Defense contractors and industry experts are trying to come to grips with India’s decision to exclude The Boeing Co. and Lockheed Martin Corp. from its $11 billion competition for a new fighter jet.
No specific rationale has yet been given by the Indian government for its determination to jettison Boeing's F/A-18, Lockheed F-16 and Saab’s Gripen fighters, and proceed with a head-to-head contest only between two European offers — the Eurofighter and the Dassault Rafale.
“Companies are very concerned about the logic for the decision,” said a U.S. industry source. “There’s a bit of puzzlement.”
India's decision was very surprising, says Tom Captain, vice chairman of global and U.S. aerospace and defense leader at Deloitte LLP. If the selection was based on technical merits, "It is difficult to explain how those two very capable aircraft were eliminated."
In the absence of factual information about how the selection was made, speculation is growing that restrictive U.S. export policies may have played a significant role in India’s evaluation of fighter jet candidates. Analysts had predicted that at least one of the two U.S. contenders would have the inside track. U.S. technology is considered more advanced, and more coveted by rising powers such as India. President Obama also raised the stakes by personally making a pitch on behalf of U.S. industry to Prime Minister Manmohan Singh during his visit to India. He also sent Singh a letter reinforcing the importance of India’s fighter program to the Obama administration. India is expected to buy up to 200 new aircraft.
“We feel that our products are the best possible available,” said the industry source.”
India is projected to spend $80 billion on new weapons and space systems over the next five years. It’s only a small fraction of what the United States spends, but the industry still regards it as a promising region where, once you get a foot in the door, opportunities could blossom.
Defense industry analyst Byron Callan contends that “technology transfer was a major consideration in this competition.”
Callan presumes that the U.S. government was “unwilling to see key AESA [active electronically scanned array] radar and other avionics and electronic warfare technology made available at the level India wanted,” Callan writes in a memo to industry investors. “Technology transfer has also been a key consideration in Brazil’s FX fighter competition which has been delayed.”
One issue to watch as a result of this decision, says Callan, is “whether the U.S. further relaxes defense technology export restrictions in order to keep domestic production lines open.” This is a major concern for U.S. manufacturers as Pentagon spending begins to contract next year. In the past, Callan says, “when the U.S. restrained or reduced its defense spending, policy shifted to exporting advanced weapons to strategic partners.”
He notes that F/A-18 production “may still run through the end of this decade based on U.S. orders and from countries that had hoped for F-35s and who operate earlier-generation F/A-18s.” The longevity of the F-16, meanwhile, “hinges on its ability to win in niche markets in the Middle East, but it is less relevant to Lockheed Martin and Northrop Grumman (which makes the radar) with F-35 and the new bomber program ramping up.”
For Boeing, losing India’s sales is a big blow because it needs foreign sales to keep the F/A-18 line open beyond the coming decade, unlike Lockheed, which has a long-term lifeline in the multinational Joint Strike Fighter.
“It will be interesting to see what India does with combat fighter technology acquired from either Dassault or EADS and BAE Systems, and engine companies as well,” Callan writes.
Larry Christensen, an export controls attorney at Miller & Chevalier, in Washington, D.C., believes the Indian decision will have lasting implications for U.S. industry, even though he says he has not seen any proof that India’s choice was influenced by ITAR, the International Traffic in Arms Regulations that restrict exports of sensitive U.S. technology.
The fact that an emerging power such as India would snub U.S. advanced weaponry offers further evidence that the current export control system — which dates back to the Cold War — has outlived its effectiveness, Christensen says. “The U.S. government cannot repeal the laws of economics,” he says. As the United States denies access to some of its best technology, it leaves a market void that, sooner or later, another country will fill. “When that happens, the U.S. export control policy of denial, or policy of heavy restrictions, become ineffective” for the purposes of barring potential enemies access to advanced weaponry, he says.
It is conceivable that India concluded that U.S. restrictions on technology sharing are not worth the hassle, Christensen suggests. Although the United States wanted India to buy its fighter jets, it was “putting strings on those sales” that would have curtailed India’s ability to upgrade components, software or sensors, or collaborate with other countries, he says. If India had picked a U.S. aircraft, ITAR would have "restricted them in their ability to move forward with that platform.”
On a smaller scale, the same problem affects U.S. suppliers of less flashy products such as surveillance, law-enforcement and border protection technology, says Christensen. “I know small firms that feel the pain of commercial customers saying that they like the U.S. product but they can’t live with the restrictions and the overhead that goes with ITAR controls.”
The consequences for U.S. competitiveness are significant, he says. “The market is changing. Other countries are developing good technology.” The time has passed when only the U.S., U.K., France or Germany were viable supplies of advanced hardware, he adds. “Technology is now available from Russia, China and Israel, countries that are tend to place fewer restrictions” on transfers.
Christensen points out that the Obama administration is taking meaningful steps to reforming ITAR to boost U.S. industry. “I believe that there is significant movement,” he says. Hundreds of government officials currently are busy redrafting regulations,” he says. “It’s a long arduous task, and I’m glad they’re taking the time to do it right.”
Despite the Indian loss, U.S. arms are still hot sellers. The Pentagon is projecting arms sales to foreign buyers to exceed $46 billion in fiscal year 2011. Demand for U.S. weaponry is “higher than ever,” according to Richard A. Genaille Jr., deputy director of the Defense Security Cooperation Agency. DSCA currently oversees a $330 billion portfolio of foreign military sales to 220 countries and international organizations.
At an industry conference in April, Genaille discussed efforts by the administration to increase foreign military sales as a means to court allies and boost Third World countries’ internal security. The goal is to revamp how the U.S. government manages international arms sales so it can be more “anticipatory” of future needs and more responsive to foreign allies’ requests.
The Obama administration, which regards weapon exports as a vehicle for bolstering the U.S. economy, believes that current methods for managing arms sales are too reactive, rather than proactive, he said. “It’s hard to be responsive when our system is geared to wait for a ‘letter of request’ from a country and then take action.”
Excuse me Mr. Christensen? When exactly was it that 'only the U.S., U.K., France or Germany were viable supplies of advanced hardware' [sic.]? Ever since von Braun corrected your serious mathematical bunglings that allowed you to claim parity with the Soviets in space technology, you seem to be on a record high in making tall claims. For some strange reasons, these great countries, with due credit to them for their achievements where it is due, have often failed to match the USSR in the likes of TsAGI designed MiG-29 and Su-30 or the Ekranoplan to name a few. In the event they lost the race, as in the Tupolev-144 vs Concorde saga, they took care to accuse the USSR of industrial espionage; accusations, which was later proven to be highly speculative and impractical. While the USSR developed advanced weapons that can take a lot of abuse, like the AK-47 or the Su-25, that can fly on an eclectic variety, or mix thereof, of fuels, the West has simply struggled. Russian immigrant Sikorsky was at least a saving grace, although nowhere near what Kamov has been building since decades.
This snub was necessary. Maybe after a few decades, people like Mr. Christensen will be a little for objective and less condescending about showering his praises for the 'advanced West'.
In the public realm at US I do not see this issue catching up at all.
It may be the defence industry giants that are disappointed. However there's no outcry there, instead quiete immaturely the Indian media is ranting about it day and night while they should not.
We adjudged the bids on technical grounds and have explained how/why we reached the conclusion we have reached.
Yes they wanted it, but won't go crazy that they couldn't have it.
I've seen some articles deliberately visualizing that we've lost US with this foolish act.
There is no need to feel sorry/confused that we have axed our own feet in terms of India - US relations. First, the relations aren't ransom to the genuine results of a defence deal. Second, even if they are, then such a relation isn't worthy at all anyways.
Although they would eventually understand (or might've sensed in advance) what happened and why - yet I feel a temporary irritation is natural as a form of reaction. It wouldn't lay a permanent effect on Indo-Us partnership.
This chapter should be closed now, till the Americans themselves open it again.
Last edited by Virendra; 09-05-11 at 10:06 AM.
If I may add, US politicians should also shut up and stop their drivel about outsourcing when US actually has a trade-surplus with India. Invading Iraq in search for those mythical WMDs and in the process screwing up the economy wasn't exactly India's fault.
Well according to the article Obama administration consider defense export to bolster the economy and had so far netted upto $ 46 billion in this fiscal itself.
this are the primary reason's why they lost the deal here,people like Christensen consider if the weapon is American it had to be the most advanced,and the decade old technology is still in demand,then why the problem if we add some strings,why cant u buy it just like the other's.
US,France and Germany were only the viable exporters before,and he feels so after losing the deal here in 2011,if he precisely remember US had never won any deal here before 2010,and the not so viable Soviet was the primary importer to India since its independence,he also forget that the Mig family exports outruns the F family all over the world.Some basic error in calculation's.
W.r.t. the emboldened portion, Mr. Christensen should have mentioned that the two aircrafts offered by the US were introduced in late 1970s. They have made improvements but still the platform is very old. On top of that they will either not offer their latest and best technology or attach strings to them. I still don't see how US, France and Germany were the only viable exporters of advanced technology.
Not offering your best is understandable from the viewpoint of the only superpower of the world, regardless of whether it is struggling to maintain its lead or not.
But to expect then, that whatever you offer should be considered a cut above the rest would not be a business minded perspective.
Americans are known to be business minded, they'll come around or may be they never left
They have understood that India has an independent foreign policy, and will only select the Jet which comes with no strings attached. CISMOA and ITAR being the protocols that kicked out US Jets from the grand finale.
Interesting to note, US does not consider the jets might have failed technical evaluations. Mirage has always performed well, the last being in Kargil.
Also the concerns were one too many. F-16 was out of the competition from the start since Pakistan uses them. India is also not at all happy about US arming Pakistan with military aid, and least concerned about terrorism stemming from Pakistani soil directed at India. Some Indian Army guy even went to length to say, that if India buys Artillery from the US, they would not be placed along the border with Pakistan. The mistrust runs deep not only in Defense circles, but also among India's policy makers when it comes to Defense co-operation with the US.