Interview with Dr Vivek Lall-31 billion in defence sales in India


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Boeing predicts 31 billion in defence sales in India, interview with Dr Vivek Lall

23 Dec 2009 Manu Sood: Boeing Integrated Defense Systems (IDS), India head, Dr Vivek Lall told Manu Sood, Editor, 8ak that he expects US$31 billion of defence business in India in the next 10 years. Since a figure commonly touted around is that India will spend US$100 billion on weapons acquisitions in the next 10 years, this seems to be an ambitious 30% market share. This will also create a direct offset liability of roughly about US$12 billion (based on few assumptions including an average 40% offset) which basically means they will have to create an aerospace and defence industry in India with the additional challenge of integrating it in to the global supply chain.
8ak: How are your various aircraft deals progressing?
Dr Lall: Boeing announced the P-8i deal in January this year. We have had discussions with the IAF to showcase its capabilities and brought it to Aero India as well, we have submitted the Apache and Chinooks for the IAF’s helicopter tenders, will respond to the RFI for the Naval Fighters and are confident about our Super Hornet offering in the ongoing MMRCA tender.
8ak: Since Lockheed Martin was involved in both the 5th Generation projects JSF and Raptor it seems that it has left Boeing behind with no future in this segment?
Dr Lall:
The Boeing fighter products currently in production approach future requirements from a position of balance, because the cost and schedule availability to meet the vast majority of mission requirements is known. At the same time these aircraft have significant margins for growth that permit additional capabilities to be rapidly inserted, while controlling both cost and schedule. We are constantly looking at innovative approaches to adding capabilities that pace the threats as they emerge and have specific plans to do that well into the future.
A very heavy design emphasis on a few narrow capabilities can drive cost to unaffordable levels and undermine the design's flexibility to address the spectrum of threats and other conditions it must face over time. The result can be too few aircraft due to cost, with those aircraft being ineffective in some important missions.
Conversely, a “balanced approach” to design can keep cost and capability across the required mission set in equilibrium, and then adds capability in focused areas from a position of balance. For example, the Super Hornet delivers highly advanced, complete, multi-role capability. It combines state-of-the-art airframe and avionics to fight and survive in the 21st century. As its fighter/attack designation signifies, the Super Hornet provides the flexibility to perform a broad range of missions, including air dominance; precision attack; close air support; and reconnaissance – all in a single platform.
The Super Hornet’s advanced sensors, included its fully integrated, combat-proven APG-79 AESA radar, designed-in stealth, unlimited angle of attack, twin engines, self-repairing flight controls and precision stand-off weapons, ensure the Super Hornet maintains extremely high levels of both survivability and lethality.
8ak: Are you predicting a 30% market share in Indian defence?
Dr Lall:
While Boeing’s India focus has primarily been on Aircraft, our IDS division provides space and homeland security solutions. These have not been adequately marketed in India and will also contribute towards our US$31 billion goal.
8ak: Which non-aircraft market are you most confident about?
Dr Lall:
The homeland security market in India is worth around US$22 billion and in the U.S. Boeing has designed and deployed large border security projects. One of these is SBInet which is part of the U.S. secure border initiative that will go online in January 2010.
8ak: With PM Manmohan Singh’s recent Russia visit, we are only strengthening this relationship adding new programs like Medium Transport Aircraft (MTA) development to ongoing Fifth Generation Fighter (FGFA), missile development and nuclear programs. With Boeing expecting such large sales, are you expecting Russian sales to diminish significantly? Same with the Israelis who have a strong base in India?
Dr Lall:
The defence and homeland security pie is expanding rapidly in India and there is room for Russian and American companies. Creating the aerospace and defence industry eco-system and capability that Boeing forsees will require an effort from many countries.
Regarding Israel, it has key strengths that are often different to what Boeing is offering ie. They are not bidding in the MMRCA, chopper etc programs and Boeing in not involved in some of the upgrade programs, so we see them more as partners than competitors.
8ak: India has virtually no defence industry especially in the private sector. Will you be able to successfully discharge your offset obligation in India?
Dr Lall:
Boeing’s offset liabilities in India in the next decade will be between U.S. $7 - $12 billion. Boeing has already signed US$600million in defence offset deals and some of them are already delivering results. For example, HAL has been contracted to make the gun bay doors for the F-18 Super Hornet and integrated in to our global supply chain.
For the MMRCA fighter, 16 top U.S. suppliers with over $454 billion in annual sales had signed MoUs with 38 companies in India. So while we are committed to developing India’s aerospace and defence industry, we believe that the defence offsets must be expanded to include commercial aerospace as well since there is a lot of commonality between the two.
8ak: What is Boeing view on the 26% FDI cap?
Dr Lall:
It is important to point out that having an FDI policy and limits is progressive and demonstrates the Government of India’s understanding of the importance of foreign investment as a catalyst to achieve its industrial objectives, and also underscores its willingness to encourage such investment. It is also important to look at FDI in the context of India's defence offset policy. This policy has been promulgated to support the industrial policy objectives of the Government of India, the primary aim of which is increasing the competitiveness of the Indian aerospace/defence supply chain in the global market. Encouraging foreign vendors to invest in India via strategic partnerships such as joint ventures means that FDI in the defence industry (including research and development activities) is a tool to accomplish this objective.
The present FDI limit of 26% represents a significant foreign investment in India’s military infrastructure. It also represents a vehicle for fulfillment of offset obligations as the 26% investment is eligible for offset credit. There is, however, scope to widen the aperture of this offset policy and increase the FDI limit to an amount higher than the present 26% while still allowing Indian firms to keep management control of the joint business entity in question. FDI limits could thus be safely increased up to 49%, which would have the following benefits:

  • An increase to 49% would make the defence FDI limit consistent with the FDI limits in several other sectors (eg telecomm).
  • A higher limit would further incentivize foreign vendors to invest in India since their ownership stake is greater (even though not a majority ownership, a 49% ownership constitutes a higher level of ownership than 26% and thus carries with it the perception of having more control and direction in the management of a company).
  • A higher FDI limit also provides further incentive for a company to invest in India, because of the higher rate of fulfilment of offset obligations (If investment amounts are equal, the foreign vendor investing 49% gets more offset credits than the foreign vendor that invests 26%).
  • Finally, a higher FDI limit can also serve as a yardstick for the Indian authorities in gauging the seriousness of foreign vendors to participate in offset programs in a manner that enhances the industrial objectives of the Indian Government. A 49% investment, for example, is almost twice as large as a 26% percent investment. Foreign vendors that can identify a robust business case that achieves their objectives are more likely to be extremely serious about making such large financial commitments to India.
Since the success of such a business venture must rest on their meeting the needs of their customer, it is logical that businesses which are made up of a higher percentage of foreign ownership will have a vested interest in meeting the industrial objectives of the GOI.

8ak - Indian Defence News: Boeing predicts 31 billion in defence sales in India, interview with Dr Vivek Lall

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