Crying `Jobs' To Sell Weapons Abroad

McDonnell Douglas Corp. once took a "What, me worry?" attitude about what would happen after the Air Force's last F-15 fighter rolled off the St. Louis assembly line in 1994. By then, planners figured, the plant would be busy building new A-12 attack planes for the Navy. But when the Pentagon canceled the A-12 a year ago because of cost overruns, McDonnell suddenly needed new business fast. Saudi Arabia's request to buy 72 F-15s seemed like the answer. But jitters in Washington about massive arms sales to the Middle East kept the deal on hold.

Now, McDonnell is mounting a vigorous lobbying effort for the Saudi sale. The $5 billion order would keep production humming into 1997. Without it, about 3,000 of the company's 7,000 F-15 employees will run out of work this year. Besides, McDonnell needs the business. Despite cost-cutting that averted a debt crisis and spawned 1991 record earnings of $423 million on sales of $18.4 billion, most of the company's military aircraft programs are winding down. And with Taiwan balking at a pending $2 billion investment in McDonnell's commercial business, the company needs cash for a planned MD-12 widebody.

FOREIGN PUSH. McDonnell's plight underscores the pressure on U.S. defense contractors to sell abroad. Squeezed by budget cuts, the Pentagon is canceling orders for a slew of current-generation tanks, planes--even vaunted Patriot missiles. To keep production lines rolling and workers employed, U.S. manufacturers are pushing foreign sales more aggressively than ever.

The Pentagon would like to help out McDonnell and reward an ally by going ahead with the Saudi sale. But with an election looming, arms-control talks under way, and negotiations over housing loan guarantees for Israel at a delicate stage, the Bush Administration prefers to avoid the controversy.

To force a decision, McDonnell lobbyists in Washington are stressing "jobs, jobs, jobs." To build the F-15, McDonnell depends on 2,100 subcontractors employing 33,000 people. Although not all of these workers make F-15 components, a McDonnell spokesman says the Saudi sale is "a surefire way to protect the jobs of 40,000 people."

Advocates also argue that the ripples of an F-15 sale to Saudi Arabia could affect aerospace deals for years. Riyadh will soon need to replace 100 aging F-5 fighters, and it is shopping for commercial airliners. A likely U.S. successor to the F-5 would be General Dynamics Corp.'s F-16 fighter or McDonnell's F/A-18. Boeing Co., which made 40 of the 69 airliners in the Saudi fleet, also wants more business.

But if the Bush Administration makes the Saudis wait too long for F-15s, McDonnell warns, Riyadh may buy European instead. In 1985, after Washington turned down an earlier request for F-15s under Israeli pressure, Saudi Arabia signed an $8.7 billion deal with Britain that included 72 Tornado fighters and 30 Hawk jet trainers. Now, Britain is offering to sell Riyadh 48 more Tornadoes.

MAJOR BATTLE. Many on the Hill are unimpressed by these arguments. They're worried that the Saudis want to buy 48 F-15Es, an advanced ground-attack version of the plane that the U.S. has never sold abroad. "The threat doesn't warrant the kind of sale," being contemplated, says Representative Benjamin A. Gilman (R-N.Y.). If the Israeli loan guarantee talks collapse, says a Senate Foreign Relations Committee staffer, "the Administration will face a major battle with Congress over the sale."

But McDonnell likely will prevail. With the economy in an election-year slump, "the jobs issue will be decisive" with many members, says Representative Lee A. Hamilton (D-Ind.). And if the sale goes through, watch for more arms makers to use jobs as a weapon to beat down foreign policy concerns over sales.

Before it's here, it's on the Bloomberg Terminal.