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Business News/ Companies / Scale, capability hold the key as Indian firms look at orders
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Scale, capability hold the key as Indian firms look at orders

Scale, capability hold the key as Indian firms look at orders

Building capacity: A Boeing F/A-18 Hornet fighter jet. Boeing is working with Indian firms in aerospace design and manufacturing, helping them to improve capabilities and enhance their work profile. GPremium

Building capacity: A Boeing F/A-18 Hornet fighter jet. Boeing is working with Indian firms in aerospace design and manufacturing, helping them to improve capabilities and enhance their work profile. G

Bangalore: When Ratan Tata flew in the cockpit of the US-made F-16 and F-18 fighter jets at the Aero India show two years ago, few knew what was in the mind of the chairman of Tata group. Tata was not simply on a joyride; he was also keen to tap a business opportunity seen as both lucrative and long-term.

Building capacity: A Boeing F/A-18 Hornet fighter jet. Boeing is working with Indian firms in aerospace design and manufacturing, helping them to improve capabilities and enhance their work profile. Graham Barclay / Bloomberg

Estimated to be worth at least $10 billion (Rs48,700 crore), it is a bonanza not just for whichever plane manufacturer wins the deal, but also for companies in India, such as the Tatas, which could benefit from the offset policy that requires foreign firms to source up to half the value of the contract locally.

Since then, the Tatas, a business group that pioneered civil aviation in India, have forged joint ventures with firms such as Boeing and Hindustan Aeronautics Ltd, India’s military plane manufacturer, and consolidated capabilities in the aerospace segment, be it software through Tata Consultancy Services Ltd or components and systems development through other units.

India’s offset policy requires foreign arms makers to source at least 30% of the value of defence equipment exceeding Rs300 crore from the local industry. In the fighter plane contract, the value of the offsets is as much as 50% of the purchase price.

India may buy at least $100 billion worth of defence equipment over the next 15 years, according to estimates by the industry lobby Confederation of Indian Industry. “So far, the only company that has a clear strategy on defence and how to take advantage of the opportunity is the Tatas," says a defence ministry official who did not want to be named. “It is more (of) wait and watch for others; the moment there is some action, others will jump," he says.

Still, other large Indian firms such as Larsen and Toubro Ltd, Mahindra and Mahindra Ltd, Godrej and Boyce Manufacturing Co. Ltd, Punj Lloyd Ltd and Bharat Forge Ltd have sought licences to manufacture defence equipment and invested in centres that would eventually make systems for the global market.

Indian software firms such as Wipro Ltd, Infosys Technologies Ltd and HCL Technologies Ltd, too, look towards offsets as a natural hedge to slowing growth in software outsourcing. Lesser-known names that have sought licences for defence equipment manufacture include Ramoss India Ltd, Alpha Design Technologies Pvt. Ltd, TSL Defence Technologies Pvt. Ltd, Max Aerospace and Aviation Ltd, Vectra Engineering Materials Pvt. Ltd and VXL Technologies Ltd.

Small- and mid-size firms such as Dynamatic Technologies Ltd, MTAR Technologies Pvt. Ltd, Cades Digitech Pvt. Ltd, MKU Pvt. Ltd and Quality Engineering and Software Technologies Pvt. Ltd, which have worked with India’s space establishment and Defence Research and Development Organisation, see the offset rules as an opportunity to expand.

“The expertise is there in hundreds of small companies across India. But for them, the challenge is scale and building capability quickly," says C.G. Krishnadas Nair, president of the?Society?of?Indian Aerospace Technologies and Industries, an umbrella body of at least 300 Indian firms in the aerospace sector. Boeing, a large-scale system integrator of both passenger and fighter planes, says it is working with several small and large Indian firms in aerospace design and manufacturing, helping them improve capabilities and enhance their work profile.

“We work with a whole host of suppliers over the world and (have) built a global supply chain. As we work with Indian companies, we find a huge potential in the years to come. Our aim is to make India an integral part of our global supply chain," says Vivek Lall, Boeing Integrated Defence Systems vice-president and India country head.

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Published: 11 Feb 2009, 10:49 AM IST
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