New Delhi: In the biggest-ever deal for a public sector defence undertaking, Hindustan Aeronautics Limited (HAL) has signed a $1 billion (Rs3,949 crore) manufacturing outsourcing contract with American aerospace major Boeing over ten years.

Under a Memorandum of Understanding (MoU) signed here by Jim Albaugh, president of Boeing Integrated Defence System and HAL chairman Ashok K. Baweja, the Indian defence PSU, will manufacture subsystems for Boeing’s wide range of fighter planes like F-15, F-18 Super Hornetts and Apace Helicpoters.

The American company, which is vying for India’s major defence contracts for purchase of 126 multi-role combat aircraft, eight long-range maritime reconnisance planes made it clear that the outsourcing was “without any strings”.

Albaugh, however, said Boeing was seeking clearance by the Indian government if it could use part of the staggering amount as credit against any future offsets if it secures any major contract.

“Effective today, an initial tranche of $20 million worth of work is being transferred immediately,” the Boeing ceo said.

He said the company would in weeks to come be sending material and personnel to set up the manufacturing facility.

”It is purely a business proposition,” the Boeing executive said, adding the MoU was designed to drive costs down for his company as well as to make products more competitive.

“The MoU represents an important step to build long-term partnerships in India to make Boeing products more globally competitive while allowing HAL to grow and expand its potential market around the world,” Albaugh added.

As part of the agreement, Boeing will also support HAL in developing manufacturing processses and capabilities needed for production of hardware of Boeing and its sub-contractors.

The American aviation giant will also support the training and transfer of Boeing’s best practices for lean principles and supplier and programme management to the extent allowed by the US government.

Albaugh said the initial training of the company’s lean training programme had already begun in 2006 and would continue through to 2008.

“Initially, HAL will produce products they are qualified for,” the Boeing executive said while exuding confidence that HAL had the capability as it was producing world-class fighters like the Sukhoi-30.