L&T eyes $5 billion order from air force’s combat aircraft deal

L&T eyes $5 billion order from air force’s combat aircraft deal

India’s largest engineering and construction firm Larsen and Toubro Ltd (L&T) will bid for the $5 billion (Rs19,700 crore) order that will be floated by the company which wins the contract to supply 126 medium multi-role combat aircraft, or MMRCA, to the Indian Air Force at an estimated cost of $10 billion.

The bids, due to be submitted in March, require that the supplier honour a 50% offset clause, or source 50% of the components required to complete the order, by value, from domestic manufacturers.

“We have the capacity to manufacture aircraft sub-assemblies and advanced composites and are intently eyeing the $5 billion order that will come the way of Indian companies as stipulated by the defence offset policy," said M.V. Kotwal, senior executive vice-president and member of the board, L&T.

Mint had reported on 30 June that the government was raising the offset clause in the combat aircraft order from 30% to 50% in an attempt to give a fillip to local manufacturers.

L&T is also exploring the possibilities of manufacturing structures or frames on which the aircrafts are built, Kotwal added. “This is the start of things to come and this deal will become the model for future contracts. The offsets for the MMRCA deal will come in the areas of manufacturing systems or sub systems for which there will have to be vendor development at different tiers. The private sector has the means and resources to implement this," said Air Commodore Jasjit Singh, director, Air Power Studies and former director, Institute of Defence and Strategic Analysis.

L&T has already signed a memorandums of understanding, or MoUs, with Raytheon Space and Airborne Systems, Boeing Company and EADS N.V., for joint exploration of business opportunities in India’s defence sector. The company will be competing with the state-owned Hindustan Aeronautics Ltd.

The MMRCA deal involves buying 18 aircraft from the seller and manufacturing 108 under licence. The aircraft under consideration include Russia’s MiG-35 (made by RAC MiG), Sweden’s JAS-39 (Gripen), the US’ F-16 Falcon (Lockheed Martin), the F/A-18 Super Hornet (made by Boeing) and Eurofighter Typhoon (made by a consortium of British, German, Spanish and Italian firms). The first of the 126 aircraft is expected to be delivered by 2012. Defence ministry spokesman Sitanshu Kar, who is currently on a government trip to Vietnam, was unavailable for comment.

“If L&T is confident, it is a good thing. The size of the deal will depend upon which aircraft gets selected. The real purpose here is to upgrade the Indian aerospace industry’s manufacturing and research and development capabilities," Singh said.

Industry analysts say with the defence sector placing orders worth $120 billion in the next 10 to 15 years, the private sector will have a greater role to play in the business. L&T is working on projects that include rocket and missile launchers, naval systems, radar systems, gun-upgrades, fire-control systems, and tank electronics. Kotwal declined to comment on the defence sector’s contribution to the company’s balance sheet and said, “it is very insignificant at this point of time."

L&T posted a net profit of Rs2,261 crore in 2006-07 on revenues of Rs20,348 crore.