The Telegraph
Since 1st March, 1999
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Arms race with US role

New Delhi, Aug. 28: India today formally threw open the race for the world’s single-largest military order, inviting the US for the first time to take part in such a far-reaching exercise.

Besides two American companies, four suppliers have been requested to submit proposals to sell 126 multi-role combat aircraft. The total size of the order is likely to top Rs 42,000 crore ($10.2 billion).

The Defence Acquisition Council had approved the order on June 29 but the tender issuance today has coincided with a question mark over the fate of the government over ties with the US.

The order will have a bearing on the character of the Indian armed forces for four decades. The aircraft must be combat-worthy for 40 years or 6,000 hours of flying.

Currently, the Indian Air Force’s fighter aircraft inventory is made up of mostly Russian — and some British as well as French-origin — platforms.

The request for proposals to the US-based Lockheed Martin and Boeing has been issued through the American government. The 211-page document was handed over in the defence ministry today to the military attache of the US embassy in New Delhi.

This is because the request for information was earlier sent to the US government which in turn forwarded it to Lockheed and Boeing. If the US companies win the contest, it is likely to be a government-to-government deal.

The other four potential suppliers have been invited to participate commercially. The four are RSK MiG Corporation (Russia), Saab (Sweden), Dassault Aviation (France) and Eurofighter GmbH (European Consortium).

“Everything will be transparent at every stage,” defence minister A.K. Antony told The Telegraph today.

The last time the IAF gave orders for fighter aircraft was to British Aerospace Systems for 66 Advanced Jet Trainers contracted in November 2003 by the NDA government.

In the latest tender, the bidders have time till March 3, 2008, to send their responses. That will be followed by a technical evaluation of the bids, operational trials, opening of the bids, shortlisting and price negotiations and finally the contract. Air headquarters sources estimate that it would take at least five years for the first aircraft to be inducted.

The value of the aircraft will be reached through a “verifiable cost model”, which will take into account factors such as transfer of technology, spares, warranty, expenditure on training and operation and licence royalty.

Such a model was chosen because the Indian armed forces, with a bulk of their hardware of Soviet/Russian-origin, have found their older equipment expensive in the long run, especially since the collapse of the Soviet Union.

The figure of 126 was arrived at after the IAF projected that it would need at least seven squadrons of the multi-role combat aircraft as it phases out its obsolete fighters.

Officially, the Indian Air Force has 32 fighter squadrons but the level is now nearly bottoming out at 29. There are about 18 fighter aircraft in each squadron but the figure may vary with the composition and the task assigned to each of the units.

The six aircraft in the competition broadly fall into two categories: single-engined and twin-engined. The F-16 Fighting Falcon Block 60 (from Lockheed Martin) and the JAS 39C Gripen (from Saab) are single-engined.

The IAF decided not to categorise the aircraft on the number of engines they carry but on their capabilities.

Eighteen aircraft would be bought in “flyaway” (off-the-shelf) condition, according to the tender. The other 108 would be co-produced or license-produced in India after transfer of technology.

The sticky issue of offsets — the share of the total project cost that would be ploughed back into India for re-investment — remains. The request for proposals says the offsets value would be 50 per cent.

Details of how the offsets would be computed are still disputed. While one source said the offsets would be calculated on the total foreign exchange outgo, another said it would be on the total project cost.

An independent conclusion cannot be reached because the request for proposals itself is a non-public document and vendors are required to keep the technical requirements it has stipulated secret.

The request for proposals would accommodate price escalation — because of the long gestation — but it would be capped during the price negotiations. Each vendor will be required to submit two responses — a technical bid and a commercial bid.

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