Bidding companies sign local agreements ahead of F-X and army helicopter deals

Indian defence procurement plans were stirring to life last week, as several major manufacturers signed industrial agreements and the government issued new directives concerning its forthcoming military purchases.

The defence ministry unveiled a fast-track procedure to approve the purchase of urgently needed equipment, with this to revolve around a newly formed Defence Acquisition Council. While the ministry did not spell out which programmes could fall into the new category, industry sources say it will cover competitions to supply 126 lightweight fighters - a request for proposals (RFP) for which could be issued within the next two months - and almost 200 army light utility helicopters.

As the two deals could be worth almost $16 billion, the government is also keen to avoid the corruption scandals that have dogged several of its previous procurements. The ministry says that all deals worth over Rp1 billion ($22 million) must have pre-contract agreements to prevent "undue influence", and has spelt out punitive measures for procedural breaches.

Industry awaits investment 
The Indian defence ministry's newly published procurement guidelines have provided fresh insight into the country's expected level of future offset business. The ministry - which requires a reinvestment rate of 30% with local industry for all equipment purchases worth over Rp3 billion ($66 million) - says direct and indirect offsets should be worth Rp450 billion between 2007 and 2012, suggesting defence spending worth Rp1.5 trillion during the same period.

The move comes after the Central Vigilance Commission, a government body tasked with looking into official transactions, ordered that single-vendor defence deals should be avoided except in extraneous circumstances. There should also be no deviations from a requirement after an RFP has been issued, it says.

Western manufacturers including Boeing, EADS and Lockheed Martin last week moved to develop their activities in India in anticipation of large military orders, with the air force's F-X fighter competition drawing most attention. "It is not clear when the RFP might be issued, but it seems like everyone is expecting it soon," says an industry source. "That is why there is a sudden flurry of activity."

Boeing, which is offering its F/A-18E/F Super Hornet for the requirement, plans to set up a $100 million maintenance, repair and overhaul facility in India's western Maharashtra state. While targeted at India's burgeoning commercial aircraft sector, sources say this could be a precursor to investments in the nation's defence industry.

EADS is promoting the four-nation Eurofighter Typhoon for the F-X deal and Eurocopter's AS550 for the army helicopter contest, which also involves Bell's 407. The European company has announced plans to invest up to €2 billion ($2.5 billion) over the next 15 years in research and development and production facilities in India.

Pushing its F-16 to the Indian air force, Lockheed Martin says it plans to ink agreements with Indian companies this year to meet its potential production and offset requirements. Other companies expected to bid for the F-X project include Dassault, Gripen International and RSK-MiG.

Source: Flight International