* Foreign sales needed amid U.S., European budget cuts
* Weapons makers look to partnerships, technology sharing
* Multinational F-35 seen as model for others to follow
By Andrea Shalal
FARNBOROUGH, England, July 17 (Reuters) - Traditionally companies which have guarded their secrets closely, arms makers are opening up to partnerships and technology sharing to meet the demands of overseas buyers they need to offset budget cuts at home.
In years gone by, foreign arms deals were dominated by so-called offset agreements - where the seller would make investments in the buyer’s local economy, sometimes in unrelated sectors such as the automotive industry.
That is now giving way to genuine partnerships, and business deals and cooperation agreements with defense and technology companies in other countries, industry executives told Reuters at the Farnborough Airshow in southern England this week.
Lockheed Martin Corp, the Pentagon’s biggest arms supplier, believes the weapons industry is following the lead of cash-strapped governments - which are also increasingly looking at cooperative defense deals rather than unilateral projects.
“Almost every country realizes the need to collaborate on their security needs because of limited budgets,” said Lockheed Martin senior vice president of business development Paul Lemmo. “I think industry gets that, and there’s a lot more discussion around collaboration between industries on different projects.”
It’s not always easy. Collaborative projects between manufacturers and European governments, such as the A400M transporter plane and the Talarion drone, have experienced delays and, in the case of Talarion, been halted altogether after the project’s instigators failed to place an order.
However, Ellen Lord, president of Textron Systems, a unit of Textron Inc, said her company and others are building local operations in more places overseas than ever before.
“It is absolutely critical to have ... a presence, to be part of the community and be there for eyeball to eyeball contact,” Lord told Reuters.
Given growing competition overseas, Lord said it was imperative for the U.S. government to continue and expand its efforts to streamline cumbersome export controls and help U.S. firms shore up industrial base capacities.
Top U.S. officials involved in export control reforms attended the airshow this week, underscoring their willingness and commitment to improving the process while safeguarding the most sensitive U.S. technologies.
Given the dearth of new programs in the United States, Lord said U.S. companies could wind up selling new combat planes and ground vehicles overseas before they are sold to U.S. customers.
Textron, for instance, is showcasing its new Scorpion fighter plane at the Farnborough show as a low-cost solution for countries that don’t need and can’t afford Lockheed’s top-of-the-line F-35 fighter jet. Given the lack of a U.S. requirement for such a plane, it’s likely that any first sale would come from a foreign buyer, officials with that program have said.
Chris Chadwick, president of Boeing Defense, Space & Security, said his company saw great value in building long-term partnerships in important markets such as Brazil, where Boeing has built up close ties with Brazilian planemaker Embraer , as it tried to sell more defense equipment overseas.
Boeing this week inked a new deal with the Paramount Group of South Africa, Africa’s largest privately-owned defense and aerospace business, and recently said it would partner with Sweden’s SAAB to develop a new trainer aircraft in anticipation of an expected competition in the United States.
Chadwick said Boeing needed to take advantage of innovation wherever it emerged, whether outside the defense industry, or internationally. “No matter where it comes from, we’ve got to be willing to reach out and make those partnerships,” he said.
Tom Kennedy, who became chief executive of Raytheon in March, said his company had long established ties over the world, but was continually refining those relationships.
The U.S. arms maker which generates the largest share of its revenues overseas, Raytheon expects foreign sales to account for 30 percent of revenues in 2014, up from 27 percent in 2013, but Kennedy says securing the next 5-percent boost will require “hard work” and “boots on the ground” in target areas.
Lockheed also sees foreign sales growing sharply in coming years, driven by sales of its F-35 fighter jet, but also through targeted acquisitions and campaigns in key areas, Lemmo said.
Orlando Carvalho, who heads Lockheed’s aeronautics division, said the F-35 program was redefining how future weapons programs may be structured. Designed from the start as a multinational program, the F-35 has 1,450 suppliers, including firms in all eight countries that help fund the jet’s development.
That means those firms make parts for all the airplanes being built, not just the ones destined for their home markets, increasing the size of the orders manifold.
“If you look at the F-35 program in terms of international collaboration, it’s complicated and it’s hard, but it’s impressive. We have successfully established a global industrial base,” Carvalho said.
Jerry DeMuro, chief executive of the U.S. division of Britain’s BAE Systems Plc, said his company had long sought to establish a portfolio of commercial and defense capabilities in a number of countries, with the goal of being viewed as “trusted, indigenous companies” in several locations. (Additional reporting by Victoria Bryan; Editing by Mark Potter)