Modi Policy Step Opens India Military Maintenance Market

Discussion in 'Defence & Strategic Issues' started by AVERAGE INDIAN, Nov 13, 2014.



    Sep 22, 2012
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    A deadly Indian naval accident last week underscored the nation’s need for the upkeep of military hardware, a requirement that’s seen stoking opportunities for private companies following an easing of defense rules.

    A little-publicized change in June scrapped a rule that forced private companies to obtain permits before seeking military maintenance work. Outsourcing the Indian air force’s maintenance needs alone might create a $3 billion industry and more than 50,000 jobs, according to KPMG in India.

    “The de-licensing of military maintenance, repair and overhaul is a big step forward from Prime Minister Narendra Modi’s government in the defense sector,” said Amit Cowshish, a distinguished fellow at the Institute for Defence Studies and Analyses in New Delhi. “The market is huge.”

    The policy step may loosen state companies’ grip on the maintenance industry and is part of a package of measures by Modi that includes allowing higher foreign investment in defense. The premier has made modernization of the armed forces a priority since taking office in May, as he grapples with border disputes with Pakistan and China and greater Chinese naval power.

    Defense equipment upkeep can be treated as a service rather than an industrial activity, eliminating the need for an industrial license, according to a June 26 memorandum issued by India’s Department of Defence Production.

    $8 Billion Maintenance

    Service providers such as Taneja Aerospace & Aviation Ltd. (TAA) and Air Works India (Engineering) Pvt. Ltd. stand to benefit from the liberalization, said Amber Dubey, head of aerospace and defense at KPMG in India. The defense units of Mahindra & Mahindra Ltd., Larsen & Toubro Ltd. and Tata Sons Ltd. may also be interested in the business, according to Dubey.

    India may spend $20 billion on military aircraft alone in the next five to seven years, and the value of maintenance work typically is equivalent to about 40 percent of the purchase price, according to estimates from the MRO Association of India.

    Paris-based Safran SA’s unit Snecma on Oct. 21 signed an agreement with India’s Max Aerospace and Aviation Pvt. Ltd. to create a joint venture offering military aircraft engine maintenance, repair and overhaul services in India.

    India surpassed China in 2008-2012 to become the world’s largest importer of major conventional weapons, the Stockholm International Peace Research Institute estimates.

    State Dominance

    India’s armed forces have more than 1,200 planes and helicopters of Indian, Soviet, French, British and Swiss origin, 136 warships and about 6,400 tanks and infantry combat vehicles.

    Military maintenance, repair and overhaul work for now is mostly done by state-owned companies such as Hindustan Aeronautics Ltd. and government-run dockyards and repair depots.

    While private companies no longer need permits to enter the industry, they will need to convince the armed forces that they can do the work. State companies will otherwise continue to get the business, according to Lieutenant General A.S. Chabbewal, a former master general ordnance of the Indian army.

    At least one sailor died when the navy ship sank on Nov. 6, an incident that came less than a month after a fighter jet unexpectedly ejected its pilots and crashed.

    “The reason why the flooding could not be controlled is a cause for serious concern,” India’s Chief of Naval Staff Admiral R.K. Dhowan said in New Delhi. “We’d like to go into the details and find out what were the drawbacks and the shortcomings with regard to any material failure or any maintenance issue.”

    Jet Crash

    A Sukhoi fighter jet ejected its pilots without warning as they tried to land in the western city of Pune on Oct. 14. The pilots survived. The air force grounded the fleet of about 200 such aircraft, which are built in India under a Russian license.

    The Sukhoi fleet has “problems,” India’s Chief of Air Staff Arup Raha said in New Delhi about a week before the crash.

    Last year, 18 people died in India’s worst submarine accident. Two navy officers perished in a fire aboard another submarine in February.

    Allowing greater participation of private companies in maintenance, repair and overhaul should help improve the defense industry, according to KPMG’s Dubey.

    “The long standing fallacy that only entities owned by the government can be trusted is being broken,” he said.

    To contact the reporters on this story: N.C Bipindra in New Delhi at [email protected]; Anurag Kotoky in New Delhi at [email protected]

    To contact the editors responsible for this story: Arijit Ghosh at [email protected] Sunil Jagtiani, Dick Schumacher

    Modi Policy Step Opens India Military Maintenance Market - Businessweek

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