Defence Expo - Uncertainty on Big Contracts

Defence Expo 2012, the land, sea and homeland security exhibition in Delhi took place in a somber mood, devoid of the optimism that is generally the tone at most such events. The number of people was also far fewer, and I am comparing with the chaotic auto expo.  This of course was expected - these were business days and well missiles and tanks obviously don't have the mass appeal of automobiles.

The defence companies were present in strength, despite the end of intense competition for the IAF's multi-role fighter, where US powerhouses like Boeing, and European giant EADS lost out to Dassault of France. Some like Varun Vijay Singh of Saab, say that the deal is not closed yet and there is hope if negotiations with the French fall through. But defence experts say there's little chance of that happening.

The focus this time round was on the next round of orders related to transport aircraft, helicopters and land warfare equipment. Most arms makers were tying up with Indian firms as they enter the fray for more orders, and will need to be ready for offset compliance. Many of them, including Boeing's Dennis Swanson, who heads Defense, Space and Security in India, have been doing that since before the MMRCA.

Some chose to ink deals right during the expo. Israel's Rafael Advanced Defence Systems  tied up with Mahindra, which also has a tie up with Raytheon for anti-aircraft short range artillery. Saab has a venture with Pipavav Defence and Offshoring Engineering Company Ltd, part of the same group that operates ports. Cassidian, which is the security and defence wing of EADS, set up a new engineering centre in Bangalore. Saab has a tie-up with Wipro as well.

A lot is at stake, specially for those who lost out on the huge fighter aircraft deal. Boeing has managed to salvage something by inking the deal to supply 10 C-17 Globemaster III airlifters and the P-8I long range maritime reconnaissance and anti-submarine warfare aircraft. For players like BAE and Sikorsky, part of United Technologies, the only thing to do is wait for India to finalise the deal for 22 attack and 15 heavy-transport helicopters for the army.

And here comes the pervading uncertainty about orders that was on show. Boeing's Swanson said he would normally expect the helicopter deal to be done by middle of this year but added he is not at all certain about it. "These things take their own time," he said during an informal get-together. The Sikorsky guys said the same thing.

Even the players pitching systems for land warfare, like Raytheon, were clueless about when actually might the deals fructify. The land deal, part of Indian army's modernisation efforts, is planned in three stages. This might lead to $100 billion being spent over the next 10 years, on helicopters for the army, new rifles, combat vehicles and artillery guns. The navy would get helicopters as well, and new boats. That would make India the biggest defence importer in the world, which is the reason the government has made it easier for technology transfer to happen through offsets. But, said one executive at the stall, the rate at which things are progressing, it might take years for the full potential of the deal to be fulfilled, possibly double the time. "Its a multi-stage deal and each stage will be delayed," he said.

With AK Antony reiterating that any deal might be called off at the last moment even a whiff  of corruption is found, the uncertainty over a deal only rises though you can argue it deters corruption. Already it has happened once. In 2003, India issued an RFP for 197 light helicopters worth between $500-$600 million to buy 60 helicopters outright, with the remaining 137 being built under license by Hindustan Aeronautics Limited (HAL). Eurocopter’s AS550 C3 Fennec and Bell Textron’s 407 competed in the second and final round of summer trials, and as 2007 ticked toward a close, it looked like we had a winner in Eurocopter. But then reports of corruption emerged and the deal was derailed. That has seriously delayed the army's modernisation efforts.

The mood was more optimistic earlier when the army chief's leaked letter showed a seriously inadequate level of preparedness among the defence forces. The letter might have been made into a controversy by TV channels, but it was quite a normal procedure that was followed, and if at all, should expedite the artillery guns deal. However the mood quickly sobered down to realising that ultimately it would get bogged down by bureaucratic delays - even more than the MMRCA deal did. "And then our costs will rise and we will need to renegotiate. This road really doesn't end," said a Raytheon executive.

At the same time, Mick Maurer, president of Sikorsky Military Systems, was more upbeat. He says the procurement process in India is getting more transparent, something that works fine for Sikorsky. Maurer says that he expects military sales to the triple that of helicopters for civilian use. But his optimism was more or less one off.

We will need to wait and see which of the two views potrayed the reality - will India keep fighting over which order to finalise and how, or will it allow for a more streamlined and simpler policy to make deals transparent and free of corruption. June-July would be the time the helicopter deals should see some movement - if that's not there, these players are in for a long hot summer and who knows, maybe even a frigid winter.

The thoughts and opinions shared here are of the author.