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Nooree is a Special Counsel in Covington's Government Contracts practice.  He represents government contractors in a wide variety of transactional, litigation, and compliance matters. His primary areas of practice include corporate transactions involving contractors, international contracting and domestic sourcing matters, and grants and cooperative agreements.

On December 22, 2021, the Defense Security Cooperation Agency (DSCA) announced the Fiscal Year 2021 transaction figures for the Foreign Military Sales (FMS) Program, reporting $34.8 billion in total transaction value.  FMS declined for the second consecutive year, down 31 percent from $50.8 billion dollars in transactions in FY 2020.  The 2021 figure represents the lowest volume of FMS transactions since FY 2016.

As recently as FY 2019, FMS program sales totaled $55.4 billion, with a $51 billion average transaction value from 2017-2019.  FMS transactions slipped slightly in FY 2020 to $50.8 billion but then cratered this past year.  Because FMS program sales figures fluctuate annually due to a few, high-value transactions, DSCA includes three-year rolling averages in their annual reports rather than only single year fluctuations.  For example, FMS sales declined 28 percent in FY 2016 before recouping most of those losses the next year.  Therefore, the significant 2021 decline may be an anomaly.  Even though 2021 FMS numbers may recover quickly, several notable takeaways remain.

First, the steep decline in FMS in FY 2021 may not signal a decrease in America’s commitment to its global allies.  Indeed, even though FMS declined by 31 percent, the United States increased funding to the Foreign Military Financing (FMF) program from $3.3 billion to $3.8 billion.  In addition, U.S. contributions to the Building Partner Capacity programs remained relatively steady, declining slightly from $2.69 billion to $2.34 billion.  The decrease in overall FMS figures was driven by a 36 percent fall in foreign government-funded transactions.

Second, Direct Commercial Sales (DCS) arrangements between U.S. defense contractors and foreign governments dropped 16.8 percent in FY 2021, from $124.3 billion in FY 2020 to $103.4 billion.  FMS involve the U.S. government directly procuring defense materiel or services before transferring materiel or services to a foreign defense ministry.  In contrast, DCS do not involve the U.S. as a contractual party.  The U.S. government oversees DCS, and U.S. export controls laws govern all DCS.  But, compared to its direct involvement in FMS, the U.S. government’s oversight of DCS is primarily indirect.  Therefore, the decline in DCS may indicate that the budgetary concerns of America’s allies drove the contemporaneous decline in FMS more than the Pentagon’s shifting priorities did.

Third, certain critical factors may impede FMS figures from rebounding quickly in FY 2022.  Besides the COVID-19 pandemic’s ongoing impact on national defense budgets, the country-by-country figures published by DSCA reveal areas for potential regression in FY 2022.  For example, the FY 2021 figures included approximately $1.26 billion in sales to Afghanistan, an amount that likely will decrease given the recent regime change.  The FY 2021 numbers include a $1.5 billion allocation to France, which appears to have been boosted by an unusually large $1.3 billion transaction to supply aircraft launch and recovery equipment for France’s naval carrier program.  In FY 2022, U.S. sales to France may regress closer to $220 million, the average for transactions with France from the preceding four years.  Germany also entered into an unusually large $1.7 billion FMS contract for P-8A aircraft and accompanying services and equipment.

On the other hand, the United States’ recent commitment to support Australia’s submarine program may offset decreases in U.S. arms sales to countries like Afghanistan, France, and Germany in the long term.  The 2021 agreement between the United States and the United Kingdom to deliver nuclear submarines to Australia will likely have a lasting impact on U.S. defense exports.  Still, the budgetary impact of those commitments on DSCA programs remains uncertain.
Continue Reading U.S. Foreign Military Sales Down Over Thirty Percent in FY 2021

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This amount nearly matches the total from FY 2018 of $55.7 billion, continuing the significant increase in foreign arm sales under the Trump Administration and potentially signaling that the enormous 33 percent

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