Bangalore: The European Aeronautic Defence and Space Co., or EADS, the parent of plane maker Airbus SAS, plans to source at least €4 billion (about Rs24,480 crore) worth of aerospace components and systems as well as software from India in the next 10 years.
This would be partly driven by potential offset contracts on planes and fighter jets sold to India’s Armed Forces. EADS also plans to use the country as a low-cost base for sourcing.
India’s defence offset policy mandates that foreign contractors source components and systems from local vendors for at least 30% of the value of orders of more than Rs300 crore that they get from the Indian military.
Going global: An Airbus SAS A320 airplane assembly line in Tianjin, China. EADS is the parent firm of the plane maker. Nelson Ching / Bloomberg
“We will do more than the pure (offset) requirement (for) market access. It is the key driver, but not the only one,” said Matthias Gramolla, vice-president for strategic sourcing at EADS, in an interview on the sidelines of a conference on supply chain management.
EADS, which makes passenger planes, helicopters, fighter aircraft and rockets, is bidding for contracts with India, the world’s third largest spender on arms. India’s imports of military hardware and software could reach a cumulative $30 billion (about Rs1.43 trillion) by 2012, according to a study by industry lobby Associated Chambers of Commerce and Industry of India.
India also imports the bulk of its military planes and tanks and is in the market for 126 fighter planes.
Indian companies are expected to get offset orders from global military equipment makers of nearly Rs40,000 crore up to 2011, according to the ministry of defence.
Firms such as EADS and Boeing Co., its American rival, use vendors or suppliers globally to source components and systems and they act as integrators of the helicopters and planes they sell to customers.
EADS currently sources around €100 million worth of aero structures and engine components annually from Indian vendors, but plans to increase it to nearly €1 billion a year by 2020. It sources aero structures such as doors from India’s state-run military plane maker Hindustan Aeronautics Ltd and software from firms such as Tata Consultancy Services Ltd, Infosys Technologies Ltd and HCL Technologies Ltd. “We have learnt that the business model of making something in Europe and exporting to the rest of the world, does not work in the future. We have to be present in our global markets,” said EADS vice-president Gramolla.