Bangalore: British engine maker Rolls-Royce Group Plc is setting up its first joint venture (JV) firm in India in a tie-up with military plane maker Hindustan Aeronautics Ltd (HAL) to make civil aero engine components and sub-systems locally for export.

Seeking alliance: A file photo of an aircraft engine being assembled at Rolls-Royce’s factory in Germany. HAL is also in talks for a joint venture with Rolls-Royce’s US unit that makes military aircraft engines. Jochen Eckel/Bloomberg

The world’s second largest aircraft engine maker, whose engines run passenger planes of Airbus SAS and Boeing Co., has already been sourcing ring forgings for its civil engines from HAL since 2003.

The JV firm is likely to be set up in four months.

For HAL, the JV firm would help expand revenue from its non-defence business, said a senior HAL executive, who asked not to be named citing confidentiality reasons. He did not set a revenue target for the JV company as the business plan is yet to be finalized.

In 2008-09, HAL earned less than 5% of its total revenue of Rs10,373 crore from its non-defence business.

“HAL could bring in cost advantage and a better footprint in India to service customers for Rolls-Royce, while it can bring in technology expertise," said Ratan Shrivastava, director for aerospace and defence at researcher Frost and Sullivan.

Separately, the Indian public sector firm is in talks for a JV with the US unit of Rolls-Royce that makes military aircraft engines, another HAL executive said.

India has been a customer of Rolls-Royce’s military engines for about five decades. HAL has been building Rolls-Royce engines under licence for India’s Jaguar fighter and Hawk advanced jet trainer fleet. The 2003 contract with the British company to supply civil engine parts has earned it cumulative revenue of $15 million.

“This relationship has contributed positively to the development of India’s aerospace sector and both companies meet as a matter of course to discuss future collaborative opportunities and assess future plans," a Rolls-Royce spokesperson said in an email without elaborating on the JV firms with HAL.

Global engine makers such as General Electric Co., Honeywell International Inc., Pratt and Whitney Inc. and Safran Group source design and manufacturing work from India, both from captive units and service providers, to cut costs and the time needed to bring new aero engines to the market.

HAL, for instance, supplies components to several of these companies and has nine JVs—six of them formed in the past three years—with companies such as Canada’s aircraft simulator maker CAE Inc., Israel’s Elbit Systems Ltd and Safran unit Snecma SA.

These deals are largely in the defence sector and are aimed at gaining technology from global vendors looking to cut costs and fulfil India’s so-called offset requirement. Foreign firms selling arms to India have to source equipment worth at least 30% of the value of the contracts from local vendors if the deals are of Rs300 crore or above.

Still, HAL’s maturity curve, as well as that of India’s, in making aero engines is nascent. The company has to its credit just the PTAE-7, a small turbojet engine to power an unmanned aircraft that’s used for target practice. The other significant project is an engine named Kaveri for Tejas, a light combat aircraft, being developed at the Gas Turbine Research Establishment. India does not have a programme for civil aero engines.

Other Indian firms too have or are lining up similar JVs. Mahindra and Mahindra Ltd has a JV with BAE Systems Plc to make armoured vehicles. Bharat Electronics Ltd is eyeing at least a dozen JVs for radars and avionics; Tata group’s Tata Advanced Systems Ltd plans JVs with Israel Aerospace Industries Ltd, and Larsen and Toubro Ltd with European Aeronautic Defence and Space Co.