Boeing, Lockheed Wait as India Delays Fighter Deal (Update1)
April 27, 2010, 12:12 AM EDT
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(Adds crashes of Indian MiGs in 10th paragraph.)
By James Rupert
April 27 (Bloomberg) -- India will miss a deadline tomorrow to complete the world’s biggest fighter-jet purchase in 15 years, risking a possible $1 billion price increase as Boeing Co. and five rival manufacturers resubmit bids.
India’s Air Force is still conducting flight trials for competing jets from Boeing, Lockheed Martin Corp. and four European companies, two years after accepting price quotes for 126 warplanes that the government said should cost about $10 billion. The bids expire April 28 and the Defense Ministry has asked manufacturers to submit offers for an additional year, its spokesman, Sitanshu Kar, said in a phone interview in New Delhi.
“The companies have been informed by the government that they can extend their bid for one more year,” Kar said. “They have the option of increasing or decreasing their price.”
The delay in buying what India describes as “multi-role combat aircraft” may raise the government’s eventual cost, said Mrinal Suman, a retired Indian army major general and arms procurement analyst. “By the recent track record, the cost of these aircraft generally goes up by 7 percent to 10 percent each year,” Suman said in a phone interview.
India’s failure to choose a plane within the planned two years “highlights that this is by far the biggest, most complex arms purchase India has ever undertaken,” said Suman, who monitors weapons procurement for the Confederation of Indian Industry.
‘Past Scandals’
Political considerations have slowed decision-making by Defense Minister A.K. Antony, said Rahul Roy-Chaudhury, senior fellow for South Asia at the International Institute for Strategic Studies in London.
“Antony has been trying to assure a squeaky clean deal to avoid any possible allegation of corruption, because of past scandals” that helped drive the ruling Congress Party to defeat in 1989 elections, Roy-Chaudhury said. Those scandals erupted over allegations that Indian officials took bribes in the purchase of Swedish artillery and German submarines.
Since the 1980s, no Indian government has made an open-bid arms purchase valued at as much as $100 million, or 1 percent of the fighter deal’s size, Roy-Chaudhury, Suman and other analysts say.
While the delay amid rising prices is likely to raise India’s cost, competitive pressures or exchange rate fluctuations may also counter such increases, Suman said.
India is buying the fighters as it has been phasing out Russian-built MiG jets, some of which date back to the 1970s. Twenty-one air force MiGs have crashed in the past three years, Antony said yesterday in a statement submitted in Parliament.
Himalaya Tests
The Indian air force has conducted flight trials for the six competing aircraft from a high-altitude airfield near Leh in the Himalayas, a desert base in Rajasthan state and in the tropical climate of Bangalore, Kar said. “The trials will be over shortly, maybe by the end of May,” he added.
The air force “will provide the government with two or three options that meet the technical needs, and then it will be up to the political decision makers,” Roy-Chaudhury said. Chicago-based Boeing, maker of the F/A-18 Super Hornet, and Lockheed-Martin, based in Bethesda, Maryland, which builds the F-16 fighter, may benefit from a desire by India to cement strategic ties to the United States, he said.
Lockheed-Martin “plans to update our commercial bid to ensure the best possible value to India,” company spokesman John Giese said in an e-mail. Boeing is “working to provide a compliant response” to India’s request that it extend its bid, spokesman Brian Nelson wrote in an e-mail.
Sweden’s Saab AB will make no change in its bid to sell the Gripen fighter, said Eddy de la Motte, who heads the company’s campaign in India. The other contenders -- Paris-based Dassault Aviation SA, Moscow-based United Aircraft Corp., and the European Aeronautic, Defense & Space Co., which has headquarters in Paris and Munich -- did not comment on their plans.
--With assistance from Gopal Ratnam in Washington. Editors: Bill Austin, Mark Williams
To contact the reporter on this story: James Rupert in New Delhi at
jrupert3@bloomberg.net
To contact the editor responsible for this story: Bill Austin at
billaustin@bloomberg.net
