As U.S.-Indian Alliance Grows, Defense Firms Seek to Profit

By Renae Merle
Washington Post Staff Writer
Thursday, August 31, 2006

After decades on the sidelines, U.S. defense contractors are eyeing India's growing military budget and aging arsenal as a multibillion-dollar opportunity that could help offset a projected slowdown in Pentagon weapons spending and extend production lines for such items as the F-16 fighter.

India has been effectively closed to U.S. defense firms since the 1960s, initially because of its ties with the Soviet Union, and later under formal sanctions imposed in response to nuclear weapons tests in 1998. Those sanctions were lifted in 2001, a decision given impetus by the Sept. 11 attacks and the growing strategic alliance between the two countries.

Several of the Pentagon's largest contractors, including Lockheed Martin Corp. and Boeing Co., have either opened new offices or beefed up existing ones in India and are part of an industry-wide wooing of military officials and business leaders there. Sikorsky Aircraft Corp., maker of the Black Hawk helicopter, opened an office in India in April and is competing for a contract for 200 helicopters potentially worth more than $3 billion. General Dynamics Corp., based in Falls Church, bought an Indian company in 2004 and is using it to sell communications equipment.

The Aerospace Industries Association, a lobbying group, is planning a trip there in December with executives from up to 20 companies.

"The biggest hurdle is going to be patience," Torkel Patterson, president of Raytheon International Inc., said of joining the market. "We're getting to know each other." The company is hoping to sell Patriot missiles to India and to help it upgrade its missile defense system.

At stake are contracts worth billions from a country with expanding economic and strategic ties to the United States. While not the largest foreign defense market, industry officials and analysts consider it one of the fastest growing as it replaces fleets of Soviet-era planes and goes shopping for new radar and missile systems. India's defense budget is expected to reach more than $23 billion this year, compared with about $13 billion in 2000, according to Teal Group Corp., a Fairfax research firm.

"It's an untapped market that nobody has the inside track on yet," said Joel L. Johnson, a Teal Group analyst. "The Indians have money, their economy is growing and, so, U.S. companies are guessing that when our own defense budget finally gets crunched" the Indian market will be profitable.

Even after the arms embargo was lifted, hurdles to doing business remained. Indian officials worried that if the relationship soured again they could be left without critical spare parts, analysts said.

Last year, however, Indian Prime Minister Manmohan Singh and President Bush signed a joint statement that envisioned more defense cooperation and exchanges of technology. That, combined with White House and congressional support for the sale of nuclear technology to India, has made defense contractors confident that business will pick up.

The Indian Embassy declined to comment for this article, citing a policy against speaking about military acquisitions.

"India is clearly a nation we think we can build a lasting relationship with," Lockheed chief executive Robert J. Stevens said in a speech in London last month.

Overseas sales have become an increasingly important part of revenue for U.S. defense contractors. Lockheed, headquartered in Bethesda, aims to increase its foreign business to 20 percent of revenue by the end of the decade, up from about 14 percent now.

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