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U.S. Arms Exports Surge on Sales Push to India, Brazil

The State Department approved a record number of export licenses last year for weapons and military parts and services sold overseas by U.S. companies, according to a report to Congress.

The estimated value of licenses issued by the department’s Directorate of Defense Trade Controls was $44.3 billion, an increase of more than $10 billion from the previous year, according to the annual military assistance report delivered to lawmakers today.

Companies need licenses before they can export goods and services that are on the U.S. Munitions List, which limits exports with military uses. License approvals increased to 83,685 in fiscal 2011 from 83,158 in fiscal 2010 and 81,900 the year before that, according to State Department data.

“The major prime contractors are focusing heavily on building up sales overseas precisely because the Pentagon is cutting back on spending,” Philip Finnegan, director of corporate analysis at Teal Group Corp., a defense research firm in Fairfax, Virginia, said yesterday in an interview.

India and Brazil are key areas” for U.S. military exports, Finnegan said. “The Middle East remains a key area.”

While contractors such as Boeing Co. (BA) and Lockheed Martin Corp. (LMT) will depend increasingly on markets abroad, “one of the wild cards is European companies are trying to do precisely the same thing,” he said.

Strong Demand

The licenses are required for so-called Direct Commercial Sales between a company and a country. The State Department report doesn’t include the Foreign Military Sales program between governments, which is managed by the Pentagon.

Some items licensed in a particular year ship later, Andrew Shapiro, assistant secretary of state for political-military affairs, said today in a statement.

“Despite the global economic strains, this report shows the demand for U.S. defense products and services has remained strong,” Shapiro said. “This administration has worked hard to support the defense industry abroad because it supports our national security and jobs here.”

The report backs assertions by President Barack Obama’s administration of improving commercial and military relations with Brazil and India.

The State Department approved licenses valued at as much as $219.9 million for sales to Brazil, up from $209.6 million in 2010. The biggest dollar-value category was for licenses valued at $158.3 million for military aircraft and associated equipment such as engines, technical data, components, emergency escape equipment and inertial navigation devices.

Fighter Jet

The U.S. is courting Brazil in part to help the prospects for selection of Boeing’s F-18E/F in a fighter competition valued at as much as $4 billion. It pits the U.S. aerospace company against Dassault Aviation SA (AM)’s Rafale and Saab AB (SAABB)’s Grippen. The decision may be made by mid-year, U.S. officials said March 1.

India, another burgeoning partner, saw licenses approved valued at $217.3 million, up from $154.5 million in fiscal 2010. For India, too, the biggest category was for military aircraft and associated equipment.

Defense Secretary Leon Panetta said in a speech in New Delhi yesterday that he hoped to streamline rules on the sharing of defense technology with India.

Panetta said U.S.-India ties will move beyond a seller- buyer relationship to “substantial co-production and eventually, high-technology joint research and development” of weapons.

Egypt Sales

The State Department approved licenses for sales to Egypt with a estimated value of $114 million in the fiscal year that ended Oct. 1, overlapping the Arab Spring protests and imposition of military rule. That’s up from licenses in fiscal 2010 valued at $91 million.

The majority of items approved and shipped to Egypt were spare parts for previously purchased aircraft, Shapiro said.

The Pentagon and State Department have sought to increase Yemen military’s counter-terrorism capabilities against al-Qaeda and other groups.

Licenses for Yemen increased in fiscal 2011 to $24.3 million in value from $4.1 million the previous year, mostly for helicopters.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net

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