New Delhi: European plane maker Airbus SAS will buy nearly Rs4,000 crore worth of products and services from India to meet what are called offset obligations as part of an aircraft contract with National Aviation Co. of India Ltd (Nacil)-run Air India, eight years before its deadline, a top company executive said.
Airbus expects the slowdown in Indian aviation to continue for next two years, although it hopes to win orders for its so-called superjumbo A380 aircraft from Indian carriers this year or next, the company’s executive vice-president of marketing and contracts, Kiran Rao, told Mint here on Tuesday.
“I can tell you our offset target, which we were supposed to complete by 2020, will be completed by 2010 or 2012,” he said. The Indian government’s offset obligations require defence and civilian suppliers to source up to 50% of the deal value from local vendors.
The Rs4,000 crore worth of such sourcing comes under a 2005 deal with Nacil for the supply of 43 A320 planes, with sticker prices estimated at Rs9,888 crore.
“We will exceed that obligation, or there will be another order and it (offsets) will be used towards it,” Rao said. The offset requirements so far are limited to state-run carriers.
Airbus, a unit of European Aeronautic, Defence and Space Co.,has at least three airline groups—Kingfisher Airlines Ltd, which is merging itself with Deccan Aviation Ltd, InterGlobe Aviation Pvt. Ltd-run IndiGo and GoAir India Pvt. Ltd—that use an all-Airbus fleet. Jet Airways (India) Ltd and Air India use a mix of Airbus and Boeing Co. manufactured planes.
Flying high: Kiran Rao, an?executive vice-president for Airbus, says that the European manufacturer’s delayed aircraft maintenance and repair facility will be set up in New Delhi and be operational by early next year. Harikrishna Katragadda/Mint
Airbus said its local sourcing in the Nacil deal would cover software, hardware and materials, and had the potential to scale up to global levels.
Bangalore-based Hindustan Aeronautics Ltd (HAL), for example, produces 40 doors a month, up from an initial 20, for the Airbus A320 aircraft. Sourcing from HAL “would be used to cover the offset partially, but the day we finish the offset obligation, it doesn’t mean you stop building doors,” Rao pointed out. “Because now, what we have set up is a commercially viable operation which was initiated by offsets but because it was based on sound commercial principles, it then becomes something that goes beyond the offsets.”
Airbus’ engineering centre in Bangalore, functional since last year, will be scaled up further and contracts in software and design-related areas are underway with Infosys Technologies Ltd and Tata Consultancy Services Ltd. “We are in talks with several companies for sourcing materials like titanium and aero-structure components,” Rao said, declining company names.
Fresh demand for planes is likely to be slow in the next two years, the Airbus executive said, although its existing orders will see it delivering 40 planes a year until 2012. “I think we will see the sort of instability now through 2009 and 2010... (Then) we will start seeing some improvement in 2011, and 2012 we will start seeing another wave of orders coming,” he said.
Airbus says it expects to seal sizeable A380s orders between “this year and next” from Indian carriers. Kingfisher Airlines is the only Indian carrier to have bought five of the A380 planes, deliveries for which start only from fiscal 2013. “Once all the other airlines start flying A380s into India, the comfort level is so different that the competitive airlines (in India) will have to order it as well,” he said.
Instances such as Hyderabad-based Flyington Freighters Ltd increasing orders to a dozen A330-200F aircraft from six earlier compensate deferred deliveries from customers such as Kingfisher Airlines that has postponed taking possession of 32 of A320 planes by as much as three years of a total 105 A320 aircraft on order.
The European manufacturer’s delayed aircraft maintenance and repair facility will be set up in New Delhi and be operational by early next year, Rao said.