February 1, 2007  

Eye on a $100 billion pie

U.S. aerospace and defense companies are stepping up efforts to secure a major portion of an estimated $10 billion in annual purchases that India says it plans to spend over the next decade to modernize its military forces.

Aerospace Industries Association (AIA) officials, encouraged by the Dec. 18 ratification of the U.S.-India nuclear bill, led a first-of-its-kind trade delegation to India late last year to gain a better understanding of the Indian aerospace and defense markets and explore potential partnership and joint-venture opportunities.

Five prime contractors — Boeing, Lockheed Martin, Pratt & Whitney, Raytheon and United Technologies Corp. — were among the 18 suppliers in the delegation, which visited New Delhi and Bangalore. AIA said that following the trade mission, 86 percent of the delegation companies said they expected to sign some kind of cooperation agreement with an Indian supplier within the next year.

“India is modernizing its military and estimates it will spend over $10 billion on defense purchases annually over the next decade,” said AIA vice president Mark Esper. “India has the fourth largest economy in terms of buying power and is experiencing huge annual GDP growth averaging more than 7 percent. So we see a lot of potential there, with big numbers and big trends.”

Matt Reagan, vice president of Ronkonkoma, N.Y.-based Industrial Metals International and a member of the delegation, said the Indian military market was opening up to the U.S. for a number of reasons.

“Right now, about 80 percent of what they have is Russian. But Russia has become an unreliable supplier since the break up of the USSR, and so India is looking to diversify. They told us that they have no interoperability between their services, and that is what they are interested in as a U.S. technology,” Reagan said.

As part of its modernization program, India has a raft of program requirements that include new multirole combat aircraft, attack helicopters, transport aircraft, maritime surveillance aircraft, radars, missiles and training equipment. AIA said it hoped a request for proposals for the multirole combat aircraft, for which the U.S. is expected to pitch the F-16 and F/A-18, would be issued in early 2007.

Esper said India wants a strategic alliance with the U.S. and is interested in its military technology capabilities, but that Indian officials also voiced concerns during the trade visit.

“The big ‘however’ is about the U.S. as a reliable partner and supplier, and they are also worried about U.S. export controls. They have heard the horror stories. They are also wrestling with indigenous production vs. technology transfer vs. best capability,” he said.

Esper said reliability concerns stem from sanctions placed on India in the 1980s and 1990s over its nuclear tests, but these were largely addressed by the signing of the nuclear treaty. Export control issues affect almost any foreign sale of U.S. military technology. Even close U.S. allies, such as the United Kingdom, are affected. “It’s a tortuous process to get a license for military technology. We said [to India] that we have a system that’s outdated and which should be modernized, and that we are working to improve it. They don’t want to get caught up in red tape and bureaucracy, and that’s not an unreasonable request,” Esper said. He added that AIA planned to launch an exports control package campaign in the next two weeks.

U.S. companies also have concerns about doing business with India, centering mostly on Indian offsets policies that can rigidly demand a large percentage of local manufacturing. “We hope that they would be in compliance with other offsets standards around the world. We are looking for a lot more flexibility,” Esper said, pointing to potential offsets alternatives in such industries as banking services.

But Esper added that the U.S. stands to benefit now that India is beginning to change it policy on military purchases to include life-cycle cost considerations.

“That will give us a leg up,” Esper said. Although U.S. military equipment can be more expensive upfront, many companies insist that their lower operating and maintenance costs make them highly competitive when systems are compared over their expected program lifetimes. AFJ