When we sell a piece of military hardware to another country, who gets the money. Does it go into the general fund, back into the defense budget, or where?
The F35 for example, is being sold to some of our allies. Once Lockheed Martin is paid is there money left? Same with other American arms.
I thought we were just giving LM permission to sell their planes to other countries. I didn’t think the government bought them and resold them, or acted as middlemen. Although I could be wrong.
The transactions are primarily one between a foreign nation and a US company, in which the US Government simply regulates whether the arms being sold meet various legal and policy considerations.
So the government gets a say in whether a country is allowed to buy an F-35, but the funds being exchanged are between the foreign government and Lockheed.
There are other arrangements, but this model constitutes most arms sales.
What about military equipment that was originally purchased by the United States armed forces? Let’s say we replace some F-15’s with a newer model. We could then sell the F-15’s to another country that’s looking for a good deal on some pre-owned fighter planes.
There doesn’t seem to be any reason why Boeing should get any money out of the transaction; they got paid back when the United States bought the planes new.
But does the money from the sale go to the Air Force, the Department of Defense, or the general national revenue?
To the best of my recollection, Excess Defense Articles may be transfered to other countries and the US may seek compensation for the costs of the transfer (fixing up whatever it is, transporting it, administrative costs, etc). Such transfers can only occur when there is no impact to the defense industrial base, so it is unlikely that an old F-15 can be transferred for minimal cost since there is a production line which would sell one less new F-15.
Thanks for the excellent answers. I really had no idea how any of it worked.
I don’t know how defense contracts work with regard to fixed and variable costs, but I would imagine it benefits the DoD for the development costs of a new system like the F35 fighter jet to be spread among a larger number of units produced.
Generally when we give up military weapons to other countries it’s for non-monetary perks like increased relations or military basing rights.
The concept that costs of development are “spread” over a production run isn’t really how any weapons program is managed in a practical sense. Sure, someone may look back and say that the B-2 cost so many billion for only two dozen aircraft, including R&D and procurement costs, but consider whether we should have bought 100 B-2 through the late '90s and 2000s. It is an illusion that it would have been any better deal for the taxpayer, because the R&D money was already spent no matter how many more B-2s you bought.
The only time that such calculations of total program costs are really considered is in figuring out whether a new weapons program is affordable – not whether to keep buying something in production because it looks better if “the R&D is more spread out.”
That’s not really true. The US has transferred plenty of excess ships to Taiwan, for example, in order to improve their own defense against China.
The services have a Foreign Military Sales(FMS) section. For big ticket items which may include training, actual items, service; the FMS section does the negotiation on price/delivery/warranty between the nation and manufacturer. FMS keeps a little vigorish - it’s basically self-funded in the US Army. They write all the contracts and monitor compliance.
On small ticket items; an example might be country A wants 250 rounds of 90mm recoilless rifle shells. The system is no longer current (some reserve unit might still have some and the National Park Service might use for avalanche control) so the FMS folks will offer up some shells from our stockpile. It would be too expensive to produce from scratch and we have roughly 50 billion in stock. FMS will go to a storage depot, have the surveillance folks (sometimes part of my old job) do a detailed inspection to determine condition, then get back to the country with a price. The country might accept the shells as is (miscellaneous markings, black banding, etc…) or want refurbishment with all new marking/boxes/pallets etc… A final price is arrived at and again the FMS section keeps a percentage. In this case, the other money goes into the Army procurement budget because it was in Army stock.
I did some jobs involving a few hundred reference small arms rounds to a $3.2 billion dollar PATRIOT missile sale. On the PATRIOT sale, Raytheon was the manufacturer of the missiles and control systems but other parts came out of the Army supply system (examples were 5 ton tractors, refurbished 32’ equipment trailers, M984 wreckers, HEMTT general cargo vehicles/tractors and PATRIOT specific HEMTT cargo trucks). The US Army acted as general contractor on this sale rather than Raytheon which was usually the case with this country.