India, the New Land of Opportunity for Defense Contractors

(MoneyWatch)  Traditionally a reliable Russian customer, India is also looking further west for its new fighter and attack aircraft; proposals from the U.S., France and Sweden are on the table. The first step of the process is a "fly off" to make sure the proposed aircraft meet the basic requirements. With domestic sales stalling, the contract with India will be one of the most important of the next ten years.

Lockheed Martin (LMT) has proposed the F-16 while Boeing (BA) has entered the F/A-18 into the competition. France's Dassualt has its Rafael and Sweden has its SAAB-manufactured Grypen. Russia is proposing an updated version of the venerable MiG-29, known as the MiG-35. Most of these aircraft fall into the same size range and are twin-engined with modern avionics and sophisticated weapon suites. The winner will be a significant upgrade for India from its current mix of MiG-27, 29 and Su-27 aircraft.

India wants to make the first cut by early summer. The plan is to use the fly-off to cull the field; the remaining companies will then submit a financial proposal. The planned budget is about $11 billion for 126 aircraft.

India has signed several deals lately with American and Israeli companies to provide hardware. They have also kept buying Russian equipment such as a planned purchase of MiG fighters for their new aircraft carriers. Two contracts that stand out are the P-8I maritime patrol aircraft from Boeing and an airborne radar and control system (AWACS) from Israel, plus a contract to construct ammunition factories.

The contract reflects two Indian realities. One is its concern about its neighbors - a restive Pakistan and an emboldened China. The other is India's increasing economic openness. In the past, domestic requirements were so onerous that making a profit was impossible. Joint ventures were difficult to set up and Delhi limited which domestic companies could participate. Not surprisingly, foreign companies were not eager to enter the market. In the last couple of years, though, India has eased its regulations and expanded joint-venture opportunities.

These changes will help India attract better and more proposals which in the long run should reduce costs.

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