FMS Opportunities and Challenges

Group Editor Marty Kauchak reports on the latest trends and developments in the US Foreign Military Sales (FMS) program.

There has been a steady growth in overseas military customers looking to go down the FMS path to obtain US weapons platforms and weapons systems. Simulation and training devices and systems, and services are commonly procured through an FMS contract, or to a lesser extent through separate, direct commercial sales (DCS). S&T products and services round out the logistical life cycle of materiel bought by foreign military services.

As exports of US military hardware sold to foreign military services increase, the number of regulations, organizations with oversight and other tenets of the FMS program frame a daunting process for both industry suppliers and overseas customers. Some relief is on the program’s horizon.

In a significant trend, the Pentagon is increasingly helping its industry counterparts traverse the bureaucratic obstacles of the FMS process to meet the requirements of the overseas end user, conform to myriad US government laws and policies, and still make a reasonable profit.

FMS Activity Snapshot

FMS programs are an expanding part of US S&T company portfolios in an era of lagging sales at home.

CAE, one representative company, is experiencing a burgeoning number of FMS sales to customers around the globe. Most recently the company has expanded its presence in the Middle East with FMS contracts to support the Kuwait Air Force’s KC-130J fleet.

CAE, through a US Navy FMS contract, will deliver a full-mission simulator for that service’s KC-130J aircrew training system.

Concurrently, the company remains on contract through a US Army Corps of Engineers’ FMS award to construct a training facility for the Kuwait Air Force at Al Mubarak Air Base, Kuwait. The two-bay training facility will house the KC-130J full mission simulator that CAE is under contract to deliver to that service.

Over in the Pacific region, CAE will provide two tactical operational flight trainers to the Royal Australian Navy as part of the service’s procurement of MH-60Rs through a US Navy FMS contract. Chris Stellwag, the company’s spokesperson for military programs, told MS&T that CAE “is also building an MH-60R avionics maintenance trainer/weapons load trainer for the Royal Australian Navy.”

CAE will deliver the RAN MH-60R training devices in 2015.

As this issue was published, CAE and its Taiwan Air Force customer expected to declare a P-3C operational flight trainer delivered under a US Navy FMS contract as ready for training.

A P-3C weapons tactics trainer will be delivered to that service later this year.

CAE’s FMS strategy includes promoting its integrated products, services and significantly, centers, internationally. “While we will sell a product or service, what we are now promoting at the highest level is the ‘complete, integrated bundle’ – including a turnkey training center,” Ray Duquette, CAE USA’s president and general manager, added.

FMS vs. Direct Commercial Sales Paths

Both FMS and DCS are useful approaches to deliver S&T products and services to the overseas customer. Each business model has advantages and disadvantages.

Dean Queathem, Boeing’s manager of business development for Training Systems and Government Services, pointed out that DCS usually involve more contact with the end user compared to sales with the US Department of Defense as an intermediary. “On the other hand, foreign military sales typically have the US government (USG) handling matters related to export control, so that piece of the puzzle is easier in those scenarios,” he added.

Boeing is reported to be amenable to both FMS and DCS approaches, depending on customer needs and preferences. “We keep an open dialogue with our end user customers and the Department of Defense to ensure that all needs are met and that we can satisfy the end user in a timely manner,” Queathem concluded.

L-3 Link is another US S&T community member with a heritage of supplying systems and services to overseas customers.

The most recent FMS delivery by L-3 Link was the F-16 training system for the Royal Moroccan Air Force. Image credit: L-3 Link

Sean Clark, the company’s director for international business development, correlated the experience level and knowledge of the customer’s acquisition corps as contributing to the probability that an S&T sale will occur under the FMS program or as a direct sale. In one instance Clark noted L-3 Link’s S&T support of Switzerland’s 34 Boeing F/A-18 C/Ds was on direct sale. “We have typically done direct, commercial deals [with the Swiss] because they have a well-established acquisition corps that doesn’t necessarily need the US government assistance provided by procuring through the FMS process,” Clark noted.

However, beyond the Swiss F/A-18 program and other direct sales, L-3 Link has delivered the majority of its S&T products through FMS agreements, particularly when USG support is required and requested by the procuring country.

The most recent FMS delivery by L-3 Link was the F-16 training system for the Royal Moroccan Air Force.

CAE USA is receptive to selling its S&T solutions through the FMS process as opposed to a direct commercial sale to the overseas nation. The company’s Duquette pointed out that under FMS, “it is less risky for a US company when you have the US government behind it.” He further explained during the 2013 I/ITSEC that as CAE promotes its solution through FMS, the information is brought to the attention of the case manager at the US services’ acquisition commands. “We are also telling the Defense Security Cooperation Agency and embassies what we are doing,” he added.

However in an effort to be responsive to the international military end user CAE will also sell its S&T solutions to the service under DCS, if necessary.

One DoD perspective on FMS versus DCS acquisition strategies was obtained from Dale Whittaker, PEO STRI’s program manager for FMS. Whittaker, during his discussion with MS&T last December, described the advantages of pursuing an FMS purchase. “PEO STRI takes a ‘total package approach’ on FMS purchases. This approach considers the total life cycle costs of deliveries to include providing US Army training, spares, and any future maintenance or operational support,” he said.

“Not a Marketing Vehicle”

The presence of Whittaker and his counterparts from Naval Air Warfare Center Training Systems Division (NAWCTSD) and the US Air Force Simulator Division at the 2013 I/ITSEC panel discussion Doing Business Globally is a further indication of increased transparency and greater cooperation between the Pentagon and industry in the FMS process. While DoD training acquisition officials dismissed the notion that they are proponents for S&T sales to overseas markets, they nonetheless pointed out the support they can provide their industry counterparts.

Whittaker noted that PEO STRI helps US S&T industry members sell services and products which are in the command’s portfolio to international customers through the FMS process. “PEO STRI may be thought of as a ‘soup-to-nuts’ resource in supporting an S&T company’s navigation through the FMS process and working with customer organizations to better understand the FMS process and secure an agreement.”

The PEO STRI official remarked that his command and its counterpart organizations in the other services, can help the international customer and S&T company work with Department of State (DoS) and other actors in the FMS process. Whittaker continued, “This partnering provides benefits in the myriad of administrative processes involved with sales of products internationally, but more importantly it builds partnering between US and foreign militaries, not only ensuring technical capabilities but building working relationships within the partnering services.”

The Orlando-based, government S&T subject matter expert also emphasized that PEO STRI “while not a marketing vehicle for US S&T products,” does work closely with both industry and partner nations to clarify requirements and provide U.S. Army oversight and alike products to its partners around the globe.

Lessons Learned

At the end of the day, both S&T industry and military team members want to make the FMS process more efficient and effective – and with good reason.

The Defense Security Cooperation Agency, the services’ executive agents for S&T, the DoS and other organizations are among the actors involved in a sale of an S&T product or service to an overseas military force. The number of organizations and their bureaucratic, legal and other responsibilities for security, export control and a dizzying array of other requirements translate into a lengthy – often 18-24 month – procurement process.

First, the bad news: there does not appear to be any effort in the USG to decrease the oft-criticized lengthy, FMS acquisition timeline – from notification of a procurement request until a system is delivered and declared ready for training. At issue are the thorny policy areas of export controls, and the protection of classified data and other material. Absent any efforts by the Obama administration to loosen the current standards and guidelines in these oversight areas for S&T products and services, current FMS acquisition timelines are not expected to change in the near future.

Aida Matta, the acting director of International Programs at Naval Air Warfare Center Training Systems Division (NAWCTSD), placed this reality in perspective, emphasizing that companies must be patient with the existing FMS process. “Landing FMS work usually takes months, if not years, following the receipt of a requirement. One must not count on getting work in the current year – it may take a year or more for a requirement to mature into an acquisition. Many requirements received are for the purpose of budget submissions for out-years.”

Yet, on the plus side, there are other opportunities to for companies to improve their competiveness and performance in this market space.

In one instance Matta reminded industry that it isn't necessary to provide detail data in the form of specifications, statements of work or cost estimates in the process. “Usually it is sufficient to provide estimates based on prior work and experience with the type of system being requested.”

The Orlando-based acquisition official also cautioned companies that it is important not to underestimate the cost of delivering a system or service, adding “System and service requirements which aren't clearly defined normally become more complex as the process develops.”

Networking and getting a company’s product known is critical to entering and/or remaining competitive in the FMS process Matta told MS&T, and said even when the product or service has a “directed source” there are opportunities for subcontracting. “International marketing has brought success to many companies. It isn't necessary to have a dedicated marketing department within one's company, there are consultants with experience with the FMS process, and there are foreign agents within many countries who understand the FMS process,” Matta concluded.