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National Defense > Blog > Posts > U.S. Industry Loses Big in India: Is ITAR to Blame?
U.S. Industry Loses Big in India: Is ITAR to Blame?
Defense contractors and industry experts are trying to come to grips with India’s decision to exclude The Boeing Co. and Lockheed Martin Corp. from its $11 billion competition for a new fighter jet.

No specific rationale has yet been given by the Indian government for its determination to jettison Boeing's F/A-18, Lockheed F-16 and Saab’s Gripen fighters, and proceed with a head-to-head contest only between two European offers — the Eurofighter and the Dassault Rafale.

“Companies are very concerned about the logic for the decision,” said a U.S. industry source. “There’s a bit of puzzlement.”

India's decision was very surprising, says Tom Captain, vice chairman of global and U.S. aerospace and defense leader at Deloitte LLP. If the selection was based on technical merits, "It is difficult to explain how those two very capable aircraft were eliminated."

In the absence of factual information about how the selection was made, speculation is growing that restrictive U.S. export policies may have played a significant role in India’s evaluation of fighter jet candidates. Analysts had predicted that at least one of the two U.S. contenders would have the inside track. U.S. technology is considered more advanced, and more coveted by rising powers such as India. President Obama also raised the stakes by personally making a pitch on behalf of U.S. industry to Prime Minister Manmohan Singh during his visit to India. He also sent Singh a letter reinforcing the importance of India’s fighter program to the Obama administration. India is expected to buy up to 200 new aircraft.

“We feel that our products are the best possible available,” said the industry source.”

India is projected to spend $80 billion on new weapons and space systems over the next five years. It’s only a small fraction of what the United States spends, but the industry still regards it as a promising region where, once you get a foot in the door, opportunities could blossom.

Defense industry analyst Byron Callan contends that “technology transfer was a major consideration in this competition.”

Callan presumes that the U.S. government was “unwilling to see key AESA [active electronically scanned array] radar and other avionics and electronic warfare technology made available at the level India wanted,” Callan writes in a memo to industry investors. “Technology transfer has also been a key consideration in Brazil’s FX fighter competition which has been delayed.”

One issue to watch as a result of this decision, says Callan, is “whether the U.S. further relaxes defense technology export restrictions in order to keep domestic production lines open.” This is a major concern for U.S. manufacturers as Pentagon spending begins to contract next year. In the past, Callan says, “when the U.S. restrained or reduced its defense spending, policy shifted to exporting advanced weapons to strategic partners.”

He notes that F/A-18 production “may still run through the end of this decade based on U.S. orders and from countries that had hoped for F-35s and who operate earlier-generation F/A-18s.” The longevity of the F-16, meanwhile, “hinges on its ability to win in niche markets in the Middle East, but it is less relevant to Lockheed Martin and Northrop Grumman (which makes the radar) with F-35 and the new bomber program ramping up.”

For Boeing, losing India’s sales is a big blow because it needs foreign sales to keep the F/A-18 line open beyond the coming decade, unlike Lockheed, which has a long-term lifeline in the multinational Joint Strike Fighter.

“It will be interesting to see what India does with combat fighter technology acquired from either Dassault or EADS and BAE Systems, and engine companies as well,” Callan writes.

Larry Christensen, an export controls attorney at Miller & Chevalier, in Washington, D.C., believes the Indian decision will have lasting implications for U.S. industry, even though he says he has not seen any proof that India’s choice was influenced by ITAR, the International Traffic in Arms Regulations that restrict exports of sensitive U.S. technology.

The fact that an emerging power such as India would snub U.S. advanced weaponry offers further evidence that the current export control system — which dates back to the Cold War — has outlived its effectiveness, Christensen says. “The U.S. government cannot repeal the laws of economics,” he says. As the United States denies access to some of its best technology, it leaves a market void that, sooner or later, another country will fill. “When that happens, the U.S. export control policy of denial, or policy of heavy restrictions, become ineffective” for the purposes of barring potential enemies access to advanced weaponry, he says.

It is conceivable that India concluded that U.S. restrictions on technology sharing are not worth the hassle, Christensen suggests. Although the United States wanted India to buy its fighter jets, it was “putting strings on those sales” that would have curtailed India’s ability to upgrade components, software or sensors, or collaborate with other countries, he says. If India had picked a U.S. aircraft, ITAR would have "restricted them in their ability to move forward with that platform.”

On a smaller scale, the same problem affects U.S. suppliers of less flashy products such as surveillance, law-enforcement and border protection technology, says Christensen. “I know small firms that feel the pain of commercial customers saying that they like the U.S. product but they can’t live with the restrictions and the overhead that goes with ITAR controls.”

The consequences for U.S. competitiveness are significant, he says. “The market is changing. Other countries are developing good technology.” The time has passed when only the U.S., U.K., France or Germany were viable supplies of advanced hardware, he adds. “Technology is now available from Russia, China and Israel, countries that are tend to place fewer restrictions” on transfers.

Christensen points out that the Obama administration is taking meaningful steps to reforming ITAR to boost U.S. industry. “I believe that there is significant movement,” he says. Hundreds of government officials currently are busy redrafting regulations,” he says. “It’s a long arduous task, and I’m glad they’re taking the time to do it right.”

Despite the Indian loss, U.S. arms are still hot sellers. The Pentagon is projecting arms sales to foreign buyers to exceed $46 billion in fiscal year 2011. Demand for U.S. weaponry is “higher than ever,” according to Richard A. Genaille Jr., deputy director of the Defense Security Cooperation Agency. DSCA currently oversees a $330 billion portfolio of foreign military sales to 220 countries and international organizations.

At an industry conference in April, Genaille discussed efforts by the administration to increase foreign military sales as a means to court allies and boost Third World countries’ internal security. The goal is to revamp how the U.S. government manages international arms sales so it can be more “anticipatory” of future needs and more responsive to foreign allies’ requests.

The Obama administration, which regards weapon exports as a vehicle for bolstering the U.S. economy, believes that current methods for managing arms sales are too reactive, rather than proactive, he said. “It’s hard to be responsive when our system is geared to wait for a ‘letter of request’ from a country and then take action.”

Comments

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

A few months ago I wrote:
"Stealth or no-stealth, 5th generation or 4th generation, fighter aircraft are as obsolete for India's defence as bows and arrows. They can be used against neighbors such as Pakistan and China but the United States is EVERYBODY'S neighbor. It has already invaded and occupied Afghanistan, a part of traditional India and will expand its occupation to the rest of the subcontinent. I am India's expert in strategic defence and the father of India's strategic program including the Integrated Guided Missile Development Program. The U.S. invasion of Afghanistan means the coast-to-coast destruction of the U.S. by India; see my blog titled 'Nuclear Supremacy for India Over U.S.', which can be found by a Yahoo search with the title, for what India needs to do. Russia and other white countries are U.S. allies. These are the enemies to destroy. All other enemies will be taken care of automatically. Conventional arms are worthless for destroying the United States. Nuclear arms to destroy the United States with a FIRST STRIKE -- this is the key -- are cheap and easy to produce with technology India already has. All the money earmarked for fighter aircraft etc., and more, must be pumped into research, development and production of missiles able to deliver India's nuclear warheads -- in the thousands -- to the continental United States. India's missile scientists & engineers should have tested such missiles to their full range decades ago -- everything else, including short and intermediate range missiles and missile defence, is secondary and tertiary -- but have not done that because of prohibitions by India's C.I.A.-controlled governments. This must be done on a war footing; the first step is to destroy RAW through which the C.I.A. rules India; see 'What You Should Know About RAW' in my blog above. Producing such weapons in the thousands and very quickly is important. This means that the vast majority of them must be land-based, including road and rail-mobile, missiles rather than submarine-based which take a long time to produce."

Just as the CIA arranged, through Vajpayee, for India to buy light water reactors from Russia first to cripple its nuclear weapons program (see my blog above), it will be quite happy to have India buy fighter aircraft from France, Europe or Russia to keep it wasting time, attention and resources on worthless fighter aircraft and keep its focus away from producing thousands of nuclear-armed missiles capable of reaching the United States and had planned it this way with RAW and the Indian government to also give the latter deniability against India being ruled by the CIA. The RAW-mouthpiece, Times of India, features a headline "Fighter jet rebuff, Roemer exit, signal US-India distance".

Having prepositioned five to six nuclear weapons in various cities/countries such as New Delhi, Washington and New York (see my blog above), there is no reason to delay any further; let the testing of high yield thermonuclear weapon designs to their full yields and of missiles able to carry them to the continental United States to their full ranges begin.

Satish Chandra
Satish Chandra at 4/28/2011 2:54 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

Satish Chandra your analysis is scatterbrained! It does not make any sense.  Why would India attack US? India is a soft state, they can't even stop terrorism from Pakistan. 

This deal may yet go to American companies.  The European and Russians have untested junk.  How many wars did the Euro fighters have.  This is a ploy to leverage advanced technology from the US.  The Indians may have a legitimate grievance here and the US may yet respond.

The European fighter crafts may be good but they have little experience in dog fights.  If Euro fighter award did go through I predict a major scandal akin to the Bofors affair. 

If Indian politicians buy junk they will be held accountable!
navin at 4/28/2011 3:14 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

Mr. chandra, as per your comments it seems that no one can run a country except you.....I am sure India has great minds and they can think ahead then you and me.
ANoher Indian at 4/28/2011 3:27 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

Few points.

The rafale and eurofighter are subject to the same export restrictions for some key technologies since they are supplied by the US. 

The program is for a medium sized multirole aircraft.  The only two aircraft in my opion that fit are the SuperHornet and the Rafale.  Both are true multirole and carrier capable.  The F-16 is not carrier capable and the eurofighter is a air to air fighter with minimal airto ground ability and no carrier ability.

 
JC at 4/28/2011 3:56 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

Few points.

The rafale and eurofighter are subject to the same export restrictions for some key technologies since they are supplied by the US. 

The program is for a medium sized multirole aircraft.  The only two aircraft in my opion that fit are the SuperHornet and the Rafale.  Both are true multirole and carrier capable.  The F-16 is not carrier capable and the eurofighter is a air to air fighter with minimal airto ground ability and no carrier ability.

 
JC at 4/28/2011 4:08 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

Rafale is NOT supplied by the US. Is ITAR free.
Wlf at 4/28/2011 4:17 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

The main reason the US companies lost out is simple; ITAR and old planes. IF America was willing to part with AESA (not the latest tech but the tech on the F-18 SH) or maybe throw in some single crystal engine tech, they could have snatched the deal. Also, the F-18 is an old fighter compared to the Euro birds and it requires much more maintenance costs and isn't really as sophisticated as the Euro birds avionics wise. So they lost out.

Selling fighter aircraft is a bit like selling cars, no point buying American if the Germans are selling something cooler with less hoops to jump through. America tells you where to drive, how to drive and can turn off your car when they don't like your driving. You don't really own an American car, you merely rent it out at their pleasure. 1.2 billion people can't depend on America's mood to protect their interests.
Raj at 4/28/2011 4:38 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

Dear Mr Satish Chandra the comments you made are make no sense what so ever. Please wrtie something sensible. 
sanjay patel at 4/28/2011 4:45 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

Wow.... this Satish Chandra species has infested this blog too. He is demented. He has posted the same in many Indian newspaper comments sections such as Times of India, Indian Express etc. and quite a few defense forums.

I suspect he is not an Indian, most likely a Pakistani, writing nonsense to attract criticism of India.
Rahul at 4/28/2011 7:03 PM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

obviously a 'stirer' installed anti-India interests.

What is more important, is that BOTH US and European (Swedish and Russian) companies are included in rejections, not just US.  Short listing happens to include two other European companies.  It is also obvious that India's STRATEGIC arms supplier Russia, has also been excluded, despite offering it's current top tier technology.   Nothing can be more convincing than that.  US has the very best technology, but not offered to India on this bid.  The only reason US companies were deselected, we were not smart enough to offer our top tier technology.  Perhaps future deals we will focus on this, if we consider our strategic partner.
Kishor at 4/29/2011 2:55 AM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

Another sign ofthe downward spiaral of the USA/
jlalley@bellsouth.net at 4/29/2011 9:41 AM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

WLF


The Eurofighter and Rafale both contain American technology.  Just like the F-35 while American contains European technology.
In fact when The UK sold Saudi Arabia the Eurofighter they had to apply for an export license from the US. 

http://www.theregister.co.uk/2008/04/18/us_gov_mulls_eurofighter_sale_to_saudis/

My point stands that either selection will have to deal with some American export controls. 


I have one question.  Do you trust the French to supply weapons and spare parts for the rafale in desperate times?
The cut Argentinia off during the Falkland War. 




 
JC at 4/29/2011 10:49 AM

Re: U.S. Industry Loses Big in India: Is ITAR to Blame?

1) Americans are unreliable supplier.
2)technology transfer has become the key issue rather than buying ready made fighter jets as India needs to upgrade its aerospace industry.
3)patent problems are also there as India would not be able to upgrade without having permissions from USA.
4)vector thirst of american engine is lower than other counterparts.
5)having combat experience does not make a good fighter jet because USA had fought against technologically and economically backward countries. 
rationalbeing at 6/14/2011 12:16 PM

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