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Defence partnerships set to top agenda

Defence partnerships set to top agenda
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First Published: Wed, Feb 09 2011. 12 30 AM IST

Setting the scene: Aircraft at the Yelahanka Air Force Station in Bangalore on the eve of the Aero India show. Aniruddha Chowdhury/Mint
Setting the scene: Aircraft at the Yelahanka Air Force Station in Bangalore on the eve of the Aero India show. Aniruddha Chowdhury/Mint
Updated: Wed, Feb 09 2011. 09 34 AM IST
Bangalore: Boeing India president Dinesh Keskar remembers the first Aero India that was held in Bangalore in 1993. There were about 170 exhibitors and little by way of displays.
“We used to have only aircraft models then,” said Keskar, who has been attending the event since it began.
Setting the scene: Aircraft at the Yelahanka Air Force Station in Bangalore on the eve of the Aero India show. Aniruddha Chowdhury/Mint
The eighth Aero India, which runs 9-13 February at the Yelahanka Air Force Station, has got four times the number of exhibitors from over 30 countries.
It’s being held at a time when the $10 billion (Rs 45,400 crore) deal for acquiring 126 medium multi-role combat aircraft (MMRCA) aircraft for the Indian Air Force has reached a decisive stage, with technical trials completed, and competitors firming up their revised offset bids.
Also on the radar of most participants is the joint Indo-Russian project to develop the fifth generation fighter aircraft, at an estimated total cost of $250-300 billion. In December, the two countries had announced that they had finalized the design agreement for this.
Five of the six competitors in the fray for the MMRCA contract are represented at the show. They include Boeing Co. and Lockheed Martin Corp. of the US, which promote the F/A-18 Super Hornet and the F-16 fighter jets, respectively; Dassault Aviation SA of France which has developed the Rafale; Saab AB of Sweden with the Gripen; and EADS, a consortium of companies from Germany, Italy, the UK and Spain, promoting the Eurofighter. Conspicuous by its absence is the Russian MiG-35, which is also in the fray, although Russian Aircraft Corp. MiG (RSK MiG), the firm that has developed the aircraft, is present at the show.
Apart from the above, Israel, Japan and Singapore are the other notable countries present at the show.
This air show is also taking place in the immediate backdrop of India announcing the revised version of the defence procurement policy (DPP 2011), which governs purchases, and also the defence production policy. The production policy was announced for the first time in January, ostensibly to give a fillip to the fledgling domestic industry in the country.
“With the MMRCA and FGFA projects on the anvil, the defence aviation market in India is set to double from its current levels,” said Ashok Naik, chairman of state-owned Hindustan Aeronautics Ltd (HAL). “HAL will have tie-ups to cater to the demand in this space. We are in talks with several domestic and international firms, but nothing concrete is on the table, as of now. We have become a sophisticated sector in the past 15 years from infancy.”
Boeing’s Keskar said the Bangalore show has become a defence-oriented one, with the civilian business being a focus of the Hyderabad Air Show, which was held for the first time in 2007.
“The civil show at Hyderabad has grown significantly over the years into one of the major air shows in Asia,” he said. “And the Bangalore show has predominantly become a military show.”
The focus this time is also on small and medium enterprises (SMEs), which have for long supplied components to the defence public sector units (DPSUs).
The SMEs will play a critical role in the Indian defence industry achieving the levels of vertical integration that the developed defence markets in the US and Europe already have, according to analysts.
“Tier II and tier III companies from other countries can only tie up with Indian SMEs. This is how they can enter the supply chain in India,” said Nidhi Goyal, director, Deloitte in India.
Companies such as BAE Systems Plc say such initiatives are already in the works.
“A supply chain initiative to give Indian companies, including SMEs, access to our domestic and global supply opportunities is under development,” said Andrew Gallagher of BAE Systems India.
Deloitte’s Goyal said: “In the recently announced production policy, the government had announced its intention to set up a research and development (R&D) fund for domestic players, including SMEs, who have been supplying equipment to all the DPSUs for long now, without much benefit to themselves. It would be interesting to see if any announcement to that regard is made in the forthcoming budget speech in February.”
While foreign suppliers profess their eagerness to partner with local Indian companies, transfer of critical technologies remains a sticky issue, with the government and foreign vendors alike.
“Don’t expect any country in the world, however friendly it is, to part with (the) most modern technology. That’s the reality of the world,” said defence minister A.K. Antony at an event ahead of Aero India 2011, while emphasizing self-reliance.
Air Chief Marshal P.V. Naik, however, said that long-term collaboration with foreign companies would be inevitable. “Complete self-reliance may not be possible if the industry is to develop critical technology for big-ticket projects. So the aerospace fraternity will have to go in for collaboration,” he said at the same function.
Foreign vendors link the issue of transfer of critical technology to the government raising the foreign direct investment (FDI) limit in defence from the current 26%. “Raising FDI in defence is an important issue, but we understand that the Indian government will take its time,” said retired US Navy admiral Walter F. Doran, president of Raytheon Asia.
In keeping with the industry’s demand, the government has begun consultations with the domestic defence industry to bring transfer of technology (ToT) under the ambit of the offsets policy, and for possible structural changes to the defence offsets facilitation agency, as was first reported by Mint on 2 February.
“India is one of the only countries that does not include ToT within the ambit of offsets. But this may not happen anytime soon. It is a tough call,” said Raytheon’s Doran.
On 24 January, Mint reported that between March 2007 and September 2010, the Indian private sector participated in 51 offset proposals totalling Rs 45,367 crore, which are at various stages of implementation.
Under the defence offsets regime, India imposes counter-trade obligations on original equipment makers who are awarded defence contracts worth more than Rs 300 crore by way of transfer of critical technologies and production of components in India. To meet this obligation, foreign vendors partner with Indian firms. At present, the offset obligation is 30-50%.
The Indian Space Research Organisation is also expected to be a big draw.
Although no big-ticket deals are likely to be announced during the five-day event, several Indian and foreign companies may announce partnerships or joint ventures.
Bhargavi Kerur in Bangalore and Tarun Shukla in New Delhi contributed to this story.
aman.m@livemint.com
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First Published: Wed, Feb 09 2011. 12 30 AM IST