By Renae Merle
Washington Post Staff Writer
Thursday, August 31, 2006; D01

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.

Lockheed got a "toe" into the Indian market this year when it was hired to supply parts for submarines. "It's modest, but part of confidence building," said Ron Covais, Lockheed's vice president for corporate international business development.

Developing a significant presence in India will not be easy. The country has traditionally bought its weapons from Europe or Russia and has a complicated and lengthy procurement process, industry insiders say. "The cost of marketing could equal 5 to 10 percent of contract. You're looking at a lot of upfront costs," said Richard Aboulafia, an aviation analyst for Teal Group.

Los Angeles-based Northrop Grumman, the maker of the Global Hawk, has tapped the Maryland Department of Business and Economic Development for help, as it prepares to open an office in New Delhi, the Indian capital, next year. The agency has arranged meetings for the firm and introduced them to Indian military officials, company officials said. "They have been educating us on how the Indian aerospace business has been developing," said Scott Porter, a Northrop vice president.

Critical to any contract, industry officials acknowledge, will be partnerships with Indian businesses. The Indian government is expected to require contractors to do about 30 percent of the work in the country, aiding local businesses and ensuring that they will have access to critical technologies. Northrop and Boeing sponsored an event on the topic last month, drawing more than 300 attendees, including India's defense secretary, Shekhar Dutt. Tata Group, a $42 billion Indian conglomerate, receives several calls a month from defense contractors considering partnerships, said David Good, the company's North American representative.

The Confederation of Indian Industry has led three delegations of U.S. companies to India to meet with potential partners this year.

"It will help build the confidence that the U.S. is a reliable supplier," said Kiran Pasricha, the groups' deputy director general. "I don't want U.S. companies to be just a supplier, what we really need is co-production and investment by the U.S. and India to show a long-term commitment."

The largest near-term opportunity is India's plan to buy 126 fighter aircraft, which would replace their older Russian MiGs. Lockheed and Boeing are marketing their F-16 and F-18 aircraft respectively, squaring off against Britain's Eurofighter and Israel's Rafael. "That will be the bellwether. How serious is India in looking at us as a supplier, how serious is the U.S. in releasing technology?" Teal Group's Johnson said.

For both Lockheed and Boeing the orders could help extend their production lines. Lockheed has supported the F-16 line for years with international orders, but recently began laying off hundreds of workers as it prepared for demand to dwindle.

"If they pick us to recapitalize their Air Force, you're talking about 25 years of relationship," Lockheed's Covais said.

Staff researcher Richard Drezen contributed to this report.