Boeing Reports Order Rebound

Thanks to a strong 737 performance, Boeing hit its 2010 delivery target and ended the year with 530 net orders.

The company took in 625 gross orders but had 95 cancellations, mostly in its widebody programs and mostly early in the year.

The 747-8 gained one order but lost two and has a backlog of 107 orders. The 787 gained 37 orders but ended the year in the red with 41 cancellations. It totals 847 orders.

Boeing attributes lost orders to weakness in the market rather than dissatisfaction with its product line even though both of its flagship development programs—the 747-8 and 787—are running late.

An announcement is expected within weeks of when Boeing expects launch customer All Nippon Airways to receive the first 787. It was supposed to get it in the first quarter this year, but that deadline will be missed.

The 767, which will see the 1,000th aircraft enter production next week, received three orders in 2010 and holds a backlog of 50 airplanes.

The 777 gained a net 46 orders after suffering 30 cancellations. Its backlog stands at 253.

The 737, which has a backlog of 2,186 units, ended with 486 net orders after suffering 22 cancellations. To meet demand, Boeing has said it will produce 38 737s a month in 2013, up from the current average of 31.5/month. Some analysts expect it to make an announcement shortly that the rate will be lifted to 50.

In all, Boeing’s backlog is 3,444 aircraft, largely the result of peak order years from 2005 to 2007 that each took in more than 1,000 bookings.

F-35B Put On Probation; New Bomber To Go Forward

Defense Secretary Robert Gates has put the U.S. Marine Corps’ troubled F-35B short-takeoff-and-vertical landing (Stovl) Joint Strike Fighter on “probation,” while endorsing the U.S. Air Force’s long-coveted new bomber program.

The F-35A and F-35C models emerged unscathed from Gates’ review. However, the F-35B “is experiencing significant testing problems,” Gates said at the Pentagon Jan. 6.

Implying that problems are more serious than previously reported, he adds that “these issues may lead to a redesign of the aircraft’s structure and propulsion — changes that could add yet more weight and more cost to an aircraft that has little capacity to absorb more of either.”

The JSF test program will be restructured so that testing of the F-35A and F-35C runs ahead of the B model, rather than the other way around. If the B model cannot be “fixed or gotten back on track” in two years, “I believe it should be canceled,” Gates says.

Gates’ comments came during a press conference announcing a series of budget efficiencies designed to cut or redirect more than $150 billion from current Defense Department spending over the next five years.

Delays to F-35B testing so far — fewer than a dozen vertical landings have been logged since March 2010 — have been publicly attributed to a problem with the auxiliary engine inlet door, and individually minor issues with components such as cooling fans.

More details of changes to the JSF program also emerged, including another delay in the completion of systems development and demonstration (SDD) and a cut-down production ramp. SDD is now delayed to early 2016, versus mid-2015 as planned in the restructuring of the program early last year. SDD finishes with the conclusion of development testing and precedes initial operational testing and evaluation, so the move likely will push initial operational capability (IOC) into 2017. (The individual services are assessing their IOC dates.) This will cost an additional $4.6 billion to the program.

The Fiscal 2012 JSF buy — low-rate initial production (LRIP) Lot V — will be held at 32 aircraft, both to reduce concurrency and because “the final assembly process at Fort Worth is still maturing,” Gates says. Deliveries at this point are late by multiple months.

In Fiscal 2013 and later, deliveries will ramp up by a factor of roughly 1.5 per year, for a total of 325 aircraft through LRIP IX (on contract in 2016 and delivered by 2018) versus 449 in the previous plan.

The LRIP IV contract, just signed, will be changed to eliminate all but three Stovl aircraft. The U.S. will buy only six Stovl aircraft in each of the next two LRIP Lots (V and VI), regarded as the minimum needed to sustain the supplier base and unique skills.

Gates indicated in response to questions that a last-ditch appeal by Marine Commandant Gen. James Amos and his predecessor may have saved the B-model from outright cancellation. Gates said the commandants made a convincing argument for more time to fix the program.

The Navy also plans to acquire more Super Hornets and extend the structural life of 150 “classic” Hornets as a hedge against late JSF deliveries. The service will buy 41 more F/A-18s in Fiscal 2012-14.

Meanwhile, in a major breakthrough for advocates of long-distance airpower, Gates strongly endorsed a program for “a new long-range, nuclear-capable penetrating bomber.” The Air Force has been struggling to get this program reinstated since Gates deferred development of the so-called “2018 bomber” in 2009, against the opposition of some senior Pentagon leaders who argued that smaller unmanned aircraft, plus cruise and ballistic missiles, could adequately supplement existing bombers in the foreseeable future.

Gates also announced decisions on a number of controversial aspects of the new aircraft. It will be nuclear-capable — some had argued for this, on the grounds that radiation-hardening is relatively inexpensive at the design stage and costly to retrofit, while others had opposed it because it brings the bomber within the scope of arms-control discussions. Gates also says that it would be “optionally” piloted rather than unmanned, and that it would make use of existing technologies to speed development.

Southwest Could Alter Frequent Flyer Landscape

Southwest Airlines on March 1 will implement a long-awaited major overhaul of its frequent flyer program that has been years in the making, creating a new system that not only is aimed at increasing the program’s appeal to business travelers but also ties rewards to how much a customer is willing to pay for a ticket.

The new system replaces a program that awards credits for each one-way trip, for the most part without regard for flight distance or fare paid, and offers awards without regard for distance or cost. The old system also makes the credits expire after two years and includes some seat availability restrictions and blackout dates.

The overhauled Rapid Rewards program effectively awards customers with unexpiring “currency”—weighted toward customers paying higher fares—that they can cash in for any available seat on any domestic flight at any time. Redemption requirements also are weighted.

Southwest could find itself leading the way in changing how frequent flyer programs are structured, predicts Jay Sorensen, president of U.S.-based IdeaWorks, which advises airlines worldwide on ancillary revenue and loyalty marketing programs.

Sorensen says Southwest did not hire IdeaWorks to help with its Rapid Rewards overhaul. Nonetheless he sees the program as validation of a trend IdeaWorks predicted in late 2008: that mileage-based frequent flyer accrual will slowly be replaced by points tied to the fare paid by the passenger, and that mileage-based rewards will be replaced by market-priced awards that let members spend point balances to buy reward travel.

Some airlines already had moved in that direction and most new ones do, with carriers such as Virgin Blue, Vueling and Virgin America linking accrual to the fare paid by passengers and offering market-priced awards. But Southwest, for its sheer size in the market and the extent to which it has tied points to fares, could have a bigger influence if its program proves successful, Sorensen believes.

“Mileage has nothing to do with the value of the customer,” Sorensen says. Airlines used it as a proxy when frequent flyer programs were launched, because the first revenue accounting systems joined up revenue to the ticket, not the reservation. That barrier does not exist for most carriers anymore, but they are “fully invested in miles for everything they do," he says.

Southwest, on the other hand, had ample motivation to make big changes. Its Rapid Rewards program was created in 1987, when it was a leisure carrier serving primarily short-haul routes. It since has grown into a nationwide carrier with more medium- and long-haul routes than it used to have, carrying more domestic passengers than any other U.S. airline and making a big push to increase its business traveler appeal.

The airline already has put its flight availability and fares on GDSs, expanded its corporate sales department and created products to offer priority boarding and security lane access. It began service to congested business-market airports it once would have avoided, such as New York’s LaGuardia, and is installing inflight Wi-Fi.

But Southwest Chairman, President and CEO Gary Kelly says non-Southwest customers told the carrier the No. 1 remaining thing it could do to attract more business travelers would be to improve its frequent flyer program.

“It’s one of the centerpieces of our revenue-generating strategy going forward,” Kelly says.

The overhaul also should enable the carrier to raise more revenue in other ways, such as with more loyalty program partnerships, higher utilization of the branded credit card, more incentives to purchase a higher fare and more loyalty, the airline believes. Kelly says the airline expects the new program to add hundreds of millions of annual revenue for the airline eventually.

The risk, Sorensen notes, is that the program's structure could be confusing. Under the new Rapid Rewards, members will earn points based on the fare purchased. Southwest sells tickets in three fare families—Wanna Get Away, Anytime and Business Select.

For the lowest fares, Wanna Get Away, travelers will earn six points for every dollar spent. For the higher Anytime fares, they will get 10 per dollar. And for the highest fares, Business Select, they will get 12 per dollar. Loyalty program members who fly enough to attain a higher status (A-List or the new A-List Preferred) will get bonus points, enabling points earnings as high as 24 per dollar. Members also will earn points with purchases made on the branded credit card.

To redeem points, customers will use them as cash for purchasing tickets on the website. For Wanna Get Away fares, 60 points will equate to one dollar. For Anytime it will be 100, and for Business Select 120. After conducting a flight and fare search, customers can toggle to a matrix showing the cost in points for the same flights, so customers will not have to make the calculations themselves.

Customers will be able to use the points to buy seats on any flight at any time, as long as there is an empty seat on that flight available for sale. There will not be a fee for booking with points, and points will not expire as long as the loyalty program member purchases a ticket or earns points in other ways during a two-year period.

“We’re looking at this as an extension of currency,” Kelly says. “It works just like money.”

AirAsia Says Airport Taxes Too High In India

Malaysia-based budget AirAsia says high taxes are affecting its business model, which has led it to pull out of Hyderabad International Airport, starting Jan. 11. The carrier is also leaving Trichy Airport in South India.

Hyderabad Airport recently lost business from Sri Lankan Airlines and Gulf Air, which terminated operations to the destination.

AirAsia is also suspending service from Chennai to Penang, starting Jan. 21, although it is increasing frequencies on other sectors. Aviation Week learned the pullouts could be temporary because the carrier is not giving up its slots.

The airline is now turning its sights to Delhi International Airport. Along with India’s domestic budget carriers, it has asked the facility to convert the terminal used by low-cost airlines into an international and domestic budget terminal.

High airport taxes are hurting. “We are a commercial airline getting into a new market. If we have to pay half the ticket price in taxes on an average $100 fare, it doesn’t make commercial sense,” says Suresh Nair, AirAsia's regional manager for South Asia.

Now that 70% of airline operations in India are run by low-cost airlines, there is concern that the user development fee introduced by Hyderabad Airport could set a precedent for Bengaluru, Delhi and Mumbai.

“Fancy airports have been built with fancy charges, and they never saw the reality that is the budget model in their planning,” says an airline official.

"Budget carriers like AirAsia that follow a philosophy of advance booking for the best fares, can only do it if their operating costs are low … This attitude will not help the airport get more business,” says an analyst.

Interestingly, the first new airline to fly to the new Terminal 3 of the Delhi airport since its opening last August was AirAsia and the second was Thai AirAsia. No other new carrier has come since then.

AirAsia founder Tony Fernandes last year commented on India's airport dilemma. He said, “Indian airports are of two types. [There are] the private parasites who are doing a job. They put in money and want a return. But the danger is nobody is regulating their return. They look for short-term profits as opposed to long-term development. Then there are the government airports, where people get paid a salary [but] they do not do much work. Airports are always a problem in Asia.”

BA Expects Snow-Costs To Top GBP50 million

British Airways is warning of a ₤50 million earnings hit in the quarter ended Dec. 31, the third quarter of its fiscal year, because of snow-induced travel disruptions in Europe. The fourth quarter also likely will see a slight impact.

The airline, along with many rivals, was forced into several days of cancellations because of disruptions at London Heathrow and other airports. The cancellations depressed capacity by about 12% year-over-year, the airline reports in its December traffic figures.

BA also is keeping a close eye on fuel costs, and already has reintroduced fuel surcharges. Speaking on the sidelines of an Imperial College London forum on green aviation, airline CEO Willie Walsh notes that fuel prices still are broadly in the band the airline has been expecting, even if at the high end. BA has been projecting that, long-term, fuel prices will be around $80-100 per barrel. Walsh believes, though, that the current level, around $95 per barrel, is partly driven up speculatively and may not be sustained.

Gates' Legacy Mixed

Conventional wisdom has it that U.S. Defense Secretary Robert Gates will leave office this year, giving his successor time to build a resume that supports President Barack Obama’s reelection campaign. If so, that successor’s job will not be easy, and not only because he or she will not enjoy Gates’s unique advantage of being appointed by both a Republican and a Democratic president.

It will also be because many difficult problems that were problems when Gates took office are problems still. Some—such as the impending clash between budgetary reality and recapitalization PowerPoints—loom bigger than when he took office in 2006.

When most people think of Gates, they think reform. They think of a professional who came in to replace Donald Rumsfeld, the most unpopular secretary since Robert McNamara. But when it comes to how the wars in Iraq and Afghanistan have been waged and the American military posture is structured globally, the final record on Gates has not been written.

In 2006, Gates did two things for the war effort: He ordered the production of $20 billion worth of Mine Resistant Ambush-Protected (MRAP) vehicles that commanders in theater had been asking for to protect troops against improvised explosive devices (IEDs), and he began moving more unmanned aerial vehicles (UAV) into Iraq and Afghanistan.

Under Rumsfeld, only 25% of the Pentagon’s UAV fleet was being used in the Central Command (Centcom) area of operations. Since 2006, UAV operations have exploded from 165,000 hr. a year to over 550,000 hr.

But these initiatives have not come without controversy. Some have argued that the MRAP buy was too little, too late, since by the time they hit the streets of Iraq in late 2007, the worst of the IED threat had begun to pass, and the trucks proved too big and heavy for the unpaved roads of Afghanistan—leading to emergency procurement of the lighter MRAP All Terrain Vehicle (MATV). There is no doubt that they saved lives, but now the Pentagon is stuck with 16,000 heavily armored trucks that are difficult to transport.

Lt. Gen. Dave Deptula, who headed U.S. Air Force intelligence, surveillance and reconnaissance efforts until his retirement last fall, also critiqued the priorities for airpower set by Gates and the Joint Chiefs—in particular, the rush to generate more 24/7 UAV orbits with Reapers, Predators and Army Gray Eagles.

Deptula warned that the focus should be on the ability to gather intelligence, not numbers of aircraft, and that the Army’s plan to tie theater-range-capable Gray Eagles to individual divisions would be wasteful. (It was under Gates that the Army fended off USAF’s bid to take over operations of all Predator-and-up UAVs, in 2007.) And while two weapons could not look less alike than the fiberglass Reaper and an MRAP, the two have something in common: outside of counter-insurgent warfare in the Middle East, their utility is limited.

Operationally, in the conduct of the wars in Iraq and Afghanistan, Gates hasn’t always showed the decisive leadership he did on the MRAP and UAV issues. It was in 2006 that commanders in Afghanistan began to warn Washington and Brussels that the insurgency there was regaining momentum, though with the carnage in Iraq, their warnings went largely unheeded because Iraq required resources that might have been used in Afghanistan.

While a standing criticism of Rumsfeld’s tenure as Defense secretary is that he refused to relieve commanders in the field who were not successful, Gates has also left his field commanders alone. Joshua Foust, a defense analyst and author of the recent book Afghanistan Journal, says that in Afghanistan, Gates has “given the theater commanders carte blanche to create strategy, and he has exercised control of them only when public opprobrium has forced his hand.”

This hasn’t always been the case. In a messy 12-month period in 2009-10, Gates fired two commanders of the International Security Assistance Force in Afghanistan. First, Gates terminated Gen. David McKiernan in May 2009, saying “fresh thinking” was needed urgently, and replaced him with Gen. Stanley McChrystal, who had led the special forces war in Iraq and Afghanistan.

But after McChrystal and his subordinates made unflattering remarks about their civilian leaders in a Rolling Stone story, Obama fired him in June 2010, and demoted Gen. David Petraeus from Centcom commander to head the war in Afghanistan. And there was the March 2008 episode when Gates oversaw the resignation of Centcom commander Adm. William Fallon, who spoke out of turn in an article published in Esquire magazine that painted Fallon as the voice of reason, pushing back against hawks in the Bush administration who were clamoring for war with Iran.

On a trip to Afghanistan in December, Gates explained to a group of soldiers and diplomats what he thought the lessons of his two wars would be. “From the standpoint of the Defense Department, I think the lesson we have taken from both Iraq and Afghanistan is the need for a whole-of-government effort; that the kinds of conflicts that we’re in and most likely to be engaged in the years to come are going to be those where both a civilian and a military component are required.”

Other problems to be handed to Gates’s successor concern hardware and technology. Despite ample spending, U.S. services face heavy bills to upgrade and maintain fleets that are trending steadily older, with little relief in sight.

The explanation for this is that a lot of money has gone to programs that are years from delivering capability. High-profile canceled systems have not been replaced. Others have been delayed, which costs less directly but still leaves the services dealing with aging equipment.

One of Gates’s biggest terminations was the Army’s Future Combat Systems (FCS) project, canceled in April 2009. Since then, the Army has struggled with the conceptual design of a future Ground Combat Vehicle (GCV). In essence, GCV is supposed to do what FCS vehicles would have: be the centerpiece of the future battlefield, as the tank was between the 1930s and 1990s.

Gates’s time in office has seen the same lack of progress in the Navy, with the massive DDG-1000 stealthy land-attack ship cut back to three ships (that do not resemble any other Navy ships, technologically or in concept of operations) and the service planning to build the 1980s-design Burke-class destroyer into the foreseeable future.

The secretary’s record on airpower includes another high-profile termination, the F-22. His admirers presented this as a rational choice given the promise of the F-35. Gates savaged critics as the F-22 debate continued, stressing that the F-35 would cost half as much as the F-22, a number that doesn’t seem quite as solid now.

After Gates found out early in 2010 that the F-35 was running later than he had been led to expect, he sacked Program Office Director Maj. Gen. David Heinz. But in November, Gates’s press spokesman said the secretary was “frustrated” to discover more unresolved issues.

If Gates wants to know why he hadn’t heard the truth about the F-35 earlier, he can look in the mirror. One of the reasons Gates fired USAF chief Gen. Michael Moseley and service Secretary Michael Wynne in June 2008, was that they resisted his preference to kill the F-22 and transfer its budget to the F-35.

In addition, the sacking of a Rand analyst who had questioned the F-35’s air-to-air performance, and the willingness of high-level F-35 officials to denigrate other critics, made it easy for Gates’s top officials—Deputy Defense Secretary Gordon England and acquisition chief John Young—to squelch a fall 2008 report by the independent Joint Estimating Team that accurately predicted JSF delays.

Gates has delayed the development of a long-range strike (LRS) aircraft—which seemed imminent when he arrived—and instead spent time on a “family of systems” approach.

A result of delay is that the procurement “bow wave” becomes steeper each year and upgrades become essential and more expensive. With the F-22 cutback and delays to the F-35, USAF is forced to retrofit active, electronically scanned array radars to F-15s and F-16s as older systems become unsupportable.

That is why proposals to revoke the growth in the defense budget that happened in the 2000s look as drastic as they do. Funding the plans on the books today will call for defense spending to stay where it is, even if programs stay on budget. Reducing expenditures will call for major program cuts such as those recommended by the president’s bipartisan budget commission, which included termination of the F-35B, reduced V-22 purchases and major changes to other programs.

Not all of these things are Gates’s fault. But the disturbing picture that the Pentagon sees today is the result of actions by people who work for him.

Wind Tunnel Testing Begins for Stratos

The team developing the Stratos 714 single-engine personal jet reported yesterday that the project had received enough third-party funding to conduct wind tunnel tests of a 1/8th scale model. Those tests are expected to take place in April, probably at the University of Washington.

According to Carsten Sundin, Stratos Aircraft’s chief technical officer and vice president of engineering, the design of the four-place, all-composite aircraft was the product of extensive use of computation fluid dynamics (CFD). As a result, he said, the wind tunnel testing is being done essentially to verify what’s already known. Those tests should take 5-10 days, he said.

Up to this point the four-year old project has been financed largely by Michael Lemaire, a French high-tech entrepreneur who found success in India and Silicon Valley.

The Stratos 714 is to be powered by a single, 3,030 lb thrust Williams FJ-44 turbofan that should provide a 400 kt cruise at FL 410. Range is 1500 nm. Target price is $2 million.

Indian Navy Pushes Tech Self-Reliance

BENGALURU, India — The Indian navy on Jan. 5 declared its commitment to helping the nation become self-reliant in critical defense technologies.

Rear Adm. D.M. Sudan, assistant chief of the naval staff for air, says homegrown products enhance India’s strategic flexibility. The navy is widely perceived as the only wing of the Indian armed forces that backs indigenous defense research and development (R&D), as compared to the army and air force.

“Imports will have to be arrested and we will have to reduce our dependency on foreign suppliers and manufacturers,” Sudan told a select group of scientists and technologists in Bengaluru. “Today, the navy is operating many ships that are designed and developed [by] Indian industries. We are completely committed to the Defense Research and Development Organization [DRDO] and are closely watching various projects that [are] undergoing trials.”

Given the growing expectations of the Indian armed forces, Sudan says there should be a better dialogue between national R&D organizations and the Indian navy. “We certainly need to communicate better, and we are keen to know the strengths of Indian R&D firms,” he says.

“The private sector must be encouraged and roped in more for speedy production. Nonavailability of critical technology is a matter of great concern, and hence we are now entering into [joint ventures] with key players.”

He says the only way India can reduce its imports of foreign military technology is if DRDO’s work can be passed more quickly through industries to the Indian armed forces.

“Modernization should go hand in hand with indigenization,” he declares. “The Indian navy is also closely watching developments with laser-guided bombs that are developed by DRDO.”

The Indian armed forces rarely come out so strongly in support of DRDO, which often suffers delays and cost overruns. For example, the naval prototype (NP-1) of the Tejas Light Combat Aircraft is expected to have its first flight by March, although Indian Defense Minister A.K. Antony had said it would fly before the end of 2010.

“It is late by 3-4 months and that can’t be called a huge delay,” says Dr. Prahlada, DRDO’s chief controller. “We are ensuring that everything is in place and don’t want to hurry through. We will have the first flight of NP-1 in March.”

EU Carbon Prices Drift In December

European Union emissions allowance (EUA) prices drifted further in December to end the year on a weak note as buy-side support dried up.

EUAs for delivery in December 2011 took up the front-year position on the forward price curve after December 2010 over-the-counter contracts went to expiry on Dec. 1.

December 2011 EUAs closed at €15.10 ($20) per metric ton on Dec. 1, and drifted lower through the month to close at €14.05 on Dec. 24, which was the lowest price since July 27.

Traders said buyers were still present in the market but were not buying in sufficient volume to drive prices higher. The thin trading conditions also exaggerated the effects of a lack of buy-side support.

Some traders said companies with a natural shortage of EUAs such as utilities would be expected to re-enter the market in the first quarter of 2011 as they seek to hedge forward sales of power.

The weakness seen on carbon prices during November and December was also underpinned by rising coal prices, which make the emissions-intensive fuel less profitable for power generators, prompting those that can to burn cleaner natural gas.

Coal for delivery into Northwest Europe climbed from $104.40/metric ton on Nov. 1 to $117.75/metric ton on Dec. 24—the highest price for more than two years.

As expected, the United Nations climate change talks in Cancun, Mexico, did not see much progress on a possible extension of the Kyoto Protocol’s binding emissions reductions for industrialized countries, which expire in 2012.

However, the gathering did lead to agreements that aim to further reduce global emissions, and helped to rebuild some of the trust lost between nations at the 2009 talks in Copenhagen.

The Cancun package includes an agreement in which both industrialized country emissions reduction targets and developing country voluntary actions are officially recognized under the multilateral process. Countries formally recognized the role of market mechanisms to achieve emissions reductions, and agreed to report their emissions on an annual basis.

It was also agreed to boost Kyoto’s Clean Development Mechanism to increase investment in emissions reduction projects in developing countries, and to design a Green Climate Fund under the U.N. to deliver climate finance to developing countries.

Contract Talks Moving Slowly On MMRCA

India has proved once again that it cannot move too fast in acquiring a major weapon system.

Even as the evaluation of its Medium Multi-Role Combat Aircraft (MMRCA) tender comes closer to its final stages, evidence is mounting that downselect winners will not learn of their acceptance until the fourth quarter instead of the first.

The MMRCA contract promises an order for 126 aircraft and is the largest military procurement pending in India. It has drawn bids from the Mikoyan MiG-35, Dassault Rafale, Eurofighter Typhoon, Saab Gripen, Boeing F/A-18E/F and Lockheed Martin F-16.

India requires that any aircraft or weapon system introduced into service clear all tests and evaluations. All of the MMRCA candidates have completed user trials, including weapons, technical and maintainability evaluations. Currently, the bidders are being evaluated on their proposals for industrial offsets, with technology transfer to come next.

Only when this process produces a short list will their commercial offers be evaluated. The downselect is expected to eliminate two or three of the six initial candidates, but nothing is definite.

Vendors, who were supposed to have their evaluations completed last April have already been required to extend or revise their bids until next April because the initial selection process bogged down. If the defense ministry is not able to complete its downselect process by then, vendors will have to resubmit their bids and another year’s delay will ensue.

That raises the prospect that volatile financial markets might cause swings in currency rates that could change the value of the range of highest to lowest bidders significantly, given that rates are determined not when bids are received but when the commercial evaluation begins.

The holdup centers on terms for technology transfer, which must be completed with the main contract, a defense official explained. India requires that licensed production of the aircraft—including engines, accessories, radars, systems and tooling—be covered by the tech-transfer proposal. The ministry holds refusal rights on any specific item, and suppliers must provide full life-cycle product support.

Vivek Lall, vice president of Boeing India, views the process positively, citing “greater opportunities for the Indian defense industry to work with partnerships, or in collaboration with foreign companies thatwill likely continue to supply [the industry with] defense armaments and transfer of technology.”

But analyst V. Siddhartha of the Center for Air Power Studies in New Delhi has reservations. “There is no guarantee that the technology you get will not be state-controlled,” he says.

Former Air Chief S.P. Tyagi says that opening up the market to foreign direct investment will be good for India. The current limit is just 26%. But that level is too small to give foreign investors a meaningful say in board decisions, he says.

India sees everything from microtechnology and materials to prototype production emerging from MMRCA’s tech transfers. Air Vice Marshal M. Matheswaran, the assistant chief of the air staff, says the country can leverage MMRCA “to get what we want” and persuade vendors to “part with technology.”

Additionally, India’s domestic defense sector is favored by “buy local” and taxation arrangements. It also will likely require foreign firms to provide inputs into both platform and systems development, says Lall.