Analysts say Lockheed's main rival in the single-engine sphere is Sweden's Saab Group and its Gripen fighter. Chicago-based Boeing has also proposed to make its twin engine F/A-18 in India. Boeing recently took a group of Indian defense journalists on a whirlwind tour of Australia and the United States to show off its program.

The U.S. Air Force is phasing out the F-16 in favor of the F-35 aircraft in coming years and the company has no orders for the F-16 beyond October 2017, but it is seeking other customers and does not plan to dismantle the assembly line just yet.

The F-16 airplane remains one of the most widely used aircraft in the world, and Lockheed is continuing to negotiate deals to sell the fighter to other countries. Those F-16s would be made in India under the deal once the new assembly line was up and running, Howard said. The aircraft has been made in joint ventures with other nations before, but "we've never offered our only production line to another country," Howard said. "It's unprecedented."

Lockheed has promised that India would not only manufacture and export its jets but would play a "critical role" in supporting a fleet of about 3,200 F-16s in operation around the world, said Jon Grevatt, an Asia Pacific defense industry analyst with IHS Jane's, a defense analysis firm. "That's a big carrot," he noted.