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BOOM IN AVIATION INDUSTRY
By SUDHA RAMACHANDRAN
With the Indian aviation industry predicted to experience spectacular growth in the coming decade, foreign aviation companies are lining up for a share in the multibillion-dollar deals. These are exciting times not only for the foreign aviation giants but also their Indian partners.
In February, more than 500 companies in the aviation business were in Bangalore for the Aero India air show. And this week, a delegation of US government officials and representatives of leading aviation companies were in New Delhi to participate in the US-India Aviation Partnership Summit.
At the Delhi meeting were Indian policymakers and captains of industry as well as officials representing Boeing, General Electric, Northrop Grumman, United Technologies, Pratt & Whitney, Lockheed Martin and Honeywell.
India and the US already have an open-skies agreement. At the Aviation Partnership Summit, the Americans were looking to build a long-term relationship with India's civil-aviation industry. The two countries also initialed a memorandum of understanding to establish the US-India Aviation Cooperation Program to provide unified communication between the governments and private entities.
The program would focus on supporting activities relating to air traffic, airspace management, expanding airport facilities, installing airport security and monitoring systems, and enforcing airworthiness certification and regulatory systems.
This month, executives from European Aeronautic Defense and Space Co (EADS) were in Delhi to identify Indian companies for possible partnerships in offsets. Among the Indian companies that EADS interacted with were Hindustan Aeronautics Ltd (HAL), Larsen and Toubro, Infosys, Wipro, and Mahindra Defence Systems.
According to India's Civil Aviation Ministry, the industry is expected to grow at 25% per annum for the next 10 years. The number of domestic passengers, which currently stands at around 30 million per year, is expected to touch 182 million per year by 2020, while the country's airports will handle 400 million passengers annually.
Purchases of more airplanes, equipment and infrastructure are in the pipeline. For this "the civil-aviation sector will need investments worth [US]$120 billion. While two-thirds of the money will go towards aircraft purchases - the number of planes is expected to grow from the current 350 to 1,000 by 2020 - the remaining would go into upgrading aviation infrastructure," an official in the Ministry of Civil Aviation said.
Deals in the defense-aviation sector are even meatier. India will buying about $100 billion worth of military equipment over the next five years. Its $6.5 billion to $10 billion contract for 126 multi-role combat aircraft has been described as one of the largest fighter-plane contracts in aviation history.
Foreign and Indian companies are eyeing the multibillion-dollar deals in the civil- and defense-aviation sectors. Indian players are hoping to partner with the aviation giants for a share in the cake. There are immense benefits to be had from partnerships, says retired Air Commodore J Varkey, secretary general of the Society of Indian Aerospace Technologies and Industries (SIATI).
It is a nodal organization that has some 330 small, medium and large-scale private industries doing work in the aviation business. SIATI has been putting its members in touch with aviation companies and facilitating the partnering. "The sky is the limit," he said, referring to the potential of partnerships for both foreign aviation companies and Indian players.
Business with aerospace firms already provides a significant chunk of the revenues for several Indian players such as Tata Consultancy Services (TCS) and Hindustan Computers Ltd (HCL) Technologies. Aerospace design accounts for 7% and 6% of their turnover respectively.
And business is likely to boom further thanks to the Indian government's new offset policy for defense contracts. Over the next three years, TCS hopes to achieve a fourfold growth in its aerospace-design revenue, writes defense analyst Ajai Shukla in The Business Standard.
Under an offset clause that is mandatory with every defense contract with a purchase order worth $68 million or more, the foreign vendor will have to plow back about 30% of the order value as offsets, which are co-production or purchase agreements with Indian defense producers. This means that Indian companies will benefit from offset opportunities worth $21 billion in the coming years.
Indian Defense Minister A K Anthony has ruled out a mere buyer-seller relationship in the defense deals. "We will buy, but technology transfer must be there, and we must be involved in designing, development and co-production," he has said.
Shukla argues that "instead of the low-cost, low-benefit offsets of the past, like the HAL's contract to manufacture Airbus doors based on design blueprints supplied to them, now [under the new offset policy] high-tech private companies can design as well as manufacture aircraft components".
Northrop Grumman Corp has joined hands with Satyam Computer Services jointly to provide high-end engineering services to the global aerospace and defense industry. Crane Aerospace and Electronics has finalized a deal with HCL Technologies under which the latter will provide engineering services to support Crane's product lines in cabin, landing, sensing and utility systems and fluid management across several aircraft programs. HCL Technologies is already working on the flight-test system of Boeing's Dreamliner aircraft.
Among others, Quest, an engineering services provider, announced a joint venture with Canadian Magellan Aerospace; Bangalore-based CADES, a product design and development solutions provider for the aerospace and defense sector, tied up with CeBeNetwork Holding, a strategic supplier for Airbus, for offshore engineering services work; and Taneja Aerospace and Aviation has tied up with Sabena Technics TAT Group.
The boom in India's aviation industry is opening up immense opportunities for aviation giants and Indian business. Both sides are keen to enter partnerships, but there are a few issues about which they are unhappy.
One policy issue that is bothering US aviation companies is India's restrictions on the import of civilian aircraft that are older than 15 years. "They would like to see a relaxation of these restrictions," said Chris Shybut of the US-India Business Council, a policy-development organization representing 250 of the largest US companies investing in India.
"American companies do an incredible amount of safety tracking of their equipment to ensure that they know what maintenance problems have occurred in the lifecycle of a certain piece of equipment. If aircraft equipment is properly maintained and tracked it can run for well over 15 years in a safe way," Shybut told Asia Times Online.
Varkey pointed out that buying aging aircraft is fraught with problems, as technology is changing rapidly. The latest technology of navigation equipment and support systems will not match completely with that of older aircraft, he said.
Then there is the offset requirement, which some countries such as the US see as distorting trade and adding to the cost of the equipment being sold. But a report in The Business Standard says, "A country like India, with a vibrant software industry to which foreign manufacturers are already outsourcing high-technology design, offers arms sellers offset opportunities that are in no way a financial burden.
"Software majors like TCS and Infosys are already in the business of cutting-edge aviation design for companies like Boeing and Airbus. Outsourcing design solutions to Indian software companies already makes economic sense for foreign arms corporations; designating them as offsets provides that with a welcome impetus."
The soaring growth of India's civilian and defense aviation sectors has triggered dogfights over deals and winning partners. While the aviation giants are engaging in a fierce contest to clinch lucrative deals, Indian players are vying with one another to partner them.
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