Doing defence with Uncle Sam - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Tuesday 18 May 2010

Doing defence with Uncle Sam

A view of the tarmac at the US Navy base, Oceana, in Norfolk, Virginia. There are 16 squadrons of F/A-18s currently located in this base alone.

by Ajai Shukla
Business Standard, 18th May 10

I spent this last week travelling in the United States at the invitation of The Boeing Company’s defence arm, Boeing Defense, Space & Security (BDS). I visited Boeing’s rotorcraft facilities in Philadelphia; a US Navy aircraft carrier (USS Harry S Truman) and naval air base (Oceana) in Norfolk, Virginia; Boeing’s space division in Florida; and its C-17 transport aircraft plant in California. With the US-India defence relationship on a high-growth trajectory, here are my perceptions on what India is dealing with.

The most striking characteristic of the US defence industry is its primarily inward focus. About 85-90% of the combined revenue of US defence corporations accrues from sales to the US army, navy, air force, marine corps and coast guard; just 10-15% of their revenue comes from overseas. In contrast, non-US defence contractors --- including those in Russia, Europe, Canada, Brazil, Korea and Singapore --- need significant overseas business to cover their development costs. But the volume of sales to the US military amortises the development costs and renders overseas buyers like India peripheral in terms of market leverage.

India’s Ministry of Defence (MoD) likes to believe that its big arms purchases place it in the driving seat while tendering and contracting. In buying from non-US companies, this is indeed true. But, in buying from the US, New Delhi’s leverage is hardly impressive.

Take, for example, India’s proposed purchase of ten C-17 transport aircraft. The Boeing plant in Long Beach, California, has already delivered 200 C-17s to the US military and more are in the pipeline. 

Or consider India’s procurement of 126 medium multi-role combat aircraft (MMRCA), a deal that has generated so much hype that South Block might believe that this is the biggest fighter purchase ever. In fact Boeing, which is offering India the F/A-18 Super Hornet, has already sold the US Navy and Marine Corps over 900 F/A-18s (Hornets and Super Hornets); another 320 have been sold abroad. A single US Navy base at Oceana is home to 170 F/A-18s.

This commercial security allows US defence companies to walk away from contracts where New Delhi lays down conditions that are difficult to meet. Texas-based Bell Helicopters has already declined to participate in India’s tender for 197 Light Utility Helicopters (LuHs), citing unreasonable offset provisions. BAE Systems refused to offer its M777 gun in the Indian tender for ultra-light howitzers, apparently because the trial requirements were unreasonable.

Nor could New Delhi have missed the withdrawal by Lockheed Martin and Boeing from the tempting Indian contracts for consultancy assistance in developing the Tejas Light Combat Aircraft (LCA). The reason for the withdrawal: the State Department bureaucracy refused to allow US participation, apparently because the contract involved passing on sensitive technologies to India.

And that is my second big impression: that India is not yet a part of the high table. When one of America’s longstanding defence partners --- the UK or Australia or Japan --- make a request, whether for high technology, or early delivery of an important weapon system --- a quick wink from Foggy Bottom (the Washington neighbourhood where the US State Department is headquartered) gets the department’s notorious bureaucracy to crank out a quick “yes”.

But Washington’s new strategic partners, like India, do not benefit from such perks. Even during the second Bush presidency, at the high-water mark of the US-India relationship, New Delhi’s requests were never accorded the priority clearances that London, Canberra and Tokyo enjoy. New Delhi complains that the ground floor in Washington doesn’t know what the top floor is doing, but the answer --- according to Beltway insiders --- is that it will take years of relationship building before the American bureaucracy reacts to India with the Pavlovian positivity that is accorded to Washington’s three key defence partners.

The third issue that strikes a visitor is the care with which Washington safeguards its technological prowess. Technology is transferred overseas only after ensuring that the US defence forces retain a technological edge. For example, the AH-64 Apache helicopter, which will undergo trials in India this July, will be by any standards a cutting-edge weapons platform. But, even if India becomes the 12th international customer of the Apache, the US Army will fly a Block III version of the attack helicopter that will be equipped with technologies that no international customer will be given. And the reality of America’s technological dominance is that even the down-rated version of the Apache that international customers will operate might well be superior to its nearest competitor.

These are aspects of the US-India defence relationship that India must evaluate unsentimentally, shedding the rhetoric that creeps into discussions relating to the US. This is difficult, given the historical complexity of the relationship and the grudge that India nurses over Washington’s relationship with Islamabad. But, with America, what you see is what you get; it is up to India to cherry-pick and take what suits it.


  1. Ajai, a very valuable analysis. Should help the planners.


  2. i dont know who could possibly have had illusions about point #2. Oh wait, our Honorable PM, thats who.
    The inward focus of many defense contractors is changing largely due to uncertainties in the defense budget allocation under the new US president, B H Obama. The replacement for KC135 is under cloud as well. Maybe a sign of times to come. In this context, I fully expect India to have greater buyer leverage in the coming decade.

  3. "...and renders overseas buyers like India peripheral in terms of market leverage".. However, I think, the fact that you were **invited** by Boeing to take a tour of the BDS facilities partly negates your aforementioned statement. "peripheral" today, not so tomorrow!!!

  4. Ajaiji, once again you have hit the nail on the head. Your analysis about Indian defence are mostly spot on and in this case it is a perfect bulls eye.

    Indian public, ably supported by the politicians and jingoistic media over the past 2 decades have made Indians delusional. I am baffled when I hear people proudly proclaiming that India is a superpower or on the cusp of becoming one. TRP based media has completely obfuscated the true facts about our country's abysmal infrastructure and poverty. For some reason we have started to accord ourselves more importance than we truly deserve. Compare and contrast China's "walk silently and carry a big stick" policy. They have transformed themselves into a truly global power without being a poodle of anyone or making too much fuss. That is a sign of a truly mature and great nation. Indians alas have never grown up beyond their high school Bollywood nautanki. We have after all the ultimate weapons of mass destruction in Sunny Deol and Rajnikanth. Rest is just MAD.

  5. 14 May 2010 - The Indian Army is to conduct 'confirmatory' trials of the BAE Systems M777 155 mm/39-cal lightweight howitzer in the western Rajasthan desert prior to acquiring 145 guns via the US Foreign Military Sales (FMS) programme.

    Military and defence industry sources in New Delhi told Jane's that the M777 trials with Indian-made ammunition were intended merely to 'validate' the FMS agreement under which India will acquire 145 units with Selex Laser Inertial Artillery Pointing Systems for USD647 million.

    Industry sources anticipate the deal being signed by the end of Fiscal Year 2010-11 next March.

    Thereafter, howitzer deliveries are expected to begin within 18-24 months to equip two mountain divisions for deployment along India's disputed northeast frontier with China.

    Logistical and technical support for the trials will be provided by a joint venture between BAE Systems and Mahindra Defence Systems focused on armoured vehicles - a partnership formed recently with an INR1 billion (USD22.22 million) equity on a 26:74 basis favouring the latter.

    BAE Systems has declined to confirm or deny the M777's date of arrival in India for testing.

  6. Japan and UK are not just long standing defence partners. They strictly follow US orders when it comes to invade a country illegally or setting up a huge US base(Okinawa). That is the only way to impress the US. Should India do that? Its better to follow the example of France which has a self sufficient defence industry.

  7. Brilliantly written Ajay! You don't fail to impress.. Fantastic! I wish people in the Indian Ministry of Defence read this

  8. It's a good article! well done! the author has to work off his trip to US for Boeing' money.

  9. One of the best articles I have read on this blog

  10. I am glad that you are finally getting to understand how the US and the world view india. India belongs nowhere near the top table. It is at most a third tier nation. A country whose only leverage is buying weapons to try to get some sort of leverage vis Pakistan. It is a country that gets aid from the likes of UK because it is poor and 100's of millions of its people are below the UN poverty line.

  11. US refused to supply Japan with the F/A-22 Raptor. Instead Japan is now building its own 5th generation aircraft.

  12. Beautifully crafted and well said. Hope Indian government is reading these comments. Great job SIR. Please keep doing.

  13. ith you that India is yet to gain adequate clout to dictate terms to US or EU, but the very fact that they want an opinion-maker from India to see their sdie shows that we are on our way up.

  14. Excellent and dispassionate analysis of the US India relationship. Thank you once again and congratulations for the excellent pieces on Arjun MBT.
    PS: Wondering if the gun turret on the Arjun MBT can be called Gandiva :).

  15. Well the military budget of the United States accounts for about 50% of the combined military budgets combined of the all the countries on Earth. This does not prevent the US from being the largest arms exporter on Earth.

    Boeing has recently announced that it was going to slow C-17 production from about 15 a year to 10 a year. That Indian order, will thus keep the Boeing plants and suppliers going for a full extra year. I think that puts India in the driving seat these days.
    The United States modified its ITAR laws to allow Canada to purchase just 4 C-17s in 2006. It exempted the employees of the Canadian Government and the military personnel of the Canadian Military from having to be ITAR-compliant (ie not be born in certain countries). Either they did that or the sale would have fallen through for that US ITAR stipulation was against Canadian law and would have prevented Canada from purchasing the aircraft.

  16. the terminator18 May 2010 at 19:37

    The way you put it the US does not need India, its core friends or any other country for its defence business. It is as if US is doing a big favour to countries that it sells its military hardwares.

    If that was the scenario, why the hell is the US so keen on selling its hardware to India and other countries? It is like the US wants the cake and the same time eat it.

    If there were no other countries (Russia,France, Germany and UK to mention a few) in the arms business, then the US can and will undoubtedly ride roughshod as it pleases.

    Even the US has realized that it needs foreign orders to keep its military industrial complexes running or face the stark possiblity of unemployment in those industries.

    Safe guarding IPs and cutting edge technology should not be the only criteria for technology denial or sanctions which the US is notorious for. The US has proven that it has only its interest at heart. It is a fair weather friend at best. Such friendship is too frail to last.

  17. Well we are not superpower's or have a great deal of strategic importance to US to talk with them at same level. US military is massive and for India to come anywhere near it will take decades, this not new too.

    Japan, Aussie and Brits are American puppets, there order's are given preference because they order what the Americans want them to order.

  18. Hi Ajai! I used to live in Virginia Beach, VA area. Brings back memories of F-18s flying over head so many time. Hope you had a chance to visit the beach.

    P.S. My uncle lives there and owns a motel at the beach. Would be much obliged to get you a good deal for you and your family at the beach.



  19. The obsession with anything American betrays India as a country which lacks self-confidence and even self respect.How can we become a superpower if we are so proud of using foreign arms ?

  20. As usual with Ajay sir, another superb post

  21. Balanced opinions presented in the post. India should have increasing business with America in the field of defence for the sake of quantity.

    However India will never be able to penetrate in to the core group of America as it may require some special attributes. So India will have to be satisfied and convinced with what ever level of technology is offered to them. Also India should as always be careful and pre-warned of sanctions regarding cutting edge technologies.

  22. A great analysis. Although i am from Pakistan but i want to add something here. I have a little different perspective on this, perhaps as an outsider but: It is true that USA's defence industry is largely inwards, but USA is always in search of new partners in its policies. The dealings that india is having with USA (and vice versa) are not merely defence dealings, but political engagements for the new american century project, according to which usa has to more actively search for new partners in south asia and in other parts of the world. The best option that usa has right now is india in south asia. It is after all its problems, still quite an economy and looking promising. This is what USA basically requires and is in dire need of. the inclusion of india in afpak is pretty much in the same context.

    what basically the point is that if you only view deals with usa in military perspective, then you are missing the american point of view here. they want a close partnership with india and military deals only act as catalysts. USA will pretty much go to great extents over deals with india overlooking its inwards defence sufficiency and all. The MMRCA deal will most likely go to the American F18 hornet for many military reasons, but most of all the political alliance with india that usa now needs to counter china in the great game. i believe, indian officials up there know this well and that is why you see all the huge offset demands and expectations. In one word: keep it political, because usa wants to keep it that way. As far as india can maintain a sound and equal political partnership with usa, fulfilling military needs of india are of no matter to usa. If the need for bharat is no more felt by usa, it will be left out in the cold with its equipments rusting and hungry for spares. its that simple with the yanks.

  23. Well, couple of questions here Ajai.

    Firstly, I remember your comment on the millionth visitor to your blog- "No advertising accepted to maintain neutrality of blog views". Does that statement still hold, given that you "accepted" the Boeing invitation to visit USA. I am in the US for the last 2+ years and if there is one thing i have learnt in this country it is that "There is no such thing as free lunch". Would love to hear from you and read your future blogs for signs of "blog neutrality".

    Secondly, I agree that India is still a nascent defence market for USA. But 10 years from today, which is what i am sure the US defence manufacturers are looking at-India will be a different market. The US economy, saddled with debt, will be and is reducing expenses on defence and capital equipment. Case in point-reduced orders for the Raptor/Spirit. Makes perfect sense-there is no country currently with a defence mechanism so advanced, and it will take a China 15-20 years to reach the level of sophistication the US has today. The days of a single order for 336 F-18 (was it 335?) spread over 4 years are gone. Boeing realizes that. Hence it is pursuing the 126+74 (options) Indian order. It would also propose a "downgraded" version of its F-18. That's also fine. What is not fine is conditional maintenance support (dependent on foreign policy, end user agreement to mention couple of areas) and non-technology sharing for critical components (Radar for one) for the planes it sells. This should be mentioned in bold in your post. This is a critical decision that the Indian armed forces would have to make (Independence with less glamourized platforms or Dependence with glamourized platforms) before deciding. I would not comment on effectiveness. I believe the true mark of platform effectiveness is dependent on the user, if the platforms are not lagging a generation or two.

    If it were my money and decision-I would buy SU-30 MKI's with the new Irbis-E radar anyday and integrate the new technologies (300 Km AESA radar, 3-D Thrust vectoring, Improved avionics, a superb turbofan engine-not a leaky turbofan)into the LCA/MCA in 5-10 years. But then, if wishes were horses....

  24. For the US as a whole, the really important thing is that an Indian airforce that buys the MRCA is an Indian airforce that is open to American influence. Weapons sales translate to influence. American influence leads to .....????

    Also, that while Indian weapons sales might only be gravy to the US firms, by winning contracts in India, they take away the meals for their counterparts in Europe and Russia, who need the Indian market. It is a win win for them.

  25. I am surprised that the inward looking culture (US Arms CO's)comes out as a surprise to so many posters on this thread. For Ajai it might have hit home after this trip but for others? hmmmm.
    I work in the IT industry so i know what it means (also been to US). A few years ago when i went to the graveyard outside Tucson (those who are into aviation should go there, it's the ultimate place to be). There were thousands upon thousands of fighters lying there in the open without their engines and other sensitive parts. That gave me some indication of how big US military was and their economy. Another example i heard while flying (in US) was that at any given time there are over 9000 planes flying over US airspace, and at that time (a few years ago) Indian railways would run that many trains on any given day. Quite shocking but that gives us a sense of how big that country's economy is vis a vis it's population. If anyone of you see their banking sector or the insurance sector or their healthcare sector (and i suspect many posters here work in some of these sectors in India)you would know (and perhaps feel) how big their economy is.


  26. Anonymous 02:39:

    I suggest you don't lose any sleep about my neutrality; let me worry about that. When you find my writing becoming biased towards one side, simply stop reading me!

    By the way, the guy who said there are no free lunches was clearly not familiar with journalism. All of us are lunched and dinnered, sometimes even breakfasted by Indians, Americans, Swedes, Singaporeans, Brits, French, Germans... you name it, they pay the bill.

    So which one of them shall we favour?

    My friend, there are honest journalists and bought-and-paid ones. The honest ones can meet over a free lunch, go on a fully-paid-up trip, laugh, back-slap and still do a fair and balanced article. And there are journalists who can legitimately claim that they have never accepted a lunch or a facility-tour... but you'll still find their writing one-sided. So it might be a better idea to look at the integrity of the structure, rather than obsess only about the facade.

    You are also entirely wrong about the US cutting the Raptor programme because it is "debt ridden" and a declining superpower. The Raptor was cut because it was a Cold War platform in a War on Terror era and because it was way to expensive to keep in the air.

    For the short and medium term future, the US will remain the world's predominant military power, and I do not see any country leapfrogging it technologically for at least another few decades.


    Thanks for your kind offer. Am in Chicago airport waiting for my flight home!

  27. @ shumayel

    I agree 99% to what you have said; the other 1% being the fact that Russia (or the old USSR) for that matter behaves in the same manner. That is peddling its own view of the world through arms sales.

    The weapon systems that Russia hawks around the world are at their best only about 90% (capabilities) of their western (read US) counterparts. This is aptly highlighted by Aeroflot’s or Air India’s or Indian Airline’s inventory (composition off) during the glory days and the subsequent decline in Russia's civilian airliner (making) capability since the end of USSR.
    So i guess if Indians are looking to buy cutting edge weaponry we have to buy from US (directly from the horse’s mouth as they say) or Israel (moderately modified one). Furthermore, India being a low to moderately democratic country has more in common values with the US than oligarch (read mafia) infested Russia (barring arms sales thus far).

    @ anon 2:39

    I think Ajai would have been invited by Boeing because he's jouro with a newspaper (yes he does help shape opinions) rather than a blogger. Moreover, i suppose what he's written here is not verbatim (or vice versa) to his report in that newspaper.


  28. I certainly hope your blog retains its neutrality.

    And yes, my name is Tathagata (Tats in short). Have posted a lot of comments/read your blog regularly anonymously :-), will sign my comments in future.

  29. Hi Ajai ji,
    Your comments should be eye opening to the people, who are running behind F-16/18 for MMRCA. The MMRCA is commercially most useful for Gripen or Rafale(Although it is useful for all particiapnts). It is least useful for Americans commercially. You can bargain well only if person sitting before you, needs you badly. Otherwise you have to compromise. If India wants good aircraft with useful technology transfer, then choice is Rafale. If India wants a good aircraft wchich is cheaper, therefore number can be increased easily from 126 to 200, then choice is Gripen. I go with Gripen, because FGFA will come before 2020.
    Punit Shukla

  30. Lungikawasta:

    The blog posting on "Doing defence with Uncle Sam" is identical... verbatim... to my Business Standard column. Go to the BS website and check it out for yourself.

    I don't run two standards simultaneously.


  31. Boeing has show POK as part of Pakistan in one of their latest PowerPoint presentation, need we do business with these nincompoops! That is callousness to the core from the part of his company. Refer Livefist blogger for an update on this matter.

  32. Ajai- good article. I am glad you pointed out the fact that we need to stop thinking of ourselves as 'economic or military' superpowers and the fact remains that $10-$20 billion is really nothing much for these huge military contractors to spend much time on. So, we need to actually be grateful for what we are getting, after all, where do our indigenous programs stand?

    I am glad you saw what makes a superpower, and what thinking big really means. Too bad our own dhotiwallas are busy applying their limited point of view to all strategic issues.

  33. For a moment I thought "Doing DRUGS with Uncle Sam". In fact, defence is like drugs. The more one gets, the more one wants. Its never enough.

  34. I feel you are trying to point out that US cares a damn whether we purchase their stuff or reject. So we need to consider it as our greatest fortune to have someone like US agrees to honor us with their products. You are right there are some brief benefits being the big boss’s bitch like the pakis.
    Please don’t forget there are other potential countries to which we can apply our buying power and get better bargain. US is always insistent on its customers to be constantly dumb and make all necessary steps to maintain it that way.
    Getting a( so called) slightly technologically superior product at the expense of being completely docile to a country which openly support our arch enemy with weapons which could seriously jeopardize our national security.

  35. Really nice and thoughtful article ajaiji..Our babus shud visit this blog regularly..

  36. Yes, $10B is not much.

    However, considering India plans to purchase 100B worth of arms over the next 10 years, it would be foolish to walk away from a deal that has a potential to sell several add on products, and upgrades.

    Also, US military investments during a republican administration cannot be compared with a democratic administration. Especially when there is massive shortfall in tax revenue.

  37. Great write up there Ajai.
    On a related note, how many of these 126 fighters are actually going to see active duty in a war or a dog fight. Let's face it, these mass orders are just meant to build a deterrence so that our rivals can take note of it and not attack us. If that's the case, does it really matter if we get the best jets out there in the market, or should the second best also suffice, especially since the money saved could definitely be used elsewhere.

  38. Saraswat of DRDO had recently announced an initiative to set up a testing lab to validate imported software / hardware, and check for Trojans. Hope these considerations will be kept in mind when doing any defense deals with suppliers from any country.

  39. Khud hee ko kar buland itna,
    Ke current super power tujh hi se puchhe,
    Bataa teri razaa kya hai.

  40. see the indian airlines they have only BOEING planes and NO OTHER PLANES because UNCLE SAM is LIKE THAT....

    see canadas HIGHEND PLANE SIMILAR TO LCA in looks GONE TO .....

    stopped super computers

    stopped cryogenic engines


    navy consultancy...

    see what happened to gripen when they came in compitition in MMRCA

    TELL ME ANY ... ANY COUNTRY...which developed under us into a superpower ...dont tell japan,isreal etc they are up with own strength ...UNCLE SAM CREATES ONLY POODLES AND SLAVES ....OF THE NEXT GENERATION ...BY GIVING /SELLING/STOPPING ...the US TECHNOLOGY.........................

  41. Are there any free lunches? It is a correct question asked to a wrong person, a journalist. This question should be asked to people who pay for the lunch! The answer is that their money is well spent on journalists because they are able to change public opinion through mass media. You don’t bite the hand that feeds you! Millions of dollars are spent on acquiring transponders on a given satellite because of the footprint or the people it covers. Give me total control of a transponder and just two months. I can play marry hell with the perception of the target population. The last sentence is not mine!

  42. If we do not have leverage with A particular supplier country, then why not do business with one with whom we do, such as Russia and the Europeans? It is a myth (largely pushed by US media and Hollywood) that US weapons systems are superior to Russian systems. Whether it is the C-17 vs An-124, or the PAC vs S-300 or any other system, their systems are comparable to the Russians, but at higher costs. Low costs for systems does not mean there are technologically inferior, just that development, labour and local costs (and perhaps margins) are lower.

    Nonetheless, since your trip was sponsored by Boeing, it is understandable that you feel the way you do, gratitude is certainly to be expected!


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