Rs 42k cr defence deal up for grabs

The IAF wants to acquire 126 multi-role fighter aircraft, and it’s the biggest defence contract ever

NEW DELHI: It’s the mother of all defence orders. The defence ministry on Friday announced India’s largest open tender for the purchase and manufacture of 126 multi-role fighter aircraft for the Indian Air Force (IAF) that insiders say could be worth around Rs 42,000-crore (over $ 10 billion).

The ministry’s request for proposal (RFP) is expected to trigger off a feeding frenzy in diplomatic and business circles, as an open tender process means that there will be hundreds of rounds of discussions, negotiations and haggling before an order is finalised.

Six global military aviation giants are in the running — Boeing (F/A-18), Lockheed Martin (F-16), MIG Corporation (MIG-35), Nato Eurofighter and Tornado Management Agency (Eurofighter), Gripen International (Gripen), and Dassault Aviation (Rafale).

The contract is expected to help the IAF overcome its shortage of fighters, many of which are close to retirement.

On the other hand, there has been an extraordinary delay in the indigenous light combat aircraft programme.

The Defence Acquisition Council (DAC), headed by defence minister AK Antony, has now cleared the RFP for 126 medium multi-role combat aircraft (MMRCA). The RFP – which is essentially an invitation for technical and commercial tenders – is restricted to the six manufacturers mentioned above.

In a landmark decision that could boost the domestic aviation industry, the Council also decided on a whopping 50% direct offset in the contract. A direct offset means that the contract winner will have to acquire or spend 50% of the entire contract value within India. Under the already decided government policy, 30% of any defence contract over Rs 300 crore has to be procured/spent in India.

“It is expected that the transfer of technology (ToT) and offset contracts will provide a great technological and economic boost to the indigenous defence industry,” the ministry said. “Foreign vendors will be provided great flexibility in effecting tieups with Indian partners for this purpose,” it said.

“During its meeting on Friday, the DAC debated various issues relating to the initial purchase, transfer of technology, licensed production and life-time maintenance support for the 126 MMRCA and gave the final go-ahead for the project,” said ministry spokesman Sitanshu Kar.

Eighteen of the planes will be bought in ‘fly away’ condition from the tender winner. The remaining 108 will be manufactured in India with transfer of technology and Hindustan Aeronautics Ltd will be the system integrator in India.

The DAC has set itself an ambitious target of getting the first fighter five years from now. However, given the complex process to be followed, it may be a challenging task. The contract itself will take at least two years to conclude – which more-or-less coincides with the life of the UPA government.

The government said proposals from the contenders will first be technically evaluated for compliance with IAF’s operational requirements and other RFP conditions. It would be followed by extensive field trials of all the six fighters. After the trials, an IAF team will evaluate the field data and shortlist the winners. The commercial proposals will then be discussed with short-listed vendors.

“There are three guiding principles for this procurement scheme. First, the operational requirements of the IAF should be fully met. Second, the selection process should be competitive, fair and transparent, so that best value for money is realised. Lastly, Indian defence industries should get an opportunity to grow to global scale,” the ministry said.

The RFP, a voluminous document, will be issued to the six global competitors by the first half of August, officials said.