Transformation of the Indian aerospace industry and the role of European majors

Abstract

The Indian military aerospace industry stands poised today, to catapult itself to the global arena. The growing importance of India in the global geopolitical stage has given a boost to all defence industries in India. In the past, these industries were the exclusive preserves of the giant PSUs, but in the recent past, strong government support and liberalization measures have led to the growing participation of the private sector in the defence aerospace sector as well. The increasing focus of the defence forces on self reliance has also given a boost to the local industry. As a market, India is one of the fastest growing military aerospace markets in the world. India had not been very active as a procuring nation of defence products after the Bofors issue in the early 1990’s. So much of its defence equipment currently is obsolete. The kargil conflict in the late 1990’s brought the focus back on the issue of defence procurement. There has been a growth in budget earmarked for defence procurement since then. In the Union Budget 2010-11, $32 billion was earmarked for defencei , out of which capital acquisition budget stands at $13 billion, a rise of almost 25%. The Indian Armed forces are expected to make another $80 billion in capital acquisitionsii in the period 2011-15, a major chunk of which is expected to be in the aerospace segment. The offset clauses specified by the latest Defence Procurement Policy ensures that the Original Equipment Manufacturer (OEM) outsources atleast 30% of the deal to local industry (both private and public)iii. The Transfer of Technology clauses that accompany most of the acquisitions ensure that the Indian industry gets access to top-of-the-line technology. Thus, the Indian industry has the chance to get access to cutting edge technologies and thus increase their competitiveness in the global arena and bid for export orders to cater to overseas markets in addition to the local market. In addition to the opportunities in Manufacturing mentioned above, there are huge requirements in MRO (Maintenance, Repair and Overhaul). India’s MRO segment is expected to reach $2.6 billion by 2020. The globalization of MRO services, cost competitiveness, presence of specialist capabilities and positional advantages gives India the potential to become a global hub in MRO. European Players like EADS and BAE are also vying for a share of the pie in the defence expenditure. The latest competition for the winning the 10 M USD order of Medium Multi-Role Combat Aircraft (MMRCA) between the consortium of EADS, Alenia Aeronautica and BAE systems with their product Eurofighter Typhoon and Dassault with their product Rafale is an example of how big and significant the Indian defence market is for these European aerospace companies operating in the defence sector. While it is important to look at emerging opportunities in India’s defence procurement and the opportunities for Indian public and private manufacturing companies, it is also important for the them to look at opportunities that are present beyond the ones brought about by the offset policy. The study will attempt to look in to opportunity that arises out of the offset policy as well and those beyond it.