REUTERS SUMMIT-US weapons makers sense rising demand for air defense systems, tanks

WASHINGTON, Sept 15 (Reuters) - Military crises around the world are boosting foreign demand for U.S. weapons, especially air and missile defense systems, spy equipment and armored vehicles, according to U.S. government and industry officials.

Weapons makers like Lockheed Martin, Northrop Grumman, Boeing and Raytheon anticipate new markets for their goods. And that could offset lower U.S. military spending.

Russian aggression in Ukraine is reviving long-dormant European demand, while the emerging militant Islamist threat in Iraq and Syria has underpinned already strong Middle Eastern demand.

And in Asia, China’s military buildup and tensions with its neighbors are prompting the United States to deepen relations with traditional allies like Japan, and forge deeper bonds with other countries, including former foes such as Vietnam.

“Any time there is this type of turmoil like we have today in the world ... the potential is there for more demand,” Orlando Carvalho, executive vice president of Lockheed’s aeronautics division, said during Reuters’ Aerospace and Defense Summit in Washington last week.

Lockheed’s aeronautics division is likely to boost revenues to $15 billion this year from $14 billion, buoyed by growing F-35 jet orders. Carvalho said foreign sales could grow to more than 40 percent of the division’s sales over the next year, up from the mid-30 percent range now.

While President Barack Obama’s decision to step up air strikes against Islamic State extremists in Syria and Iraq will probably not have a material effect on most U.S. contractors, it underpins the overall sector, industry executives said.

William Loomis, managing director of investment bank Stifel Nicolaus, said U.S. actions to combat Islamic State could boost companies like ManTech International, Leidos and Engility, which provide war-related support services for vehicles and data analysis.

AeroVironment, which builds handheld drones; ammunition maker Alliant Techsystems and Exelis , which does support work in the Middle East, could also benefit, Loomis said in a research note.

Russia’s intervention in Ukraine has prompted NATO members to pledge to raise defense spending to about 2 percent of gross domestic product within a decade - another factor that could undergird demand, U.S. government and industry executives said.

It can take months or even years to translate foreign interest into U.S. orders, though.

Rear Admiral James Shannon, deputy assistant secretary of the Navy, told Reuters there has been a sharp increase in inquiries from European allies since January.

“There’s a lot of information gathering,” he said, noting that being able to operate similar equipment offered allies an advantage for any joint military actions. “There’s a lot of interest in partnering with the United States.”

The costliest U.S. weapons program is Lockheed’s F-35 Joint Strike Fighter, jointly developed by the United States and eight allies: Britain, Australia, Canada, Turkey, Italy, Norway, Denmark and the Netherlands.

Ten countries have already decided to buy the jets, and South Korea is expected to finalize an order for 40 jets this year.

Others, including Finland, Poland and Belgium, have requested information, said Rear Admiral Randy Mahr, deputy director of the F-35 program. Mahr said he expected additional demand to emerge in coming years.

Senator John McCain told a Washington think tank last week that India was also interested in the F-35, but Mahr said no formal briefing had been provided yet to that country.

Greg Kausner, deputy assistant secretary of state for regional security, said the State Department was studying whether the evolving threats should shift which weapons systems could be sold or provided to allies.

For instance, the rapid expansion of Islamic State was raising the importance of border protection for some Middle Eastern countries, he said.

Ground vehicle sales, which slumped after the end of the war in Iraq, could also nose up given the resurgence of a more aggressive Russia, defense consultant Loren Thompson said.

General Dynamics just signed a 3.5 billion-pound deal with Britain’s army for Scout specialist tanks, and other orders could follow, Thompson told the Reuters summit. (Reporting by Andrea Shahal; Editing by Ros Krasny and Jonathan Oatis)