U.S.-Philippines Pact Could Boost Arms Sales

A new 10-year security pact between the United States and the Philippines could lead to modest increases in U.S. weapons sales in coming years, especially for maritime surveillance equipment, analysts said on Sunday.

The agreement, to be signed on Monday, establishes a framework for an increased U.S. military presence in the Philippines and is part of a "rebalancing" of U.S. resources toward the fast-growing Asia-Pacific region.

The deal comes 23 years after the Philippine Senate voted to evict the U.S. military from bases there, ending 94 years of American military presence in the Asian nation.

Virginia-based defense analyst Loren Thompson noted that the deal came as China increasingly encroaches on maritime areas claimed by Manila in the South China Sea, even as a long-running Muslim insurgency in the southern Philippines is abating.

"What Manila needs most in the way of military technology is weapons that can help enforce its claim to areas in the South China Sea," Thompson said.

That could include P-8A maritime patrol aircraft built by Boeing Co, which have already been sold to India, conventional munitions such as the Standard Missile-3 built by Raytheon Co and small warships built by Lockheed Martin Corp or Australia's Austal, he said.

A renewal of counter-insurgency operations would probably move helicopters up the list of acquisition priorities, particularly UH-60 Black Hawk helicopters built by Sikorsky Aircraft, a unit of United Technologies Corp.

U.S. industry executives said they were keeping a close eye on the situation in the Philippines, but arms sales ultimately would be negotiated between the two governments.

"This is a new market," said one industry executive who was not authorized to speak publicly. "Chinese ambitions are making many countries look for support from the United States - even ones that have been out of the U.S. sphere for some time, such as the Philippines and Vietnam."

Byron Callan, an analyst with Capital Alpha Partners, cautioned that any U.S. arms sales would be limited in scope, given the small size of the Philippines' defense budget, which totaled just $2.2 billion in 2013, according to the International Institute for Strategic Studies.

"You could assume that 25 percent or so of that amount is for investment," Callan said. "And that spending power is not going to move the needle for U.S. defense primes."

Jim McAleese, a Virginia-based defense consultant, said the agreement's initial focus was on ship porting and military rotations, but arms sales could follow later.

He said purchases of large weapons systems like Boeing's P-8A, which sells for about $275 million, would likely have to be funded by U.S. foreign military aid.