OEMs Wary Of Offsets In India

Discussion in 'Indian Air Force' started by Parthy, Jun 20, 2011.

  1. Parthy

    Parthy Air Warrior Senior Member

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    India has short-listed Dassault’s Rafale and the Eurofighter Typhoon for the Medium Multi-Role Combat Aircraft (MMRCA) bid, which is expected to result in procurement of 126 fighters worth $12 billion. A huge battle over industrial terms is now expected as vendors submit their revised offset proposals later this year.

    The schedule for production transfer is aggressive, and the technology that India expects to be transferred through co-development work generated by offsets is raising concerns among vendors about intellectual property violations and the potential for counterfeit products. Observers say India’s lack of clarity on such violations may result in OEMs finding ways to circumvent the use of advanced technology, on the grounds that India does not have safeguards to protect manufacturers that license technology to local partners.

    “Offsets will give Indian industry an opportunity to integrate into the global aerospace and defense supply chain, absorb critical technologies and develop an industrial and service delivery base locally,” says Rahul Gangal, managing director of Aviotech, a think tank. Nevertheless, Indian companies will need to cultivate a trust-based relationship with partners and address the issue of technology transfer, says Ajay Batra, author of Breeding Innovation and Intellectual Capital.

    There are legitimate concerns among OEMs about replication. For example, though software codes are secret and difficult to crack, some have been compromised by local companies. “There is no puzzle that can’t be solved,” says a military engineer.

    The demand for offsets is large, and growing. In March, there were 51 contracts that required offsets worth $10 billion. This figure is expected to increase with the $12 billion MMRCA contract; the $3-billion Boeing P-8I maritime surveillance aircraft program; $647 million ultra-light howitzer procurement; $650 million General Electric F414-GE-INS6 engine for the indigenous Light Combat Aircraft; and $170-million Boeing Harpoon antiship missile buy. There are, moreover, contracts for basic jet trainers, Raytheon/Lockheed Martin Javelin antitank guided missiles and towed artillery that are close to being signed, and India may soon place a $5.5 billion order for 10 Boeing C-17 transports and possibly an additional Lockheed Martin C-130J.

    Lockheed Martin is honoring offsets for six C-130Js through joint manufacturing of aero structures with Tata Advanced Systems. “We’re careful to deliver what we offer . . . and not promise what we can’t do,” says Roger Rose, CEO of Lockheed Martin India.

    Meanwhile, issues about structural impediments and challenges in the absorption of offsets and schedules remain. The U.S. Aerospace Industries Association (AIA) says recent changes in India’s defense procurement policy (DPP) as to what counts as offsets will be decisive in helping Indian industry meet offset obligations. “Cooperation and communication between U.S. industry, the government of India and Indian industry will be critical to ensuring that India achieves its indigenous production goals,” says P.J. Hart, AIA’s manager of international affairs.

    AIA has long advocated allowing technology transfer to count for offset credit. “We understand the defense ministry is reviewing this option and we hope this will be included in future DPPs,” says Hart.

    India expects an investment of $200‑300 billion in military and aerospace sectors in the next two decades, says Defense Minister M.M. Pallam Raju. “The new DPP aims to achieve substantial self-reliance in design, development and production of equipment, weapon systems and platforms for defense in as early a timeframe as possible.”

    Existing supply chains of government factories, however, have mostly component-level suppliers, a large number of which are small and medium enterprises (SMEs) with limited capacities and niche technologies. “The Indian aerospace industry is also exposed to some risk from its limited expertise in materials science,” says Gangal. For example, capability has not evolved in the composites precursor and fiber segments of aircraft design and production.

    Boeing, which obtains 70% of its procurement from outside manufacturers and has started delivery to the U.S. Navy of the F/A-18 gun-bay door manufactured by Hindustan Aeronautics Ltd., says the private sector has a keen need to be involved. “India also needs to focus on how to create raw materials supply,” says Dinesh Keskar, president of Boeing India.

    Industry has, however, gained expertise in automotive production and should be able to transfer many of those skills to aerospace. Ongoing consolidation in the SME sector will create larger companies with diverse manufacturing capabilities.

    The government must also do its part, notably by raising the present 26% foreign direct investment cap, creating a mechanism to evaluate technology transfer, guaranteeing clarity of licensing and defining what constitutes a defense product, local industry argues.



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  3. ace009

    ace009 Freakin' Fighter fan Elite Member

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    The 26% FDI cap is BS - it should be raised to 49%. Also, the GOI should give tax-incentives to the private sector to startup R&D labs in the defense sector (and other sectors too) - AND hold the companies accountable as to what those incentives achieve.
    Major Indian conglomerates like TATA, Reliance, Birla, Mahindra etc should be persuaded to invest BIG in the defense industry.
     

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