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India's Partnership Plan Falls Flat

Jun. 19, 2013 - 11:02AM   |  
India is attempting to replace its fleet of Avro aircraft, but a plan to allow overseas defense companies to choose Indian companies as partners has run into difficulties.
India is attempting to replace its fleet of Avro aircraft, but a plan to allow overseas defense companies to choose Indian companies as partners has run into difficulties. (Indian Air Force)
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NEW DELHI — While the Indian government is now allowing overseas aviation companies to choose their production partner in India as part of a US $3 billion tender to replace Avro aircraft, the plan has failed to enthuse domestic and overseas companies alike.

India is allowing other domestic defense companies to partner with overseas companies to break the monopoly of state-owned Hindustan Aeronautics Ltd. (HAL). Yet the domestic defense companies have failed to ink a single tie-up with a major overseas aviation contractor as they find the opportunity to be not economical, according to Indian defense company executives.

At the end of May, the Indian Air Force (IAF) floated a global tender to procure 56 aircraft to replace its twin-engine Avro transport planes. The tender was given to EADS CASA of Spain, Alenia Aermacchi of Italy, Boeing and Lockheed Martin of the US, Antonov Design Bureau of Ukraine, Ilyushin Design Bureau of Russia, and Embraer of Brazil.

India will procure 16 of the planes in fly-by-wire condition from the selected vendor, while the remaining 40 will be built under licensed production by a domestic private-sector company selected by the overseas vendor.

To replace the Avro fleet, the IAF requires the new aircraft to have a cruising speed of 800 kilometers per hour, a range of up to 2,700 kilometers and to carry up to 30 passengers.

A Boeing executive said it has received the Avro replacement tender but has not decided whether to bid and declined to elaborate.

Lockheed Martin also has received the tender and already has a joint venture with Tata Advanced Systems Ltd., a Tata Group company.

A Lockheed senior executive here said the company is evaluating the tender and declined to comment on whether it will partner with Tata on the Avro replacement. However, he disclosed that Lockheed will take a call on the matter only after attending the first pre-bid meeting held by the Indian Air Force on the Avro replacement project on June 19.

A spokesperson for Tata Advanced Systems Ltd., when asked if it would be teaming up with Lockheed, said, “We do not comment on such matters.”

A senior executive with domestic company Larsen & Toubro said it has a tie-up with EADS to build structures in India, adding that it will talk to all the bidders before making a decision.

He said, however, that unless the IAF doubles the numbers and awards a 25-year life-cycle contract to the Indian partner, the project appears not viable.

The domestic defense companies trying to team up for the project also include Reliance Industries and Bharat Forge.

So far, none of the domestic defense companies has experience in producing a military aircraft, due to the HAL monopoly.

The IAF expressed a need for establishing another aircraft manufacturer to increase competition and decrease production delays, an IAF official said.

“The long-term benefit of the project lies in creating an alternative industrial entity to the HAL,” said Laxman Kumar Behera, a esearch fellow with the Institute for Defence Studies and Analyses, based here. “However, this again has a major challenge. India does not have a big defense budget to sustain two aircraft companies.

“To make the matter even worse, India also does not have a defense export policy to reap the benefits of economies of scale,” he added.

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