HAL sets up JV for aero engine designs

HAL sets up JV for aero engine designs

India’s state-run defence aircraft maker Hindustan Aeronautics Ltd (HAL) has set up a new 50:50 joint venture (JV) with Hyderabad-based Infotech Enterprises Ltd (IEL), which will focus on offering design and validation services for aero engines.

Infotech HAL Ltd, the new JV will have an initial equity of Rs28 crore and will have delivery centres in Bangalore and Hyderabad.

The JV company expects global aircraft engine makers such as Rolls Royce and CFM International, jointly owned by General Electric Co. of the US and Snecma of France, to outsource work on improving design and thrust of aircraft engines, and also conversion of aircraft engines to marine and industrial gas turbines.

HAL says the JV is an attempt to tap a larger share of offset contracts from foreign aircraft and engine makers.

India’s defence procurement policy has an offset clause that mandates international vendors to source 30% of the value of equipment sold from local companies. Indian companies are expected to get offset orders from global military equipment makers of nearly $10 billion (Rs40,400 crore) in the five years to 2011, according to the ministry of defence.

“It helps customers to source a larger portion of work from one supplier," said M. Fakruddin, director (corporate planning and marketing) at HAL. 

The new venture will offer flexibility to recruit talent on competitive salaries and focus on global benchmarks, Fakruddin added.

Rajeev Lal, president (strategic and new business initiatives) at IEL, says that the JV will have revenues of around $70 million and would employ 2,000 people by 2012.

However, he clarified that IEL will not move work from its existing clients to the new entity. IEL’s biggest client in the aerospace segment is United Technologies Ltd, a US firm that owns aircraft engine maker Pratt & Whitney and owns a 15% stake in the company.

Analysts expect the new venture to start slow, but see growing business as HAL is the lead vendor in India for defence aircraft purchases, and IEL has expertise in engineering services space.

“The joint venture essentially will be the software design arm of HAL. We expect its business to grow from financial year to March 2009," said Divya Nagarajan, an analyst at Motilal Oswal Securities in Mumbai.