Elusive arms deal frustrates Boeing to Lockheed

In the world of multibillion dollar defense contracts, India stands out.

Home to one of the biggest armed forces on the planet, the country has an uneasy co-existence with neighbors Pakistan and China. Its rapidly aging fighter jets make it a lucrative potential prize for the likes of Lockheed Martin Corp. and Boeing Co. While India wants to upgrade its fleet, there’s one big road block: New Delhi’s famed red tape.

The country – the world’s biggest arms importer, with an annual defense budget of USD43 billion – has been dangling a potential $15 billion fighter jet deal for more than a decade, with Lockheed and Boeing, the world’s two largest contractors, vying for the chance to refit India’s air force.

Although drawn-out negotiations aren’t uncommon in the arms world, India took 32 years to seal a deal with the U.S. to buy 145 howitzers from BAE Systems Plc, with arcane procurement rules and shifting specifications contributing to the lengthy delays.

In a country with a long history of corruption allegations – a scandal involving Bofors AB guns in the 1980s brought down a government and delayed the subsequent howitzer deal that was eventually hammered out last year – bureaucrats have turned extra cautious to avoid misdeeds, adding layers of vetting for negotiated contracts.

A wary India, which is hosting its flagship air show this week, has also derailed plans by Lockheed and Boeing to breathe new life into their aging F-16 and F/A-18 programs. India is still seeking to replace its Soviet-era MiG aircraft, while countries such as Japan and South Korea have acquired modern stealth fighters such as Lockheed’s F-35.

“The Indian Air Force is facing a critical shortage of combat assets and other equipment,” said Caron Natasha Tauro, an analyst at Jane’s by IHS Markit. “With a two-front threat in its north from Pakistan and China, this shortage is perceived to be an immediate threat to national security.”

About a third of India’s 650-strong fleet is more than 40 years old and set to be phased out over the next decade. The IAF has estimated it needs at least 45 squadrons to repel a joint attack from Pakistan and China, compared with a current active strength of about 25. The need is immediate. MDT/Bloomberg