Hot-and-Cold Running F-16s

If you weren’t paying attention August 14, you could easily have missed it. It looked like all the other bland Pentagon contracts announced about 5 p.m. every workday. But this one awarded the nation’s largest defense contractor a deal to sell F-16 jet fighters worth up to a breathtaking $62 billion to foreign countries over the coming decade. And even if you were paying attention, the fine print released by the Defense Department left a lot of questions unanswered about the huge Lockheed contract.

It didn’t say who would be buying the planes, for example, or how many eventually would be bought. But that’s not as important as what it did say: The deal will involve “new production … primarily” done at Lockheed’s plants in South Carolina and Texas. That’s the jet engine driving this deal: It’s much more about jobs-for-America than security-for-America. It puts a floor under Lockheed’s new plant in South Carolina, where F-16 production is shifting from its longtime Texas production line. That gives the company, along with its investors and lenders, confidence that they’ll be churning out Vipers (pilots’ nickname for the F-16) and Fighting Falcons (the official Air Force nickname) for years to come.

There’s good and bad news associated with the deal. It likely will lead to more sales, more quickly, of the venerable jet. It might even lower its price. That’s the good news, at least for those foreign customers kicking the tires. “The international market for fighters is highly competitive,” says Todd Harrison, defense budget expert at the Center for Strategic and International Studies. “This is an effort by the U.S. government to help U.S. companies compete in that international market by facilitating foreign military sales.”

But not everybody sees it that way. “This is a way to flout budget rules and lock the government in for years, giving the contractor a long-term project and a financial lifeline,” says Scott Amey, veteran federal contracting guru at the Project On Government Oversight (POGO).

Of course, if you don’t think the U.S. should be peddling nuclear-capable arms willy-nilly around the globe, it’s also the bad news.

Just as significantly, the contract is an “indefinite-delivery/indefinite-quantity” (IDIQ) contract that eliminates haggling over the price of the planes. The Pentagon has used such contracts for years to buy spare parts and support services, but defense-industry experts say they believe this is the first time the Pentagon is using the peculiar contracting vehicle for a such a massive arms deal. “I know of no contract of this size applied to a weapons system, as opposed to routine goods and services that are needed on a recurring basis,” says William Hartung, arms-trade expert at the Center for International Policy. “In theory, sales against this contract will receive the usual vetting, but there is a danger that the sales will go on auto-pilot and be rushed through without proper scrutiny.”

Traditionally, each foreign weapons sale involves a new contract, with months, if not years, of paperwork before the hardware heads overseas. It’s like a custom-tailored suit, which takes time and money. But an IDIQ contract is like going into a department store with hundreds of suits already on the racks. Beyond the price set in the IDIQ contract for the base-model F-16s, purchasers only have to pay for options they want (although sophisticated avionics tend to cost more than raised cuffs). Air Force officials say such deals can cut delivery times by a third.

The massive F-16 IDIQ deal is the latest move by the Trump administration to turbocharge American arms sales around the world. President Donald Trump raised eyebrows in 2018 when he displayed charts detailing $12.5 billion in U.S. weapons sales to Saudi Arabia during an Oval Office session with Crown Prince Mohammed bin Salman. “We’re talking,” Trump said, “about over 40,000 jobs in the United States.” But such boasts tend to be empty.

No one in the administration is shy about selling weapons. “By streamlining the [Foreign Military Sales] process, we have lowered costs and accelerated our response time to partner-nation requests, allowing us to deliver critical capabilities more quickly and effectively,” Defense Secretary Mark Esper said in Hawaii during an August speech highlighting the U.S. military role in the Pacific. “Today, there are more than $160 billion worth of [Foreign Military Sales] projects under way across the Indo-Pacific, including $22 billion in newly initiated projects in this fiscal year alone—which is almost half of all Foreign Military Sales globally.”

While the F-16 announcement said the deal’s initial order was for 90 planes for $4.9 billion (about $54 million a copy), it didn’t say who was buying them. But word leaked out that 66 were bound for Taiwan—the first in nearly 30 years—and 24 for Morocco.

China quickly denounced the sale of the F-16s to Taiwan. “Its announcement at this particular time is believed to be yet another U.S. provocation and a step on the red line of the Taiwan question, which further risks confrontation,” China’s state-owned Global Timessaid. “If a reunification-by-force operation breaks out, the PLA [China’s People’s Liberation Army] would destroy Taiwan’s air fields and command centers, giving the F-16Vs no chance to even take flight, and giving those already in the air no place to land, analysts said.”

“Reunification-by-force”? And you thought the Pentagon had a way with words.

Such complaints are not likely to be the last, given the Trump administration’s ardor for keeping American jobs by selling weapons overseas (and this is a bipartisan trend: President Barack Obama’s administration signed deals worth twice as much as Republican George W. Bush’s White House). In 2018, the Trump administration issued a new U.S. Conventional Arms Transfer policy that shifted the emphasis of such sales from national security to the national economy.

“The USA was the top arms exporter in 2015–19 and delivered major arms to 96 states,” the Stockholm International Peace Research Institute reported in March. “This is a far higher number of destinations for arms exports than any other supplier.” U.S. arms sales jumped by 23% between 2010-2014 and 2015-2019, as its share of the global arms market rose from 31% to 36%. In the fiscal year that ended September 30, the U.S. approved $83.5 billion in Foreign Military Sales notifications, the Trump administration’s best-selling year. A Defense Department inspector general report released October 15 said the Pentagon had 14,762 arms deals at various stages of negotiation and delivery. As of last fall, they were worth $579 billion to 189 nations and international organizations.

There’s not much of a check on the White House. “Congress’ deference has allowed the executive to prioritize the perceived short-term strategic and economic benefits of arms transfers to the detriment of more enduring national interests, foreign policy objectives, and fundamental U.S. values,” the nonprofits Stimson Center and Center for Civilians in Conflict said in a joint October 13 report. “The result is a clear association between U.S.-made armaments and the death of children in Yemen; human rights abuses in Cameroon and Nigeria; and the spread of weapons to groups like the Islamic State and criminal gangs in Central America.” This willy-nilly U.S. push to sell weapons overseas also may have serious legal implications for top Americans involved.

The F-16 IDIQ deal couldn’t have come at a better time for the jet’s manufacturer. “After nearly shutting down production several times, Lockheed Martin is getting a surge of orders for the F-16,” Air Force Magazinereported. About 4,600 F-16s have been sold to 27 nations since the Air Force’s first operational flight in 1978 (about half are still flying). But the Air Force received its last F-16 in 2005, and recent buyers have gotten better F-16s than the U.S. now flies. That’s because the Pentagon prefers to spend its money on its new F-35 fighter, also built by Lockheed.

Older F-16s were built at Lockheed’s Fort Worth factory, but that space is now needed to produce that new F-35 fighter. So production is shifting to a new Lockheed plant in Greenville, South Carolina. The South Carolina congressional delegation hailed Trump’s arms-sales efforts in a letter to Trump last year. “Your support for prior sales of new F-16s to Bahrain, Slovakia, and Bulgaria has led to the newly established manufacturing line in Greenville, South Carolina,” the delegation wrote. “Without your support, the F-16 production line would have come to an end. Instead, this line is creating more than 1,500 total new jobs in South Carolina.”

Congress is supposed to act as a brake on arms sales, but it’s now more like a gas pedal. While it has the power to veto such sales, that rarely happens. “Congress doesn’t usually stop these because it’s going to cost jobs in somebody’s district,” says Larry Korb, who oversaw 70% of the U.S. defense budget during the Reagan administration in his role as assistant secretary for manpower and logistics.

Lockheed eyes its new F-16 customers like Chevrolet buyers who someday may end up behind the wheel of a Cadillac. “For a lot of these countries … as we get them capable with the F-16, we believe the next step for many … is future procurement of the F-35,” a Lockheed official says.

How did the Pentagon and Lockheed arrive at that colossal $62 billion figure? It “was developed as an independent government estimate of the total cost of orders for F-16 aircraft over a period of 10 years,” an Air Force spokesman tells POGO. “Many factors were considered in the development of that estimate, including an estimated number of aircraft to be sold, inflation, and expected improvements and changes to the aircraft configuration over that 10 years.” Lockheed declined to comment on the deal, although it recently estimated that it could sell 400 more F-16s.

Dividing those 400 F-16s into $62 billion yields a cost per plane of $155 million. That sum is pretty much all the information that’s available, given that such deals are shrouded in proprietary information that contractors can keep private. When asked about that crude calculation, the Air Force spokesman says that “there are additional factors to consider when attempting to rationalize the $62 billion ceiling, such as development, integration, and testing of new systems, spare parts packages, and any unique country requirements.” Sounds pretty much like a confirmation of that $155 million sticker.

At that price, U.S. taxpayers shouldn’t be paying for anything associated with these sales. In fact, there’s a 3.2% surcharge added to pay U.S. administrative costs associated with such deals, meaning the Pentagon would pocket close to $2 billion if Lockheed sells $62 billion worth of warplanes. The Trump administration cut that surcharge from 3.5% in 2018 to “reduce the cost of doing business for our international partners,” the U.S. general managing such sales said at the time (foreign buyers also often don’t pay their legally required share of U.S.-funded research and development for the U.S. arms they buy, thanks to generous Pentagon waivers).

The IDIQ is like manna from heaven for those involved. The company sees prospective F-16 customers in Africa, Southeast Asia, and South America, Lockheed’s chief financial officer, Kenneth Possenriede, said in an April earnings call. FlightGlobal, an aviation website that closely covers arms sales, noted the advantage the IDIQ contract gives U.S. firms. “The concept would be the latest example of U.S. aerospace manufacturers having a go-to-market edge because Washington runs a savvier arm sales programme than its rivals in Russia, China and Europe,” it reported. Financial analysts were also impressed. “I see this month’s F-16 arms sale as a significant tailwind that will lift Lockheed Martin shares for years to come,” Rich Smith of the Motley Fool investment firm wrote 10 days after the announcement. The deal, he estimated, could lead to a $7 billion profit for the company for “a weapons system that was all but extinct.”

It’s impossible to know if IDIQ contracts are the future for peddling U.S. arms abroad. They work best when they involve tried-and-true weapons that other nations want, and aren’t fighting with the Pentagon for space on the assembly line. Which sort of describes a couple of other recent multi-billion-dollar IDIQ announcements. In July, the Air Force said it had approved sales of up to 120 Lockheed C-130 cargo planes worth as much as $15 billion. In September, the service said it had authorized sales of up to 180 General Atomics MQ-9 Reaper drones costing as much as $7.4 billion. The action came 10 months after the service surprised General Atomics by killing the program in 2021, three to five years early, so that it could invest in a replacement.

The three deals, totaling nearly $85 billion in military hardware the U.S. is trying to push out the door, suggests a carpet warehouse holding a going-out-of-business sale. “This is all about promoting the American defense industry by greasing the skids for future sales,” says Gordon Adams, who oversaw the military as the associate director for national security at the White House’s Office of Management and Budget during the Clinton administration. “Whatever you think of Trump’s relationship to the military, this is great for contractors, who are overjoyed to have a full-bore promoter of foreign arms sales.”