Feb 7, 2007

Stratfor on India's Defence Industry

Stratfor came out with this article when the sixth biannual Aero India Aerospace and Defence Exhibition is being hosted at the Yelahanka air force base from Feb. 7. Its a reminder of India's continuing rise as a military power.

India is in the midst of a dramatic military modernization program that, in business terms, equates to billions of dollars in defense acquisitions. The sixth biannual Aero India Aerospace and Defense Exhibition, set to begin Feb. 7 at Yelahanka air force base, is an indication of the magnitude of India's military revamp. More than 400 companies are going to the exhibition in hopes of attracting Indian defense dollars.

And at no time is India more adept at trade than when multiple parties vie for its favor. Consider the ongoing competition for Indian attention between Washington and Moscow, which India is using to attempt to extract major nuclear concessions from both parties. On Dec. 18, 2006, U.S. President George W. Bush signed the Henry J. Hyde United States-India Peaceful Atomic Energy Cooperation Act. Getting the U.S. Congress to change existing laws on selling nuclear supplies to a nonsignatory of the Nuclear Nonproliferation Treaty was a crucial step. Washington and New Delhi now are in negotiations to solidify the deal by drafting a binding treaty, dubbed the "123 agreement." On Jan. 25, Russian President Vladimir Putin countered the U.S. move by signing an agreement with New Delhi to build four new nuclear reactors in India.

Moscow and Washington's competition for New Delhi's attention extends to the defense sector. India is about to begin indigenous licensed construction of the Russian RD-33 thrust-vectoring engine, a definitive leap for Indian jet engine production (though India already produces the base R-33 engine for its existing MiG-29 fleet). The Moscow-based Chernyshev machine-building plant will supply 20 new 18,000-pound thrust RD-33 engines for trials at a cost of about $25 million. Then, under a $250 million deal with Rosobornexport and St. Petersburg-based Klimov, India's Hindustan Aeronautics Ltd. (HAL) will manufacture 120 RD-33 series 3 extended life cycle jet engines. For its part, Boeing Co. made an offer Feb. 3 that involves the joint development of the F/A-18E/F Super Hornet, which has not yet been sold abroad.

But the F/A-18 and the MiG-35 (for which the RD-33 engine is built) are only two of the aircraft that will be on exhibit at Aero India. The U.S. F-16, Swedish SAAB Gripen, French Dassault Rafale and Eurofighter Typhoon also will be among the designs. Along with the ongoing multirole fighter plane competition, India also is interested in helicopters -- a competition not to be underestimated, as the current head of the Indian air force is the first helicopter pilot to hold the office.

Meanwhile, India already is set to receive the MiG-35 carrier variant, the MiG-29K and MiG-29KUB, the two-seat trainer. The order could be for as many as 46 airframes if they are selected for fielding on India's new carrier, the INS Vikramaditya. The MiG-35 (the export version of the MiG-29) and the MiG-29K have high RD-33 engine compatibility that India would certainly consider when making future purchases.

But defense contractors will hardly limit themselves to what India thinks it needs. Boeing plans to bring a C-17 Globemaster III transport, for which export deliveries are in the works for the British, Canadian and Australian air forces. Boeing's arrangements with Canada in particular demonstrate the company's willingness to shift a portion of the production abroad in order to seal a deal. Not to be left out, Lockheed Martin will display the latest version of the C-130, the transport's "J" upgrade. The acquisition of either of these aircraft would dramatically increase India's airlift capacity.

Boeing also is set to display the P-8A Multi-mission Maritime Aircraft -- the replacement for the long-serving P-3 Orion. The new aircraft is based on 737-800ERX airframe but has yet to progress beyond the design phase.

Raytheon's booth also will include some hot ticket items. With the Advanced Medium-Range Air-to-Air Missile (AMRAAM) and its surface-launched counterpart on display, some of the U.S. Air Force's best assets could be in the offering.

Despite the outpouring of equipment and offers, India is just as interested in the degree of domestic production it can negotiate as it is in the platforms it can acquire. Though the acquisition stage of New Delhi's military modernization is important, India is building its defense industry for the future. The country's long-term goal is to design and build a world-class multirole fighter that can compete with the best the world has to offer.

HAL's extensive hands-on experience with older engines -- licensed production of the AL-55I for its indigenous jet trainer, engines for several generations of MiGs and Su-30MKI engines -- and Jaguar and Mirage 2000 overhauls and upgrades is significant. Although it had serious trouble with an indigenously designed engine for its light combat aircraft, HAL has at least a decade of extensive jet engine production experience. Coupled with hands-on production experience with RD-33 engines for the MiG-35s or the General Electric F414-GE-400 turbofans for the F/A-18E/F, this would give Indian designers an intimate understanding of some of the best jet engines on the market.

With the fielding of the BrahMos supersonic cruise missile (jointly developed with Russia) and the second test of its domestic atmospheric intercept system scheduled for June, India's current round of acquisitions should be seen as the latest development for an already robust Indian defense industry.

Pakistan can hardly be pleased. Already at a strategic disadvantage, Pakistan has a comparative lack of strategic depth and limited resources that keep it from being competitive with India. Nevertheless, if Pakistan can acquire new F-16s from the United States, it would help maintain the military balance -- for now. With continuing developments in India, Pakistan's need for the F-16s Washington has offered but not yet agreed to deliver will only increase -- they are the best Islamabad can hope for at the moment. Beijing's new J-10 fighter would be a good substitute, but not quite as good in terms of the technology, sensors or accompanying armaments (such as the AMRAAMs being dangled before New Delhi) as what Pakistan could negotiate with the United States.

Essentially, when the United States and Russia vie for India's favor, India wins. When the defense industry sniffs out large lucrative contracts, India wins. And when India wins, Pakistan loses.[Stratfor]

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