US defence company Lockheed Martin could not have asked for better publicity when Indian business tycoon Ratan Tata flew its F-16 jet at India’s biggest aerospace show this month.
Mr Tata, who recently closed a $12bn (€9bn, £6bn) deal for Anglo-Dutch steelmaker Corus, helped a Lockheed pilot fly the F-16 at speeds exceeding 1,200km per hour. The 70-year-old amateur pilot liked the experience so much that he also flew Boeing’s F-18 Super Hornet jet the following day.
Such high-flying publicity stunts highlighted the strongest ever presence of US defence companies at India’s biennial Aero India show in Bangalore. The groups are eagerly courting India, which has plans to expand and upgrade its large arsenal of ageing, predominantly Russian-made equipment.
“India is gearing up to play a more dominant role in the 21st century not only in Asia, but also in the world,” said SK Antony, India’s defence minister, in a speech at the Aero India show. “We are in the process of acquiring fresh capabilities for all three wings of our armed forces.”
India’s military budget was about $20bn in the last fiscal year and is expected to grow about 7 per cent annually over the next five years. Its military spending amounts to roughly 2 per cent of GDP.
The Indian government is expected to open tenders for a variety of weapons and equipment, including helicopters, missiles, cargo planes and radar, worth tens of billions of dollars over the next few years. A highly coveted contract for 126 fighter jets will alone be worth $6bn-$11bn, Boeing estimates. New Russian MiGs and jets from Dassault of France, Gripen of Sweden, Boeing Eurofighter and Lockheed are all vying for position.
US defence heavyweights face stiff competition from Europe, Israel, and, most of all, Russia. To reinforce his country’s long-standing military ties with India, Russian president Vladimir Putin announced plans for joint collaboration on development of a stealth jet and transport aircraft for India’s military and the construction of four new nuclear power plants during his high-profile visit to New Delhi last month.
The thaw in Indo-US relations has quickened following the signing of a bilateral civilian nuclear treaty by US President George W. Bush in December. The historic pact allows the US to sell nuclear resources, equipment and technology to India and endorses broader collaboration in defence, energy and other sensitive areas.
India represents “one of best new market opportunities for American industry”, said Robert Trice, vice-president at Lockheed Martin.
In their courtship of India, companies including GE Aviation, Boeing, Lockheed Martin, engine maker Pratt & Whitney, and Raytheon, a maker of missiles and radars, all are expressing enthusiasm about forming long-term relationships and partnerships with local component suppliers, technology companies and launching research initiatives.
It is a message they must embrace as India ambitiously attempts to evolve into not just a buyer of defence equipment but eventually a stronger developer and manufacturer. To enable such a shift, India has been making efforts to open defence to the private sector, allowing manufacturing of defence equipment under license, and permitting foreign direct investment with a cap of 26 per cent.
India has an “offset policy” that requires foreign defence companies to re-invest 30 per cent of sales above $70m in components and services from India. The policy is designed to boost smaller companies and cultivate local industry.
Big defence companies are already planting seeds for future partnerships. Raytheon this month unveiled a preliminary agreement to work with Tata Power’s strategic electronics division on defence-related technologies. Boeing has teamed up with Larsen & Toubro, India’s largest construction and engineering company.
“We are learning about the requirements for India,” said Wes Motooka, vice-president of international business at Raytheon. The company has only three full-time staff in India but is “gearing up and putting people in place”.
Boeing said it is laying an “investment roadmap” and insists its wants to tap India to expand its global network of 6,000 suppliers of electronics, avionics, engineering services and other businesses. “Everything that Boeing does is capable of being sourced in India,” said Dan Korte, vice-president at Boeing.
Pratt & Whitney said favourable credits from India’s offset policy would smooth the path for its parent company, United Technologies Corp, to expand in India and bring in other business lines including Sikorsky helicopters and Hamilton Sundstrand aerospace systems.
The Indo-US nuclear deal is a “necessary but not sufficient condition” for US defence companies gaining a foothold in India after missing out on the market during almost a decade of US sanctions imposed over India’s testing of nuclear weapons. Russian defence suppliers entrenched their position in India further during the interlude.
“Defence deals are not like going to the market when you can pick up a few things,” said Ajey Lele, research fellow at the Institute for Defence Studies and Analyses in New Delhi. “For so long, India has been taking technology from Russia. They know how to deal with Russians.”
The fighter-jet tender is seen to be a political bargaining chip. “It’s between the US and Russia,” said Andrew Brookes, aerospace analyst for the International Institute for Strategic Studies in London. “Sweden and France can deliver nothing New Delhi wants politically.
“At the end of the day this is politics. The decision will be made as much as on politics as on which is a better airplane.”
Mr Trice acknowledged stiff competition in India. “There are entrenched competitors with good technologies,” he said. “We understand we are new to this market. It’s going to be an uphill climb. We’re going to have to show patience.”
