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A big item on President Obamas India to-do list this weekend is securing a $5 billion deal for Boeing to sell 10 of its C-17 cargo planes.
The agreement, for which Boeing and American officials have long laid the groundwork, would be part of a flurry of military equipment deals that foreign suppliers are eager to nail down with India. Mr. Obamas French and Russian counterparts are expected to visit New Delhi this year, with their own military sales contracts in hand.
India, flush with new wealth but worried about its national security, is rapidly turning into one of the worlds most lucrative arms markets.
In the last several years, as its budget and appetite for more sophisticated weaponry have grown, India has reduced its traditional reliance on Russia for planes, ships and missiles.
The White House is backing sales like the C-17s, which India would use to transport its rapid-response forces, to help make India a regional counterweight to China.
But there is a big trade motive, too. As the United States and European nations trim military spending, the biggest weapons contractors, including Boeing and Lockheed Martin, see India as a sales lifeline.
Still, American companies face complex political and bureaucratic obstacles to gaining a large part of Indias business. The presidents trip will be focused in part on trying to cut through some of those problems.
Perhaps the biggest concern is Indian leaders wariness about relying too much on the United States, which they see as a new, untested military partner, and one that is also arming Pakistan, Indias main adversary.
In India, the United States starts with a handicap on arms sales, said K. Raja Menon, a retired admiral who is chairman of an Indian government task force that studies security risks.
Indias accelerating economy gives it the resources to join Saudi Arabia and the United Arab Emirates as the biggest arms buyers. And its desire to upgrade its military was spurred by the terror attacks in Mumbai in late 2008, when militants slipped in by sea and killed 160 people.
Theres nothing to galvanize the psyche of the Indian people toward better defense and homeland security than what happened in Mumbai, said Tom Captain, who leads the aerospace and defense group at Deloitte, the global consultancy.
Mr. Captain and other analysts estimate that, as its military budget expands by 7 percent to 8 percent annually, India could spend $50 billion to $80 billion in the next five years on equipment.
Besides the Pakistan issue, Indian military officials say that trade sanctions imposed after India conducted nuclear tests in 1998 have also put the United States at a disadvantage.
Most of the sanctions, which prohibited military exports to India and exports to Indian companies believed to be involved in the nuclear program, were repealed in 2001. But the sanctions have left concerns about Americans. There is an entrenched view in bureaucracies in India that these guys will turn off the tap, said Mr. Menon, the retired admiral.
Indian officials are also upset that other technology controls remain in place, including bans on the sale of software that could also be used for weapons. The officials will press Mr. Obama to ease those strictures. Another sticking point could be that India has balked at signing agreements to protect American secrets that are a standard part of any sales.
India also uses the lure of big military contracts to require foreign companies to farm out work to Indian companies and create high-paying jobs there. But Indias fledging military industries cannot handle all the work, and American officials want more flexibility in those arrangements.
At the same time, American analysts say that Indias military spending process is so chaotic and unfocused that it is proving difficult to complete deals.
India at the moment has the money to buy weapons, but behind this there is not much strategic direction, said Stephen P. Cohen, an analyst with the Brookings Institution.
Still, Indias plan to modernize its military is so sweeping that industry officials say there should be plenty of business to go around.
All I can say is that the market potential here is so significant that there is room for various countries and companies, said Vivek Lall, the vice president in charge of Boeings military business in India.
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One of the biggest prizes would be a $10 billion contract to replace old Russian fighter planes with 126 new jets. Boeing, Lockheed Martin and four companies from Europe and Russia have bid, and the contract could be awarded next year.
Mr. Obama is likely to talk up the American companies during his visit, just as Nicolas Sarkozy of France and President Dmitri A. Medvedev of Russia are expected to make pitches for their manufacturers when they visit India.
American companies are also bidding on major contracts involving helicopters and missile systems, while some earlier deals are coming to fruition.
Lockheed Martin, for example, is about to deliver the first of six C-130J cargo planes that India ordered for $1 billion in 2007. Boeing, meanwhile, is building maritime surveillance planes under a $2.1 billion contract awarded in early 2009.
But American executives say they realize that success in India will depend on how well they can unite with Indian companies, a process that could help them win more political support.
Several American contractors have created joint ventures with a government-owned company, Hindustan Aeronautics Limited. Boeing signed a 10-year, $1 billion deal with the Indian company in 2007. Hindustan is making parts for Boeings 777 commercial jets and for planes it is building for the Pentagon and India.
And the Tata Group, Indias largest business conglomerate, is expected to deliver the first Indian-made cabins for the Sikorsky S-92 helicopter in November.
Bharat Wakhlu, the resident director of Tata in New Delhi, said labor costs in India were one-eighth or less than in the United States. So even though productivity levels are lower, he said, the American companies can still realize significant savings by moving work there.
American officials, however, say that Indian rules limiting foreign contractors to minority stakes in joint ventures, and requiring them to spend 30 percent of any contract money on work in India, are too onerous.
But as long as Indias economy is booming, American arms suppliers may still make big gains. The cost of weapons is simply not as much a factor as it was just a few years ago, when India relied mainly on Russia for military equipment, said Gurmeet Kanwal, a retired brigadier and the director of the Center for Land Warfare Studies, a research organization in New Delhi.
American technology is seen as the top of the top, he said, and we should aim to pay a little more for the best equipment.
http://www.nytimes.com/2010/11/05/business/05defense.html?pagewanted=2&hp
The agreement, for which Boeing and American officials have long laid the groundwork, would be part of a flurry of military equipment deals that foreign suppliers are eager to nail down with India. Mr. Obamas French and Russian counterparts are expected to visit New Delhi this year, with their own military sales contracts in hand.
India, flush with new wealth but worried about its national security, is rapidly turning into one of the worlds most lucrative arms markets.
In the last several years, as its budget and appetite for more sophisticated weaponry have grown, India has reduced its traditional reliance on Russia for planes, ships and missiles.
The White House is backing sales like the C-17s, which India would use to transport its rapid-response forces, to help make India a regional counterweight to China.
But there is a big trade motive, too. As the United States and European nations trim military spending, the biggest weapons contractors, including Boeing and Lockheed Martin, see India as a sales lifeline.
Still, American companies face complex political and bureaucratic obstacles to gaining a large part of Indias business. The presidents trip will be focused in part on trying to cut through some of those problems.
Perhaps the biggest concern is Indian leaders wariness about relying too much on the United States, which they see as a new, untested military partner, and one that is also arming Pakistan, Indias main adversary.
In India, the United States starts with a handicap on arms sales, said K. Raja Menon, a retired admiral who is chairman of an Indian government task force that studies security risks.
Indias accelerating economy gives it the resources to join Saudi Arabia and the United Arab Emirates as the biggest arms buyers. And its desire to upgrade its military was spurred by the terror attacks in Mumbai in late 2008, when militants slipped in by sea and killed 160 people.
Theres nothing to galvanize the psyche of the Indian people toward better defense and homeland security than what happened in Mumbai, said Tom Captain, who leads the aerospace and defense group at Deloitte, the global consultancy.
Mr. Captain and other analysts estimate that, as its military budget expands by 7 percent to 8 percent annually, India could spend $50 billion to $80 billion in the next five years on equipment.
Besides the Pakistan issue, Indian military officials say that trade sanctions imposed after India conducted nuclear tests in 1998 have also put the United States at a disadvantage.
Most of the sanctions, which prohibited military exports to India and exports to Indian companies believed to be involved in the nuclear program, were repealed in 2001. But the sanctions have left concerns about Americans. There is an entrenched view in bureaucracies in India that these guys will turn off the tap, said Mr. Menon, the retired admiral.
Indian officials are also upset that other technology controls remain in place, including bans on the sale of software that could also be used for weapons. The officials will press Mr. Obama to ease those strictures. Another sticking point could be that India has balked at signing agreements to protect American secrets that are a standard part of any sales.
India also uses the lure of big military contracts to require foreign companies to farm out work to Indian companies and create high-paying jobs there. But Indias fledging military industries cannot handle all the work, and American officials want more flexibility in those arrangements.
At the same time, American analysts say that Indias military spending process is so chaotic and unfocused that it is proving difficult to complete deals.
India at the moment has the money to buy weapons, but behind this there is not much strategic direction, said Stephen P. Cohen, an analyst with the Brookings Institution.
Still, Indias plan to modernize its military is so sweeping that industry officials say there should be plenty of business to go around.
All I can say is that the market potential here is so significant that there is room for various countries and companies, said Vivek Lall, the vice president in charge of Boeings military business in India.
Add to Portfolio
One of the biggest prizes would be a $10 billion contract to replace old Russian fighter planes with 126 new jets. Boeing, Lockheed Martin and four companies from Europe and Russia have bid, and the contract could be awarded next year.
Mr. Obama is likely to talk up the American companies during his visit, just as Nicolas Sarkozy of France and President Dmitri A. Medvedev of Russia are expected to make pitches for their manufacturers when they visit India.
American companies are also bidding on major contracts involving helicopters and missile systems, while some earlier deals are coming to fruition.
Lockheed Martin, for example, is about to deliver the first of six C-130J cargo planes that India ordered for $1 billion in 2007. Boeing, meanwhile, is building maritime surveillance planes under a $2.1 billion contract awarded in early 2009.
But American executives say they realize that success in India will depend on how well they can unite with Indian companies, a process that could help them win more political support.
Several American contractors have created joint ventures with a government-owned company, Hindustan Aeronautics Limited. Boeing signed a 10-year, $1 billion deal with the Indian company in 2007. Hindustan is making parts for Boeings 777 commercial jets and for planes it is building for the Pentagon and India.
And the Tata Group, Indias largest business conglomerate, is expected to deliver the first Indian-made cabins for the Sikorsky S-92 helicopter in November.
Bharat Wakhlu, the resident director of Tata in New Delhi, said labor costs in India were one-eighth or less than in the United States. So even though productivity levels are lower, he said, the American companies can still realize significant savings by moving work there.
American officials, however, say that Indian rules limiting foreign contractors to minority stakes in joint ventures, and requiring them to spend 30 percent of any contract money on work in India, are too onerous.
But as long as Indias economy is booming, American arms suppliers may still make big gains. The cost of weapons is simply not as much a factor as it was just a few years ago, when India relied mainly on Russia for military equipment, said Gurmeet Kanwal, a retired brigadier and the director of the Center for Land Warfare Studies, a research organization in New Delhi.
American technology is seen as the top of the top, he said, and we should aim to pay a little more for the best equipment.
http://www.nytimes.com/2010/11/05/business/05defense.html?pagewanted=2&hp
