August 30, 2007 / 8:20 PM / 12 years ago

India said to set high bar for big fighter buy

WASHINGTON, Aug 30 (Reuters) - India has set a tough challenge for the six companies invited to bid on 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 in New Delhi, the winning contractor must create aerospace-related business deals in India equal to at least 50 percent of the total contract value, expected to top $10.2 billion for 126 fighters.

“I think there’s a lot of concern in industry” about the 50 percent requirement for such deals, known as offsets, said retired Lt. Gen. Jeffey Kohler, who stepped down on Wednesday as chief of the U.S. Defense Security Cooperation Agency.

Establishing a process for proper crediting of the newly created business with the Indian defense ministry and integrating new production would be a “big challenge,” he said in a telephone interview with Reuters.

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 U.S. defense contractors, Lockheed Martin Corp (LMT.N) and Boeing Co (BA.N),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 (SAABb.ST) JAS-39 Gripen and the Eurofighter Typhoon, made by a consortium of British, German, Italian and Spanish companies.

The ministry set a March 3 deadline for 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 short-listing 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,” Chris Chadwick, a vice president responsible for global strike systems, told Reuters.

Chadwick said Boeing hoped India would agree to allow “bankable” offsets — which he said was a “pretty standard practice in other countries.” He said Boeing would like to get a running start on the 50 percent commitment by wrapping up deals on both its commercial aviation side and miliary side even before a contract is awarded.

Boeing said it successfully met or exceeded more than $27 Billion in offset requirements around the world.

Lockheed Martin, which is proposing its F-16 Fighting Falcon, did not immediately respond to a request for comment on Kohler’s remarks. But it said in a statement on Wednesday that it stood ready “to support the government of India in meeting its critical force requirements.”

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