India has set a tough challenge for the six companies invited to bid for the world’s biggest fighter jet contract in years, the just-retired head of Pentagon arms sales said on Thursday.
Under rules announced on Tuesday, the winning contractor must create aerospace-related deals in the country equal to at least 50% of the total contract value, expected to top $10.2 billion (Rs41,820 crore) for 126 fighters.
“I think there’s a lot of concern in industry” about the 50% requirement for such deals, known as offsets, said retired Lt. Gen. Jeffrey Kohler, who stepped down on Wednesday as chief of the US Defense Security Cooperation Agency.
Establishing a process for proper crediting of the newly created business with the Indian defence ministry and integrating new production would be a “big challenge”, he said in a telephone interview.
In addition, Kohler said there were questions about whether companies such as Hindustan Aeronautics Ltd, which would be a primary beneficiary, could absorb all the new opportunities to be sent its way.
On Tuesday, India invited the two biggest US defence contractors, Lockheed Martin Corp. and Boeing Co., to bid against European and Russian warplane makers, the first time it has opened such a competition to Americans. Bids were also sought from the makers of Russia’s MiG 35, France’s Dassault Rafale, Sweden’s Saab AB JAS-39 Gripen and the Eurofighter Typhoon, made by a consortium of British, German, Italian and Spanish companies. The ministry has set a 3 March deadline for the bids. Kohler said the Indian authorities told him they planned to take at least six months to evaluate the aircraft before turning to offset analysis, then shortlisting two or three fighters for final review.
India’s competition is the biggest that is “truly open” in more than 25 years, since Canada chose to buy 138 Boeing F/A-18s and started receiving them in 1982, according to Richard Aboulafia, an expert on the fighter market at Teal Group aerospace consultancy in Fairfax, Virginia.
A senior Boeing official acknowledged the “complexities and challenges” of India’s offset policy and said the company, which is offering its F/A-18E/F Super Hornet, was eager “to get started, putting the pieces together to meet them”. “Boeing really doesn’t look at them as obligations, but as long-term opportunities to bring win-win business and industrial benefits to India and to Boeing,” said Chris Chadwick, a vice-president responsible for global strike systems.