BENGALURU, India (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.