Contract Talks Moving Slowly On MMRCA
Jan 5, 2011
By Neelam Mathews
India has proved once again that it cannot move too fast in acquiring a major weapon system.
Even as the evaluation of its Medium Multi-Role Combat Aircraft (MMRCA) tender comes closer to its final stages, evidence is mounting that downselect winners will not learn of their acceptance until the fourth quarter instead of the first.
The MMRCA contract promises an order for 126 aircraft and is the largest military procurement pending in India. It has drawn bids from the Mikoyan MiG-35, Dassault Rafale, Eurofighter Typhoon, Saab Gripen, Boeing F/A-18E/F and Lockheed Martin F-16.
India requires that any aircraft or weapon system introduced into service clear all tests and evaluations. All of the MMRCA candidates have completed user trials, including weapons, technical and maintainability evaluations. Currently, the bidders are being evaluated on their proposals for industrial offsets, with technology transfer to come next.
Only when this process produces a short list will their commercial offers be evaluated. The downselect is expected to eliminate two or three of the six initial candidates, but nothing is definite.
Vendors, who were supposed to have their evaluations completed last April have already been required to extend or revise their bids until next April because the initial selection process bogged down.
If the defense ministry is not able to complete its downselect process by then, vendors will have to resubmit their bids and another year’s delay will ensue.
That raises the prospect that volatile financial markets might cause swings in currency rates that could change the value of the range of highest to lowest bidders significantly, given that rates are determined not when bids are received but when the commercial evaluation begins.
The holdup centers on terms for technology transfer, which must be completed with the main contract, a defense official explained. India requires that licensed production of the aircraft—including engines, accessories, radars, systems and tooling—be covered by the tech-transfer proposal. The ministry holds refusal rights on any specific item, and suppliers must provide full life-cycle product support.
Vivek Lall, vice president of Boeing India, views the process positively, citing “greater opportunities for the Indian defense industry to work with partnerships, or in collaboration with foreign companies that will likely continue to supply [the industry with] defense armaments and transfer of technology.”
But analyst V. Siddhartha of the Center for Air Power Studies in New Delhi has reservations. “There is no guarantee that the technology you get will not be state-controlled,” he says.
Former Air Chief S.P. Tyagi says that opening up the market to foreign direct investment will be good for India. The current limit is just 26%. But that level is too small to give foreign investors a meaningful say in board decisions, he says.
India sees everything from microtechnology and materials to prototype production emerging from MMRCA’s tech transfers. Air Vice Marshal M. Matheswaran, the assistant chief of the air staff, says the country can leverage MMRCA “to get what we want” and persuade vendors to “part with technology.”
Additionally, India’s domestic defense sector is favored by “buy local” and taxation arrangements. It also will likely require foreign firms to provide inputs into both platform and systems development, says Lall.