U.S. Aerospace Trade Surplus Up 25 Percent; Export Rule Change Sought

NASA never will be able to realize its vision of establishing an outpost on the moon if the space agency budget remains frozen at $16 billion annually, according to John Douglass, president and CEO of the Aerospace Industries Association (AIA) that includes leading U.S. defense and space contractors among its members.

“If anyone thinks that NASA can go back to the moon and beyond” to Mars and other destinations “on $16 billion [annually], I’d like to sit down with them” and hear how that feat might be accomplished, Douglass said.

He appeared as part of a panel symposium, in a day-long globalization conference of the Hudson Institute think tank and sponsor Finmeccanica, the major European defense contractor based in Italy. These were some of the key points during the conference:

* U.S. aerospace exports skyrocketed more than 25 percent in 2006 to exceed $50 billion, shading the $40 billion U.S. advantage in trade last year, according to Douglass.

* AIA will press the incoming Democratic-controlled Congress to alter U.S. defense and space export controls to make them more workable, speeding approvals. In doing that, however, AIA will invite overseas defense leaders to sit at the table so that a united proposal may be presented to Congress.

* The U.S. Department of Defense also sees a need to improve the export controls process, according to Alfred Volkman, director for international cooperation with the under secretary of defense for acquisition, technology and logistics. He listed a multi-point suggestion for those changes.

* A key member of the British Parliament, Gerald Howarth, shadow defence minister, said the lack of technology transfers to the United Kingdom from the U.S.-led F-35 Lightning II Joint Strike Fighter (JSF) program is not only “unacceptable to the present British government, but unacceptable to … the opposition” party.” The time has arrived for the United Kingdom to decide whether to go it alone, or to look to other partners for a strike fighter capability, he said. “The JSF issue has got to be tackled without further delay,” he warned.

Rising Aerospace Trade Surplus

On the U.S. aerospace industry trade balance, the rising surplus stands in marked contrast to the overall U.S. trade deficit, which has ballooned to a gargantuan estimated $800 billion-plus this year.

In the aerospace industry, “we export 40 percent of everything we produce in the United States,” Douglass said. In an upcoming AIA industry forecast luncheon next Wednesday, “I’ll be announcing that our export balance for this year is going to be well over $50 billion,” Douglass said. “That’s a huge amount of growth in the positive trade balance” for the industry. The announcement is expected to come Wednesday.

The aerospace industry this year enjoyed a trade surplus with all nations save Canada, Douglass said.

Export Control Woes

That was his upbeat news. But he also said the U.S. aerospace industry is hamstrung by technology export controls intended to prevent sensitive defense know-how from falling into enemy hands, but which Douglass asserted can amount to overkill delaying legitimate transactions.

These restrictions are so tight “we can’t get an export license for a landing gear knob,” he said. If the knob were handed to U.S. arch-enemy and terrorist mastermind Osama bin Laden, “what in hell would he do with it?” Douglass demanded.

He also alleged that opponents of globalization are using the threat of terrorism to block harmless global trade deals. Those figures, whom he didn’t identify, “tend to use terrorism as a bugaboo,” he said, “and that tends to slow everything down.”

Douglass said it is time to overhaul U.S. export controls to facilitate benign commerce, seeing a shift in control of Congress to Democratic leaders as positive. There will be “many people taking leadership positions that tend to have more enlightened views” on global trade, he said.

Too, he said as export controls cause increasing problems, even to the point of putting small companies out of business, that will create political momentum for changes in export controls.

AIA is working with the National Association of Manufacturers, small businesses and others on how to fashion and lobby for changes in export controls, he said. But as well, he said AIA in drafting proposed changes wishes to work with overseas leaders, rather than AIA proposing a purely U.S. aerospace industry plan to rewrite controls, only to have overseas commercial/defense/space companies and interests oppose the wording.

There must be more than opposition to the current regime of controls, he said. “You can’t just whine about the system” Douglass said. “You have to have an alternative” proposal for substitute controls legislation, and “we need to vet that with our allies” before proposing it on Capitol Hill.

Then, united, AIA and the arrayed forces for changes in control can “make a major push next year to educate people” in Congress on how to “make the system work better.”

Douglass judges that “we have a window of opportunity with the 2008 election,” placing Democrats in control of Congress, to gain a warmer reception for export control changes.

Appealing for help on the issue, Douglass concluded, “I would welcome any thoughts any of you have as to how we could best do that.”

A similar view came from Volkman at the U.S. Department of Defense. He said export controls can be made far more efficient, and capable of processing export license applications far more rapidly. He termed export control reform “long overdue.”

“We need to do a better job,” Volkman said to reporters covering the Hudson Institute/Finmeccanica conference.

It would make sense, he said, for the U.S. government to decide what sort of technologies might be exported safely to each allied nation. Then, when an application to export a particular technology to that nation is broached, the approval process is that much further along toward conclusion.

The State Department, for one, needs to process license applications more quickly, he said, and that means that State should receive better staff organization.

Another point is that defense contractors submitting export license applications could be doing a better job and getting the process started sooner.

Volkman also wondered aloud whether U.S. defense and space companies might be purposely delaying or weakly proposing technology exports in the hope that the U.S. government will deny the application. That way, those overseas blame the government in Washington, not the contractor, for the denial.

“The U.S. defense industry can be doing a better job,” he said.

Volkman indicated he wishes to see warm relations with allied nations, saying, “It’s really important to have a close, cooperative relation with” them.

JSF Tech Transfer

Turning to U.K. dissatisfaction with the pace of technology transfers, they would come as part of the multi-service, multi-national F-35 JSF program, which at $276 billion is the most expensive defense procurement program in history.

Lockheed Martin Corp. [LMT] of Bethesda, Md., is the prime JSF contractor, with Northrop Grumman Corp. [NOC] of Los Angeles and BAE Systems of the United Kingdom playing major roles in creating the stealthy, next-generation fighter platform.

The United Kingdom is one of eight nations participating in and helping to fund development of the radar-evading plane.

But the United Kingdom has received nothing in the form of technology transfers for the U.K. investment equivalent to $2 billion in the JSF, he said.

It may be, however, that more progress can be made on trans-Atlantic issues, now that Republicans who pressed pro-American positions won’t be running the next Congress, Howarth said. He specifically mentioned Rep. Duncan Hunter (R-Calif.), chairman of the House Armed Services Committee, who has stressed Buy American positions. Hunter is expected to run for president in the 2008 elections.

Moves “of a few congressmen are damaging” the U.S. international image with its allies, Howarth said.

He added that it makes sense for European defense contractors to seek Pentagon contracts, because the U.S. boasts “the biggest market” for military hardware.