*

Effort to upgrade air force's inventory began in 2007

*

Offerings could include fifth-generation stealth jets

*

Companies prepare to work with local partners

By Shivam Patel and Abhijith Ganapavaram

BENGALURU, India, Feb 14 (Reuters) - India is likely to

seek bids this year for 114 multi-role fighters, two sources

said, marking a major step in a process to bolster the country's

stock of combat aircraft that has gone on for nearly two

decades.

The project is critical for the Indian Air Force, whose

squadrons of mainly Russian and ex-Soviet aircraft have fallen

to 31 from an approved strength of 42 at a time when rival China

is expanding its air force rapidly.

On the sidelines of the Aero India aerospace exhibition in

Bengaluru, many of the companies who expressed interest in 2018

- when the government last sought planemakers for the project -

said they were still in the hunt.

"The Chinese are inducting modern fighters and Pakistanis

are also getting some Chinese support whereas the Indian Air

Force, in terms of combat squadrons, is deficient. There is no

doubt about it," said Laxman Behera, a defence expert at

government-funded Jawaharlal Nehru University in New Delhi.

"We'll have to wait and watch."

Potential competitors for the Multi-Role Fighter Aircraft

(MRFA) contract include U.S. defence firms Lockheed Martin ( LMT )

and Boeing ( BA ), Russia's United Aircraft Corporation

(UAC), France's Dassault Aviation, Sweden's Saab AB

, and Germany's Eurofighter.

Companies are preparing supply chain blueprints, scouting

for local partners, and ensuring cost effectiveness of their

offerings, two executives and three sources told Reuters this

week at the exhibition.

Lockheed Martin ( LMT ) is trying to sell its F-21, an

India-specific variant of its widely used F-16 fighter, to New

Delhi for the MRFA, which will be a 4.5 generation aircraft made

in India with a local partner.

Separately on Thursday, President Donald Trump said the U.S.

would eventually sell the country fifth generation F-35 stealth

fighters, although India's foreign secretary said afterward that

no formal process had started yet.

"We are encouraged by the recent announcement by President

Trump to provide the F-35 to India. However, these are

government-to-government decisions. We look forward to working

closely with both governments on upcoming strategic

procurements," a Lockheed Martin ( LMT ) spokesperson said.

RUSSIAN SUPPLIES

Lockheed builds F-16 wings at the company's joint production

facility with India's Tata Group in the southern city of

Hyderabad and has plans to use the facility for F-21 jets.

The IAF does not have U.S. fighter jets in its active fleet,

but about 50 aircraft are powered by General Electric ( GE ) engines,

with 170 more on order.

UAC may have advanced jets on offer, including the stealthy

Sukhoi Su-57, a Russian industry source said.

The Su-57 is a generation ahead of the Su-35 and the MiG-35

that were previously on offer for the MRFA and has a more

powerful engine, avionics, and radar systems.

Russia has for decades been the main weapons supplier to

India, the world's biggest arms importer. But New Delhi has been

diversifying its imports since the war in Ukraine hobbled

Moscow's ability to supply spares to India.

Russia brought the Su-57 to Aero India and offered to make

the aircraft in India in "informal" conversations with Indian

defence officials, saying it could by built using local

production lines for Su-30s.

More than 10 years ago, Russia and India had planned to

build the Su-57, then called the T-50, in India, but the effort

was abandoned.

Sweden's Saab, which also intends to compete for the MRFA

project with its JAS-39 Gripen E jet, has a blueprint for an

Indian supply chain, said Kent-Åke Molin, head of the Gripen

India campaign.

Molin said he was speaking to potential partners for the

project and that Indian officials had given a "very positive"

reception to the aircraft, adding that the jet was more

cost-efficient than its peers.

The MRFA project is a continuation of an uncompleted

acquisition of 126 jets that started in 2007 but was withdrawn

in 2015 after Modi's government decided to buy 36 Rafale fighter

jets from Dassault Aviation. The Rafale is also a

potential competitor in the MRFA project.

Dassault did not immediately respond to a request for

comment.