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Aerospace deals buoy IT firms
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Aerospace deals buoy IT firms
Bibhu Ranjan Mishra / Mumbai October 31, 2006
SOFTWARE: Deals worth $20 billion can generate a $6 billion opportunity for domestic IT companies. 
The offset policy of the government of India has opened up a huge opportunity for domestic companies that offer design, engineering and software services to the aerospace sector. 
The policy entails that any order by a defence entity or state-owned civilian carrier to a foreign supplier of Rs 300 crore or more will have to ensure an offset (reinvestment) of at least 30 per cent of the order through procurement of components and services from India. Given that the deals, those cleared and still in the pipeline, amount to $20 billion – most of them for defence and civilian aircraft orders – a 30 per cent business opportunity translates to over $6 billion. 
Industry sources say the State Trading Corporation (STC), official authority for monitoring or controlling the offset activity, has received 15-20 applications from Indian companies for registration. Major IT companies like TCS, Satyam, Infosys, HCL, Wipro and PSUs like Hindustan Aeronautics Ltd. (HAL), Bharat Electroncis Ltd. (BEL) and some niche knowledge-based engineering companies like Taneja Aerospace, Triveni High-tech, CADES and the Maini group besides majors like L&T, Godrej, the Tatas and Kirloskars are in the queue to get a chunk of the offset orders. 
For instance, the Boeing deal with Air India is close to $6 billion (TCS recently bagged an around $30 million interior design contract from Boeing) and has an offset of 30 per cent. Airbus’ deal with the Indian Airlines is close to $2.7 billion and has an offset of 40 per cent. The Indian Air Force is in the final stages of floating the request for proposal (RFP) for the purchase of 126 combat aircraft for close to $9 billion. This should result in an offset of $2.7 billion. 
The Defence Ministry is also going for a major helicopter programme for the navy and IAF and is said to have finalised a plan for procuring defence and heavy transport helicopters worth about $550 million. This would create an offset of $165 million. Bell and Sikorsky are bidding for the programme. 
The Indian Navy is also understood to have finalised a plan to go for the military transport and surveillance aircraft P8I, being manufactured by Boeing, at close to $800 million. It is also going for 12 P3C Orions and eight C130J with an proposed investment of about $1.5 billion. These two together can yield an offset of $690 million. The Defence Research Development Organisation (DRDO) has given concrete shape to its plan for purchasing three aircraft from Embraer, for its airborne early warning system (AEWS). The investment is about $ 200 million, involving an offset of $ 60 million. 
Last week, National Aerospace Laboratories (NAL) & Pratt & Whitney announced the expansion of their partnership on turbo-machinery aerodynamic research. And during his recent visit to Bangalore, Air Chief Marshall S P Tyagi hinted the RFPs are in the process of going to five global aerospace majors in the next few months. The five in the final shortlist are Boeing and Lockheed Martin (US), SAAB (Sweden), MiG (Russia) and Mirage (France). 
To meet the policy requirements, major global suppliers to the Indian defence and civil carriers like EADS (Airbus), Boeing and Lockheed Martin are already busy establishing relationships with Indian aerospace-focused companies. HAL is understood to have formed a JV with the Saffron Group, France and Israel Aircraft Industries for product development. It is also seeking a relationship with EADS. 
The Tata group company is setting up an ‘Airline Innovation Laboratory’ in Chennai to showcase mock-up interiors of aircraft enabling a user-front experience for customers. CADES, a product design and engineering company focused on defence, is setting up a dedicated offshore development centre for aerospace product development, says Dataram Mishra, CEO and MD of CADES. Pratt & Whitney has participated in the equity of Hyderabad-based InfoTech Enterprises to the tune of 18.4 per cent. Together with InfoTech, the company has commissioned a development in Hyderabad to work on complicated engineering design work through a near-shore centre. 

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