Monday, March 21, 2016

Embracing America’s war machines – F16 may roll out of an Indian factory

The elephant in the room is not an economic question, but a strategic concern: if fighting broke out with Pakistan, would the U.S. withhold supplies

India has been up in arms, so to speak, over last month’s announcement that the U.S. proposed to sell eight F-16 combat aircraft to Pakistan.

Yet less than one week from that announcement, New Delhi got a hint that it might have a great opportunity to undercut Pakistan’s F-16 force posture – an offer from F-16 producer Lockheed Martin to add its prized fourth-generation fighter to the list of Make in India products.

Now discussions seem to be steaming forward between one of the U.S.’s top defense producers and the Government of India, with a statement to The Hindu from the office of Lockheed Martin’s India head Phil Shaw noting that they were “in discussions with the U.S. Government, the Government of India, and our Indian industry partners about potential new production F-16 aircraft to address India’s fighter recapitalization requirements.”

While the company added that details about the aircraft and industrial offer would be determined in conjunction with the two governments in question, Lockheed Martin, and Indian industry, some within policy circles have not ruled out the possibility that the package could include “unprecedented” technology sharing or other favorable terms to woo the government led by Prime Minister Narendra Modi.

Lockheed Martin’s initial expression of interest in moving its entire production line for the F-16 to India, made by Mr. Shaw at the Singapore Airshow 2016, got surprisingly meagre play in the media. The reason, perhaps, was a lack of clarity on what might in some ways be a quantum jump in bilateral defence cooperation, but in other respects may entail certain strategic-economic risks that would have to be carefully understood.

A different league from Pakistan

Rewind a few decades back to the 1980s and it is evident that U.S.-Pakistan defence cooperation in the F-16 sphere had resulted in about 76 aircraft being transferred from Washington to Islamabad. Yet for several reasons, the latest notification of sale to the U.S. Congress by the Obama administration ought not to cause Pakistan-focused panic in South Block. First, it is unclear if and how Pakistan will finance the sale. In past instances the U.S. tax payer has effectively footed the bill under the rubric of the U.S. government’s Foreign Military Financing (FMF) facility.

On this occasion, however, Senate Foreign Relations Chairman Bob Corker, whose committee has jurisdiction over foreign arms sales, said less than a fortnight ago that he intended to maintain a hold on the FMF subsidy for the jets over Pakistan’s “duplicity” in the U.S.-supported war against the Afghan Taliban.

Secondly, the U.S. has for the most part sold Pakistan the Block 50/52 of F-16s, whereas Block 60 is said to be on offer to India. Indeed the F-16IN Super Viper that was earlier proffered to India under the now-withdrawn Medium Multi-Role Combat Aircraft (MMRCA) tender was said to be more advanced than the F-16 Block 60 delivered to the UAE around the same time.

Block 60 not only comes with the Active Electronically Scanned Array (AESA) radar, but is the equivalent of two planes in one. This is because on the one hand it has conformal fuel tanks that effectively make it a long range strike aircraft, and on the other the pilot friendly controls, new defence avionics, and easy manoeuvrability give it an edge as an air-superiority tactical fighter par excellence.

In fact some experts say that given that the Block 60 is the most advanced range ever built it will never be offered to Pakistan for fear that the technology could leak to China.

Complex cost-benefit analysis

For India, the calculus underlying any decision to accept Lockheed Martin’s presumed offer, which could come as soon as April 2016 given that it would then coincide with the visit to India of U.S. Defense Secretary Ashton Carter, is necessarily complex and multidimensional.

In terms of economics, the principal concern is that the F-16 is now in some senses going out of vogue in the developed world, and the U.S.’s defence production appears to be increasingly leaning towards the far more advanced, stealth-capable F-35.

In this context wouldn’t it seem more prudent for the Indian Air Force to continue relying on the Sukhoi and MiG platforms and the expected incoming 36 Rafales whose purchase was announced by Prime Minister Narendra Modi in January, and then cover any shortfall in capability with the indigenous Tejas?

While this approach may slow India’s progress in building up its force posture in the manner envisioned by the MMRCA tender, under which another 90 advanced fighters are required, it might make more sense from a cost perspective in that India could save money for a theoretical future purchase of the F-35 instead, a fifth generation fighter.

However, the economics of opting for F-16 production might appeal for other reasons. There are currently 3.500-4.000 F-16s in service worldwide and with these planes expected to remain in service at least until 2030 and beyond, there will be a major market for servicing these aircraft. Also, approximately 300-500 aircraft are likely to be needed by countries transitioning from older aircraft to modern fighters.

In this context, India accepting the expected offer from Lockheed Martin to transfer its F-16 production line, including machine tooling, implies three potential benefits: first, the addition of 90 airplanes for filling in the MMRCA order; second, India emerging as the production source for markets such as Indonesia that are still eyeing the F-16s as a means to modernize air fighter fleets; and third, India becoming the top maintenance, repair, and overhaul (MRO) hub for the 3,500-plus F-16s in service worldwide – including those in Pakistan!

One additional consideration for India is technology transfer. And in this realm, Lockheed Martin would have to go much farther than it has in the past to convince New Delhi that it genuinely intends to build an equal partnership rather than strike a bargain for India to perform little more than sophisticated grunt work.

If, for example, the AESA radar is sold as a Made-in-USA black box as it has in the past, it may well be considered a disheartening signal of Lockheed Martin’s true intentions and prompt the Modi-led government to look elsewhere for a more trusting technology partner.

Decision time

According to Ashley Tellis, Senior Associate at the Carnegie Endowment for International Peace, the Indian government’s choice will depend on both the unit and life cycle cost of the airplane and also on whether there will be a significant Make in India component.

Regarding relative cost, the Indian government has asked some of the original contestants in the MMRCA race to come back with proposals, which means competitive bids again from Saab, the Eurofighter consortium, Lockheed Martin and Boeing.

The F-16 would likely be the cheapest among these at about $80 million per piece, Mr. Tellis told The Hindu, with the Rafales and the other jets closer to the $250 million price range.

The elephant in the room, however, is not an economic question but the decades-old strategic concern holding India back from plunging headlong into an interoperable, full-commitment engagement with U.S. war-fighting platforms: fear that if fighting broke out with Pakistan, then the U.S. may withhold parts or ammunitions supplies to India.

Those observing the long trajectory of Washington’s evolving equations in the Indian subcontinent, including Mr. Tellis, note that if the F-16 production line is located in India in the future, it is going to be “virtually impossible” for the U.S. to curtail critical supplies in a crisis situation. Further, in a game theoretic sense, the supply-curtailment model may have limited applicability because the U.S. government likely realizes that this would harm Washington’s global reputation as a reliable supplier, besides wildly endangering the much broader, ever-blossoming bilateral détente with New Delhi.

However before putting any ink to paper the Government of India would have to carefully think through the countervailing reasoning as well.

This includes factors such as the suitability of Russia, France and other nations as established, long-term defense suppliers for India; the risk that a Donald Trump or Hillary Clinton presidency could lead to rising protectionism that weighs against offshoring projects; and the need for rigorous due diligence of the U.S. company.

Lockheed Martin’s wholly owned subsidiary Sandia Corporation in August reached a $4.7 million settlement with the U.S. Justice Department over allegations that it a paid a lobbyist with taxpayer funds to secure a $2.4 billion-a-year contract.

Reasons to invest

India’s current defense requirements are catered largely by imports. The opening of the strategic defense sector for private sector participation will help foreign original equipment manufacturers to enter into strategic partnerships with Indian companies and leverage the domestic markets and also aim at global business. Besides helping build domestic capabilities, this will bolster exports in the long term.

Opportunities to avail defense offset obligations to the tune of approximately Rs.250 billion during the next 7-8 years.

The offset policy (which stipulates the mandatory offset requirement of a minimum 30% for procurement of defense equipment in excess of Rs.3 billion) introduced in the capital purchase agreements with foreign defence players would ensure that an eco-system of suppliers is built domestically.

The government policy of promoting self-reliance, indigenization, technology upgradation and achieving economies of scale and developing capabilities for exports in the defense sector.

The country’s extensive modernization plans, an increased focus on homeland security and India’s growing attractiveness as a defense sourcing hub.

High government allocation for defense expenditure.

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