Aviation Week February 13, 2012, Page 58

The last page of the defense/aerospace industry leading magazine, typically carries a Viewpoint article. In the latest issue, the following article by me is published.

How To Win Indian Business

by Gunjan Bagla, Managing Director, Amritt, Inc.

French President Nicolas Sarkozy and the management of Dassault are elated, as Rafale is the apparent winner of the $10.4 billion Medium Multi-Role Combat Aircraft order for India’s air force. France also has an order backlog with India that includes the Scorpene submarine and $2.4 billion in retrofits to the Mirage 2000 fleet.

Where does that leave U.S. defense companies as India, already the world’s largest importer of weapons, according to the Stockholm International Peace Research Institute, prepares to spend another $50-100 billion in upgrading its military and homeland security infrastructure? Fifteen of the top 20 defense companies are American, and the U.S. is responsible for half of the world’s $1.4 trillion defense expenditure. But aside from Lockheed Martin with the C-130J and Boeing with the P-8I, C-17 and AH-64 helicopter, no U.S. company has come close to a billion-dollar defense order from India.

At some companies, management is hearing what a U.S. aerospace executive once told me in New Delhi,: “India is an acronym for I’ll Never Do It Again.”

This attitude is unproductive and unjustified; it also denies American companies the opportunity to win their share of India’s ambitious upgrade plan. With a few simple adjustments, a dozen U.S. prime contractors could sustain thousands of American jobs and deliver security to the world’s largest democracy.

Some perspective is in order. India is unlikely to terminate its long-standing relationships with Russian suppliers. It will receive additional Sukhoi Su-30MKI fighters and continue joint ventures to develop a fifth-generation fighter as well as its Brahmos cruise missile. Israeli companies will continue to win business in India. U.S. suppliers must compete head-to-head with these internationals to gain a share of this large market.

There is considerable ground for optimism, however. Only 10% of Indians have an unfavorable view of the U.S., according the Pew Center. This compares with 77% of Turks, 41% of Mexicans and 28% of Israelis. Most Indians in influential positions have a family member living in the U.S., including Prime Minister Manmohan Singh. Pallam Raju, junior minister in-charge of defense production, graduated from Temple University in Philadelphia, and India’s powerful home and foreign ministers are U.S.-educated.

While there are technology-transfer restrictions imposed by Washington on U.S. companies, the situation has improved. In November 2010, the Obama administration removed several limitations that prevented certain Indian entities from buying U.S. products.

Freed from these restraints, what can American executives do to transform India’s goodwill into business?

•First, they must take time to understand and respect India’s Defense Procurement Procedure. While the DPP is complex, it is being implemented with increasing rigor and consistency. The Rafale win is a testament to this; the DPP 2008 stood robustly resistant to domestic and international political pressures. This is a stark contrast to a scandalous past, such as New Delhi’s infamous Bofors howitzer procurement.

American executives should not assume that Pentagon practices or State Department pressure will curry much favor in New Delhi. In fact, using some Beltway lobbyists can be counterproductive. Although they understand American procurement, they do not appreciate the cultural, political and socioeconomic nuances in India. India is an open and transparent, albeit confusing, society. U.S. suppliers can improve their odds dramatically if they invest deeply in understanding India.

•Second, many Indians react negatively to what they perceive as “American arrogance” when an executive harps on the technical and functional superiority of U.S. equipment. Even the most westernized Indians say they often feel jarred, even belittled. Understated confidence backed with a broad cultural understanding of India’s geopolitical and historical situation is crucial to American success in defense and homeland security.

•Third, some western corporate and political leaders express a sense of entitlement in India, which can be the kiss of death. The most recent example is David Davis, the British member of Parliament who insinuated that India should have ordered the Eurofighter instead of the Rafale because, “We give many, many times more aid to India than France ever did.” The Eurofighter lost narrowly since its lifetime cost of ownership will be higher than the Rafale’s. Sulking only aggravates the customer.

•Finally, there is no substitute for patience and persistence in India. If you send an executive for a one-year assignment to India, he or she may not only come back empty-handed but will often make it harder for the next person to interest a serious audience.

The U.S. Congress was officially notified of the potential sale of Mk-54 Lightweight Torpedoes to the Indian Navy. The Mk-54 is the most advanced lightweight torpedo in the U.S. Navy inventory and is intended to be deployed with the Boeing P-8I maritime patrol aircraft, eight of which are currently being built for India. The P-8I, equipped with Mk-54 torpedoes, will provide long-range anti-submarine warfare capabilities for the Indian Navy.

The MK54 torpedo in mid air

According to the US Defense Security Cooperation Agency, the Government of India has requested a possible sale of  of All-Up-Round Lightweight Torpedoes, 3 recoverable exercise torpedoes, 1 training shape, containers, spare and repair parts, support and test equipment, publications and technical documentation, personnel training and training equipment, transportation, U.S. Government and contractor representatives’ technical assistance, engineering and logistics support services, and other related elements of logistics support. The estimated cost is $86 million.

The Mk-54 torpedo is currently in service with the Royal Australian Navy. Taiwan is also reportedly considering a purchase.

By 2014, India’s ministry of defense will be the largest owner and operator of the Boeing C-17 transport aircraft outside the United States.  A formal $4.1 billion order for ten of the aircraft is expected to keep the production lines in Long  Beach (just six miles from where I am sitting)  humming for another two years. India is likely to opt for an additional six C-17s after the contract for 10 is signed as the Indian Air Force is keen on increasing its heavy-lift capability according to a report in Aviation Week. The transaction will be listed as a “foreign military sale (FMS) with the US government buying the planes and selling them to the Indian government (as distinct from a “DCS” or direct commercial sale where Boeing would sell directly to India).

Boeing Long Beach factory

The C-17′s ability to fly long distances and land in remote airfields in rough, land-locked regions make it a premier transporter for India. According to Boeing, the plane  can take off from a 7,600-ft. airfield, carry a payload of 160,000 pounds, fly 2,400 nautical miles, refuel while in flight and land in 3,000 ft. or less on a small unpaved airfield in day or night.

C-17 Transport Aircraft

According to the Los Angeles Times, the company received formal approval Monday from Indian Prime Minister Manmohan Singh’s Cabinet committee on security. The deal would be India’s largest defense contract with a U.S. company. The second largest US defense deal with India was also won by Boeing (for the P8i Orion aircraft).

What this means:

First of all it is a major win for Boeing in India, which is by the far the largest American supplier to India having won in both military and commercial billion dollar bids. Second it is a  re-affirmation of India’s interest in aligning more closely with the United States; the vast majority of its defense hardware is still of Soviet/Russian origin. Third, the deal creates or sustains over 20,000 American jobs according the US India Business council.

Both Boeing and Lockheed received rejection letters after the technical evaluation process was completed for the Medium Multi-Role Combat Aircraft (MMRCA), a project to buy 126 aircraft that is probably worth over $10.5 billion. India’s largest legacy supplier, Russia, was also rejected by the Air Force.

The apparent contenders remaining are both European, the Eurofighter and the Dassault’s Rafale.

Several weeks ago, there were news reports that India demurred on a possible trip by Secretary Hillary Clinton to New Delhi. This was my first major indication that the mega project was not likely to favor the American side and the Indians did not want to be pressured.

Impact: While the loss of this business is a setback to the ambitions of American prime defense contractors, the fact remains that India is already commited to the Boeing P-8i reconnaissance planes, has started to receive deliveries of the Lockheed Martin C-130J transport aircraft and is on the the final track to order the C-17′s built in my backyard in Long Beach, California. This adds up to about 8 billion dollars and more. Additional orders of American hardware are expected in the next few years.

Indian media is reporting Boeing may have won an order of four addtional P-8i I Poseidon longrange maritime patrol aircraft , which will add to the eight such planes already contracted from Boeing under the $2.1-billion deal inked in January 2009. It will take this biggest-ever American win in India to be a $3 billion package.  India’s Navy has been under tremendous pressure to improve its surveillance capability in the wake of the Mumbai attacks of November 2008.

Boeing has not acknowledged the announcement on it website yet.  There may be an intent to wait until President Obama’s forthcoming visit to India.