The New York Times

April 16, 2005 Saturday
Correction Appended
Late Edition - Final

SECTION: Section C; Column 2; Business/Financial Desk; INTERNATIONAL BUSINESS;Pg. 1

LENGTH: 1569 words

HEADLINE: Connecting to India Through Pakistan

BYLINE: By LESLIE WAYNE

BODY:

In the same day last month that the United States announced that it would
sell F-16 fighter jets to Pakistan, President Bush personally called the prime
minister of India, Pakistan's archrival, with advice intended to soften the
blow. The United States, Mr. Bush confided, had decided to allow fighter jet
sales to India as well.

Newspapers around the world put the Pakistani deal in headlines. But it was
the 15-minute phone call that was heard loud and clear by American military
contractors.

The jet sales to Pakistan have high symbolic value, but little in the way
of business promise. Two dozen new F-16's will be made available to Pakistan as
a reward for that country's aid in the war on terror and will strengthen a fleet
of about 40 F-16's acquired before Congress halted sales in 1990 to protest
Pakistan's nuclear ambitions.

But the decision to open up the Indian market means that contractors now
have the chance to sell up to 126 fighter jets -- with price tags starting at
$35 million each -- to a country with an aging military fleet of 800 jets, none
of them made in America.

''The real prize is India,'' said Richard Aboulafia, a military analyst at
the Teal Group, an aerospace consulting firm in Fairfax, Va.

''India would have gone on its merry way,'' Mr. Aboulafia added, ''but the
announcement of Pakistan getting the F-16's changes the game. For years, India
has coasted on Russian and locally made fighter jets. Now, if its adversary gets
real new American planes, it has to have them, too.''

For Lockheed-Martin, the potential sales to India mean that it may be able
to keep alive its aging F-16 production line and save jobs in Fort Worth, where
nearly 5,000 people work on the plane.

Alternatively, Boeing could benefit if India pushes for something other
than the F-16. That could mean new business for Boeing in St. Louis, where 5,000
people now build the F/A-18 Super Hornet and the F-15 Strike Eagle,
high-performance jets now exclusively used by the American military.

Moreover, any initial deals could lead to more Indian arms sales of all
types as New Delhi has announced a lavish spending plan to strengthen the
country's military and upgrade its armaments. High on its list are early warning
and missile defense systems, nuclear fuel and technologies and space-related
technologies.

Some critics denounced the Bush administration's move as contributing to a
South Asian arms race. But from the government's perspective, weapons sales to
Pakistan and India strengthen the American presence on the Chinese border and
open new markets throughout Asia for military contractors, which are looking
more to foreign buyers as the Pentagon budget comes under pressure.

As for India, which already supplies software to Boeing and Lockheed,
purchases of American arms would enable it to gain access to American military
technology and participate in co-production agreements.

''The last few years since 9/11 have been a gold rush for U.S. contractors,
'' said Jon Kutler, president of Quarterdeck Investment Partnership, a unit of
the Jeffries Group. ''But, in the next few years, we expect export sales will
become extremely important again as U.S. spending on these major weapons
platforms will start to go down.''

India has a number of American fighter jets to choose from. But the heavy
betting is on a fleet of F-16's, rather than large purchases of Boeing's F/A-18
and F-15 fighter jets, which are more specialized and more expensive.

The 20 or so F-16's to be purchased by Pakistan would add about a year's
life to a Fort Worth production line that had been scheduled to shut in 2008
because of a paucity of orders from the Air Force. An even bigger Indian order
would keep the F-16 line alive much longer.

''The potential for 126 jets is a significant program,'' said Tom
Jurkowsky, a Lockheed spokesman. ''If we don't get any more F-16 orders by 2005,
we would have to take action to close the line. India is a market we want to
pursue.''

Because of Pakistan's meager economy, $3 billion in American aid will be
provided to buy the F-16's. India, by contrast, has enough money to pay for a
large order of fighters itself.

First built in 1978, the F-16 has long been a powerful workhorse of the
skies and has been one of the most successful and profitable American fighter
jets ever made. More than 4,200 have been sold to 24 countries, but none to
India, which has relied mainly on Russian-made MiG's.

The lack of American fighter jets in the Indian military fleet reflects
decades of touchy relations between the two countries: the United States twice
cut off arms sales to India during cold war disputes, prompting New Delhi to
respond by displaying an even deeper distrust of doing business with a country
it could not consider a reliable military supplier.

With the Pentagon having all the F-16's it needs, Lockheed has relied
almost exclusively on foreign sales to keep the production line going. Recent
sales of 48 new F-16's to Poland and an order for 60 to the United Arab Emirates
were seen as the last planes to be rolling off the line.

At the moment, Lockheed is gearing up for production of a new generation of
replacement fighter jets, mainly the supersonic F-35 Joint Strike Fighter. But
that jet is still in development and will not enter American military service
for a few years.

With its sales declining, Lockheed has been paring down F-16 employment. In
January 2004, the F-16 line employed 5,800. That has since dropped to 5000.
According to Mr. Jurkowsky, Lockheed anticipates a work force of 4,000 by next
January if it gets no new orders.

''This is a new opportunity that was not there before,'' said Pierre Chao,
a senior fellow at the Center for Strategic and International Studies, a
nonpartisan group in Washington that closely follows international affairs and
generally favors a strong stance abroad. ''The reopening of sales to Pakistan
and the opening of sales to India extends the life of the production line, the
Fort Worth operation and the entire F-16 supply chain throughout the country. It
also provides the Air Force with a warm production line should it want extra
F-16's.''

Lockheed, already in discussion with India about sales of its P-3 Orion
patrol planes and the C-130J Hercules cargo plane, is rolling out the red carpet
and has said it could build exclusive F-16's for India with special features for
that country's needs. Last November, Lockheed anticipated these changes by
getting State Department approval to give India information on the F-16.

Lockheed executives, along with officials from Boeing and other American
military contractors, traveled to Bangalore in February for Aero India, a
five-day air show; about 25 more non-Indian military contractors were at the
show this time than at the previous show, two years earlier.

''If India's requirements are beyond any existing fighters, we are prepared
to make upgraded F-16's to India's specifications with complete transfer of
technology,'' Mike Kelly, a Lockheed senior executive said in an interview last
month with the Press Trust of India, a New Delhi news agency. ''We have, in the
past, taken up building of such exclusive fighters for the U.A.E. and we are
prepared to manufacture F-16's to India's special requirements.'' Lockheed would
not make Mr. Kelly available for further comment.

One of India's big desires is to acquire military technologies from the
United States that it could someday replicate. India, which will also look at
possible fighter jet purchases from European nations, is proposing that it buy
18 F-16's outright and that the remaining 108 be built in India under a
licensing agreement. This would be similar to arrangements Lockheed has made
with Turkey, South Korea and a number of NATO countries.

Under these arrangements, the F-16 is mostly built in the United States,
then broken down. The pieces are then shipped overseas and reassembled. This
arrangement creates jobs in two countries.

''India wants to do what China has done,'' said Stephen P. Cohen, a senior
fellow and South Asian specialist at the Brookings Institution, a liberal
Washington research group. ''They want to take a technology, improve it and then
build it themselves. They've already done this with ships and now they want to
do it with aircraft from the U.S.''

As for Boeing, which is already relying on Indian companies to provide
software for its new commercial jet, the 787 Dreamliner, the hope is to turn
these business ties into military sales.

The Boeing F/A-18, which is used exclusively by the Navy and Marines, is
capable of shipboard landings. India, which has just completed building its own
carrier vessels, may find this feature attractive, but the price of $50 million
for each plane could stand in the way. The top-of-the-line F-15, which costs
around $65 million a plane, may also prove too costly to buy in large numbers.

About 4,500 people work in St. Louis on the F/A-18 production line, which
has produced about 200 planes from a contract calling for around 200 more.

Boeing has applied for an export license with the United States government
and is meeting with the Navy to determine what technologies it can provide to
India.

''This could be significant for us,'' said Thomas Young, a spokesman for
Boeing in St. Louis. ''We are looking for new customers to increase the life of
our product lines.''


URL: http://www.nytimes.com

CORRECTION-DATE: April 21, 2005

CORRECTION:

In article in Business Day on Saturday about the sale of jet fighters to
Pakistan and India referred incorrectly to the market for the F/A-18 Super
Hornet and the F-15 Strike Eagle. The F-15 has been sold to foreign governments;
it is not used exclusively by the United States military. Earlier versions of
the F-18 are in use overseas; the latest model is flown only by the Navy.


GRAPHIC: Photos: The Lockheed Martin production floor in Fort Worth, where the
F-16 jet fighter is being built for Pakistan. (Photo by Jerry W. Hoefer for The
New York Times)(pg. C1)
 American contractors like Lockheed Martin now have the chance to sell up to 126
fighter jets -- with price tags starting at $35 million each -- to India, which
has an aging military fleet of 800 jets. (Photo by Jerry W. Hoefer for The New
York Times)(pg. C3)Chart: ''A Popular Workhorse''The declining production of
Lockheed Martin's F-16 fighter jet may be reversed if India is allowed to buy up
to 126 planes for its military.TOP 10 CUSTOMERS -- NUMBER OF F-16's SOLDU.S. Air
Force and Navy -- 2,284Israel -- 312Turkey -- 240Egypt -- 220The Netherlands --
213South Korea -- 180Belgium -- 160Taiwan -- 150Greece -- 140United Arab
Emirates -- 80Graph tracks worldwide deliveries from before 1980 to the
present.(Source by Lockheed Martin)(pg. C3)

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