A US$10bn scramble for India's fighter jetsNEW DELHI - With the Indian government finally clearing the way for the acquisition of 126 multi-role combat aircraft, the countdown has begun for winning the world's biggest single fighter-jet contract.
The inclusive deal will be valued at close to US$10 billion. Despite frequent delays by the Defense Ministry in clearing the way for proposals, it is expected that the mega-deal will be finalized soon, as New Delhi has been signing new defense deals at a fast pace in the recent past, given the military's acute modernization requirements.
The main contenders include:
The competition is stiff after Indian Air Chief F H Major's recent comment that the 126 aircraft will be acquired from a single manufacturer, not from two or three sellers.
"The world's single biggest fighter-jet order will go to one supplier. It doesn't make any sense to go to two or three sellers just to keep different countries happy," said Major. The first squadron of 18 new jets are planned by 2012.
Major said the purchase would be "objective, transparent and time-bound", adding that the chosen manufacturer would have to provide lifetime support and a performance-based warranty for the planes, which are likely to be in service for 40 years.
According to a recent report, India will need to spend at least $35 billion over the next few years to make up for the lull in defense acquisitions after the Rajiv Gandhi government lost power in 1989 amid allegations of corruption in a Swedish Bofors gun deal. Ironically, the controversial guns performed very well during the 1999 Kargil war against Pakistan.
The multi-role fighter is a crucial cog in Indian combat aircraft planned in three main systems: the Indian-developed Tejas as a light combat aircraft, the new multi-role fighter in the medium combat aircraft category, and Su-30-MKIs as heavy combat aircraft.
However, Indian defense deals have not been purged of middlemen, agents and kickbacks. Recently, an Austrian firm told India's Supreme Court that Russian manufacturer Kazan Helicopters paid Rs290 million ($7.2 million) to swing a Rs1.8 billion deal to supply India with 16 Mi-17 helicopters. It took a bitter legal battle between the agents involved in the deal, the Singapore-based Austrian firm Rite Approach Group Ltd and Russian Rosoboron Exports, for the truth to come out.
According to former chief vigilance commissioner N Vittal: "Instead of having a ban on middlemen, it is better to clearly have principles or rules to recognize such agents." Indeed, given the gray areas surrounding Indian defense deals, the competition for the fighter contract will be intense.
The selection process begins with the air force making a technical study after the bid submissions. It then submits its report to the Defense Ministry, which looks at both the financial and technical aspects. Then it goes to the cabinet committee on security, which comprises top ministers, including the prime minister, to make a final call. It is at the cabinet stage that the political and strategic aspects come into play.
Middlemen can be involved at any stage of the deal. In the past, sting operations, such as those by the noted investigative website Tehelka.com, have shown that defense officers, political party representatives as well as friends and minions can be involved in the deals.
The contenders have been looking to advance their India investments after new regulations requiring that 30% of all defense purchases above $66 million should be offset by investments in India's defense sector.
As such, the US F-16 and F/A-18 Super Hornets are the front-runners. US aerospace major Boeing hopes to leverage "bankable offsets" to enhance its standing. Boeing has a tremendous track record of offsets, investing close to $30 billion in 35 countries. Recently, Boeing, which bagged orders for 68 aircraft from Air India worth more than $11 billion, announced that it would invest $1.7 billion to buy goods and services from Indian companies. Boeing is reportedly looking at creating an immediate defense offset bank of $100 million.
The prospects of bigger contracts due to the offset norms has also led to Lockheed Martin approaching state-owned and private companies such Hindustan Aeronautics, Bharat Electronics, Bharat Heavy Engineering, and Tatas for joint defense projects. Pushing the contest further, Swedish company Gripen International has offered a full transfer of technology along with a state-of-the-art weapons systems for its Jas-39. Recently, Swedish Foreign Minister Carl Bildt visited India and met with Prime Minister Manmohan Singh and Defense Minister A K Antony among others to press his country's case for the fighter deal.
However, some experts in India favor the Eurofighter Typhoon, Rafale, MiG-35 and F/A-18F Super Hornet over the Gripen, which has been compared to the domestic Tejas light combat aircraft.
Russia, already with numerous defense commitments to India, has been unhappy about the recent overtures by New Delhi to Israel, Europe and the US for new defense deals. Moscow has asked to renegotiate recent Sukhoi fighter jet and Gorskov air carrier deals. The message is clear: Moscow does not want to lose out in any way.
In the past few years, Israel has overtaken France and the United Kingdom to become India's second-largest defense supplier, behind Russia. The US is the latest to join the competition and since signing a 2005 defense pact that includes joint arms production and military exercises has sold India its first US warship, as well as sealing a $1.1 billion deal for Hercules C-130-J transport planes, India's largest military purchase from the US to date.
Siddharth Srivastava is a New Delhi-based journalist.