Europe Wins, U.S. Loses in India Contest for Top Fighter Order in 15 Years

India’s Defence Ministry opted for European over American warplanes for the world’s biggest fighter-jet aircraft order in 15 years, snubbing the lobbying efforts by President Barack Obama.

The U.S. is “deeply disappointed” after India told it this week that Boeing Co. (BA) and Lockheed Martin Corp. (LMT) “were not selected for procurement” for the warplane, the American embassy in New Delhi said in a statement, citing Ambassador Timothy Roemer. India’s Defence Ministry will not comment on reports it has shortlisted the aircraft of France’s Dassault Aviation SA (AM) and the European Aeronautic, Defence & Space Co., ministry spokesman Sitanshu Kar said by phone today.

The contest for India’s order may not be over yet, with approval by Prime Minister Manmohan Singh’s cabinet required following the Defense Ministry’s final recommendation. Obama has sought to strengthen ties with India, the world’s second-fastest growing major economy, aiming to boost export and job growth as the U.S. struggles to pull down an elevated unemployment rate.

“A remaining uncertainty is that the defining nature of the U.S.-Indian strategic partnership might trump the purely operational and technical considerations” that have given an advantage to the European companies, said Kapil Kak, a retired Indian air vice marshal who is a director of the Center for Air Power Studies, a New Delhi think-tank.

Older Aircraft

Lockheed, based in the Washington suburb of Bethesda, Maryland, has offered its F-16 fighter, while Chicago-based Boeing aims to sell the F/A-18 Super Hornet. Those planes were first designed in the 1970s and Lockheed’s F-22, the most advanced and expensive fighter in the U.S. arsenal, was not offered for the sale.

The ministry’s preference for the newer, European models “is not a political choice,” said V.K. Kapoor, a retired lieutenant general who monitors India’s military procurements. “It was a by-the-book technical assessment that the American F-16 and F/A-18, despite their upgrades, are not future- generation aircraft,” Kapoor said by phone. “They can remain current for another five or 10 years, but this deal is going to determine the operational capacity of our air force for the next 30 years.”

Commercial Negotiations

The Defence Ministry will open talks with Dassault and EADS “to see how to get the best overall deal out of the companies,” Kak said, citing air force officials. “We can expect that to begin in June and to take eight or nine months,” he said.

Lockheed closed down 0.1 percent at $79.06 in New York yesterday, when the Standard & Poor’s 500 Stock Index advanced 0.4 percent. Boeing gained 3.2 percent to $78.55 after Citigroup Inc. raised its share-price estimate on the company.

The U.S. is “respectful of the procurement process” and will continue to “develop our defense partnership with India,” Roemer said in the statement.

Boeing said in a statement it was disappointed and will request a debriefing from the Indian air force on the decision.

Sweden’s Saab AB (SAABB) said in a statement that its Gripen fighter had been dropped from consideration for the planned purchase of 126 jets, a deal that Kak said may expand to 200 or more because of attrition among the Indian air force’s fleet of MiG-21 aircraft, some of which were built in the 1970s.

Indian Spending

A spokesman for Russia’s state arms export agency, Rosoboronexport, Vyacheslav Davidenko, declined in a phone interview to comment on the reported exclusion of state- controlled OAO United Aircraft Corp.

Foreign governments and companies struggling to recover from global recession are competing to sell the $120 billion worth of arms that India may buy from next year to 2017 according to an estimate last year by the Confederation of Indian Industry and Deloitte Touche Tohmatsu India Pvt.

India has tripled its defense budget over the past decade to $32 billion this year, the world’s 10th-largest, as it tries to counter a quadrupling of spending in the same period by neighboring China.

Obama led a delegation of CEOs, including Boeing’s Jim McNerney, on a November visit to India in which the president urged increased trade between the two countries that he said will support tens of thousands of U.S. jobs. French President Nicolas Sarkozy arrived a month later with the CEOs of Dassault and EADS, and Russia’s President Dmitri Medvedev followed to lobby for military sales.

Short List

India’s Defence Ministry issued letters to EADS and Dassault asking them to extend the validity of their bids for the warplane contract, the Press Trust of India reported, citing company sources it didn’t identify. The New Delhi-based military affairs website Stratpost said the letters were issued April 27, “effectively making up the shortlist” for the purchase.

“We’ve seen indications for nearly two months now that the Indian air force seems inclined to shortlist the Eurofighter and Rafale,” built respectively by EADS and Dassault, said Kak. India’s air force can operate only about 30 of its desired 40 air squadrons because of the aging of its MiG-21s and Dassault Mirage 2000s, he said.

Twenty-one air force MiGs crashed between 2007 and 2010, Indian Defence Minister A.K. Antony told parliament last year.

India’s arms-buying has been slowed by officials’ sensitivities over corruption scandals in previous purchases, including one that helped drive Singh’s Congress Party to defeat in 1989 elections, say analysts such as Rahul Roy-Chaudhury, senior fellow for South Asia at the International Institute for Strategic Studies in London.

Since the 1980s, no Indian government has made an open-bid arms purchase valued at as much as $100 million, or about 1 percent of the fighter deal’s size, Roy-Chaudhury and other analysts say.

“I have been personally assured at the highest levels of the Indian government that the procurement process for this aircraft has been and will be transparent and fair,” Roemer said yesterday. His statement was released by the U.S. Embassy hours after it announced that he has offered his resignation for “personal, professional and family reasons.”

To contact the reporter on this story: James Rupert in New Delhi at jrupert3@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg in Hong Kong at phirschberg@bloomberg.net

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Photographer: Antoine Antoniol/Bloomberg

A Dassault Rafale fighter jet flies during a demonstration in France.

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Photographer: Antoine Antoniol/Bloomberg

A Dassault Rafale fighter jet flies during a demonstration in France. Close

A Dassault Rafale fighter jet flies during a demonstration in France.

Source: Boeing

Boeing's F/A-18 Super Hornet was "not selected for procurement" by the Indian Defense Ministry, the U.S. Embassy in New Dehli said. Close

Boeing's F/A-18 Super Hornet was "not selected for procurement" by the Indian Defense Ministry, the U.S. Embassy in New Dehli said.

Source: Lockheed

Lockheed's F-16 was "not selected for procurement" by the Indian Defense Ministry, the U.S. Embassy in New Dehli said. Close

Lockheed's F-16 was "not selected for procurement" by the Indian Defense Ministry, the U.S. Embassy in New Dehli said.

Photographer: Manan Vatsyayana/AFP/Getty Images

Timothy J. Roemer, seen here as U.S. Ambassador-designate to India, giving an Indian greeting to media as he leaves the Indian External Affairs Ministry in New Delhi on July 17, 2009. Close

Timothy J. Roemer, seen here as U.S. Ambassador-designate to India, giving an Indian greeting to media as he leaves... Read More

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