time, our European competitors barely held on to 20% of the market.  And they registered almost no growth in that share during the Nineties.

There was a one-time, historic opportunity to increase market share in the global defense business and America got nearly all of it!

My enthusiasm about that trend won’t surprise anybody in the room!

The so-called Peace Dividend that followed the fall of communism was a dream for taxpayers, but it was a nightmare for the defense industry.  Pentagon procurement peaked at $160 billion in 1986.  It was still $150 billion in 1990, but the downward trend accelerated after that.   By the end of the Nineties Uncle Sam was only buying $128 billion in military goods.

The Pentagon numbers are one measure of the trend.  But the greater measure is the massive personal dislocation – one and a half million jobs lost -- and the seismic consolidation of the defense industry.

I speak from experience.  I’ve been a senior executive in two aerospace companies that were acquired by competitors.  My story is typical.

Against this free fall in the domestic defense business exports were the only parachute.  And – if you’ll allow me to extend the analogy -- it was all of you here who pulled the ripcord.

From 1992 through 2001, this agency oversaw the signing of $127 billion in FMS agreements and the delivery of $124 billion in hardware and services.

Sikorsky had a piece of that action, and your role in helping to save our company during the 1990s was decisive.

As an important supplier of transport helicopters to the Pentagon, Sikorsky enjoyed a boom in the 1980s.  Helicopter deliveries soared as high as 200 aircraft a year.  That’s a production level not seen at Sikorsky since the Kennedy Administration!  Virtually all of that production was for the US Army and, later, the US Navy.

Sikorsky is really proud of our record in saving lives around the world.  But it was the company itself that needed a lifeline when procurement budgets were slashed. 

We pushed aggressively into international markets, and with your assistance we stabilized the company by increasing our exports from 5% to 45% of finished aircraft production.

You were with us as we struck our first FMS deals with Spain, Thailand, Colombia, Egypt, and many others.  By the end of the 1990s more than half the aircraft we built were destined for international customers.  That trend continues today.

The benefits of industry-government partnership for military exports are absolutely clear in terms of job creation, profits, and tax revenues.

Less obvious, but even more important are the national security benefits to this partnership.  I won’t dwell on that, because I am sure all of you are longstanding members of the choir in this particular church!

I can’t speak for the entire industry, but my personal view is that engagement with these governments around the world is vital to achieving influence.  And clearly and influence is the coin by which we achieve our foreign policy objectives.

So far this has been a good news speech: a story about how business and government forged a successful partnership.

By our mutual efforts, we mitigated the loss of jobs in an industry that delivers real strategic value; we preserved essential technology; we generated tax revenues that fund a range of government activities; we made the world a safer and more secure place; and we extended our national influence around the globe!  Not bad!

So what’s the catch?

The catch is what to do about the future.  We’re going to reach a point soon where America’s defense industry may no longer speak with one voice when it comes to exports.

I’ll give you one great example from an industry I’m familiar with: helicopters.

Does this ad look familiar to you?  It certainly caught our attention at Sikorsky.

Agusta-Westland – a thoroughly European company – has partnered with Lockheed Martin to create an “Americanized” version of their EH-101 transport helicopter.

This ad has been running in a number of publications targeted at military and political decision makers in Washington including the people in this room.

The paint schemes on these helicopters make their intentions clear.  The Europeans are determined to move into our domestic market.  These targets even include the privilege of fulfilling the Marine Corps mission to fly the President by helicopter.

“So what?” you may say.  You might even say, “This is normal competitive behavior, and Sikorsky is just going to have to figure out what to do about it.”

That’s true as far as it goes and we’re working on our response:  A new helicopter we call the H-92.  The H-92 will be making demonstration flights here in Washington later this month.

But I’d like you to think about the logical extension of this Euro-American cooperation ….. and how it might ultimately involve you.

Imagine an ally of the United States has a need for transport helicopters.  And let’s say that this ally has traditionally avoided buying European products.  What will be the stance of our government when it comes to deciding which product to provide?

You can immediately see the outlines of the arguments.  The decision is no longer simply based on what product is available.  In the future, domestic content will almost certainly become an important issue in the FMS world.

Personally, I would hate to see DSCA – fully funded by the taxpayers of the United States of America, and a valuable partner to American industry – become a sales channel for European technologies to third party countries especially countries that otherwise would never purchase a European product!

Even though that example affects Sikorsky and the helicopter industry very directly I firmly believe this trend will accelerate.  I’m convinced it will move into other defense technologies that have traditionally been exclusively American.

We’re about to have a high-stakes debate.  The outcome of that debate will be measured in the billions of dollars with national security implications for critical technologies.

In fact, I’m even more concerned by recent legislative action that would allow the Pentagon to bypass congressionally-mandated “buy American” rules for defense technologies.

The measure I’m talking about was included in the Defense authorization bill that cleared the Senate.  That bill is now in conference, and the fate of this language still hangs in the balance.

Countries that apply for this waiver would have to demonstrate that American companies have equal access to their domestic defense markets.  It will be left to the Secretary of Defense, in consultation with the U.S. Trade Representative, and the Secretaries of Commerce and State to determine if the foreign country meets all the requirements.

It is interesting to note who is most excited about this potential change in American procurement laws.

According to the Sept. 23 issue of Defense News, the governments of several European nations have put their support for this legislation in writing.  Let’s look at the list.

As you would expect, the list includes several governments that would enjoy access to US defense markets.  Currently they run a trade deficit in weapons systems.  I’m including Spain, The Netherlands, and Switzerland in this category.

But the list also includes at least two countries that are already net exporters of weapons systems.  This includes the world’s second largest arms exporter, the United Kingdom.  It also includes Sweden which is the sixth largest exporter of weapons yet ranks a lowly 39^th on arms imports!

Who’s kidding who?

I’m for free trade as much as the next person.  But, at the very least I would encourage extreme caution on the part of Congress and the Pentagon.

A lot of you in this room have been on the front lines of military procurement in European countries.  I have my own opinions about whether the playing field in Europe is truly level.  I’m sure you do, too.  In my view, any major move by the United States to open our defense market to the Europeans would represent unilateral disarmament!

The proposed law before Congress already fences off shipbuilding as a critical skill.  It won’t allow any waivers under any circumstances for procurement of ships!

But why stop there?

It’s not a stretch to call our country’s aerospace and defense industries a “national treasure.”

The partnership of government funding and private initiative has produced a global powerhouse.   It’s produced a true arsenal of democracy that as I speak supports peacekeeping operations in a half dozen global hotspots hunts down terrorists on several continents and protects our own shores.

The economic benefits are just as clear as the political benefits.  Aerospace and defense jobs are high wage, high intellectual content, and high value-added.  They are among the best jobs in the world.

And I’d also like to point out that the United States is already one of the world’s leading importers of arms.  We rank ninth on the most recent list published by the State Department.  We purchase more weapons systems from foreign governments than Germany, Canada, France, Spain, Italy and a hundred other countries besides!

As the saying goes: “If it ain’t broke, why fix it?”

I spent the first part of this talk giving you solid evidence that our partnership has produced mutual benefits for America and for American interests.  I spent the second part of my remarks describing trends that threaten what we have worked so hard to build.

We are not a perfect people.  As Americans, we rarely have bad intentions.  But too often our good intentions have unintended consequences.  Events will soon force us to decide whether the benefits of free trade and investment outweigh the benefits of a strong and vital domestic defense business.

In our enthusiasm for the former -- the benefits of free trade -- I hope we do not lose site of the central strategic value of the latter -- maintaining a strong and vital defense business!

Thank you again for the invitation to be here, for your crucial support to my company, and for your service to our nation.