MMRCA deal a shot in the arm for industry

By : Raghuvir Badrinath
Last Updated: Tue, Feb 07, 2012 19:24 hrs

The impending $12 billion contract to buy 126 Medium Multi Role Combat Aircraft (MMRCA) by the defence ministry from Dassault, is set to be a game changer for the Indian aerospace and defence industries with as much as $6 billion worth of offset contracts expected to flow to Indian companies.

This deal, as and when signed, ensures that Dassault along with its two major suppliers Thales and Safran Group would place offset contracts on Indian vendors amounting to minimum of 50 per cent of the value which in this case could be $6 billion and this obligation would be co-terminus with fulfilment, which is 12 years span. Hindustan Aeronautics Limited (HAL) would be the lead production agency and would be in charge of assembly of the aircraft and engines. It would commence production by T+4 years. It would produce 20 aircraft a year at steady state (T+9 years) and deliver all 108 made in India by the 12th year. However, components, subsystems and services can be procured by the vendor (Dassault) or its OEMs from any Indian Defence Industry of their choice.

The three companies that constitute the vendor team, i.e. Dassault, Thales and Safran, have traditionally a strong presence and relationship with Indian companies. For example, the Safran group has already invested a lot in India through companies like Safran Engineering Services, Snecma HAL, Turbomeca India engines in aerospace and Morpho Detection, Smart Chip Ltd in homeland security and more such inflows are expected.


* On airframe side, technology relating to composites, super plastics, metal treatment and processes such as robotic riveting are crucial.

* On the engine side Full Authority Digital Engine Control (FADEC), titanium casting, special coatings such as microflon, graphoil, processes such as radio crystallography, advance forging technologies are expected to be transferred to Indian companies.

* On the avionics side, state of the art radar, mission computer, head-mounted displays, auto pilot, moving maps and technology relating to inertial navigation systems, flight instrumentation, communication systems, low-intensity conflict electronic warfare systems are expected to be transferred.

* On aggregates, technology relating to landing gears, fuel systems, servo hydraulic systems, pneumatic systems, heat exchangers, ejection seats are likely to be transferred.

“As per Defence Procurement Procedure (DPP) 2006 on which the contract is quoted, only HAL, a few defence PSUs and about 60 Indian Companies licensed by DOFA (Defence offset Agency) are eligible to share this offset pie and all procurement should be defence related only, with full value addition in India. However if the proposed new DPP 2012 or its immediate release in 2011 are applicable it would widen the catchment area including any product or Direct services relating to Defence, Commercial Aerospace or Homeland Security performed by any company of vendors choice licensed or otherwise. Also the offset obligation can be shared by Dassault or its main OEMs — Thales and Safran Group in a pro-rated basis. Retrospecting the new 2012 to this contract would definitely be a game changer,” said Sampath Ravinarayanan, an industry expert, having served on the Board of Air India, Indian Airlines, Airbus Engineering India among others.

Ravinarayanan, one of the pioneers in private sector initiatives for Indian Defence sector added that the DPP 2012 is expected to be radically different incorporating most of industry concerns.

“The top three key points are providing incentives to OEMs by the way of offset multipliers if they work with SMEs, providing offset credits for technology transfer with incentives to OEM for buyback guarantees and providing incentive for more value addition in India. If these are announced in the new policy and retrospected for MMRCA contract, it would help India to create a necessary eco-system to compete in the global market place,” he noted.

One of the key takeaways as this deal matures over a 12-year period will be that with new technology absorption, world class facilities, adaptation of cutting edge processes, systems and the skilled manpower would create a formidable ecosystem for India to compete in the global marketplace and become a significant player and net exporter.

“Of the $6 billion in offset money flowing into India, about 50 per cent would be spent on manpower. On an average of $20,000 per man year, this would mean 150,000 man years of new jobs in the defence aerospace industry. This would translate into 5,000 jobs in the3rd year and stabilise at 20,000 jobs in the ninth year. Also, all support services like maintenance, training and logistics have to be provided by Indian industries with the technology and knowhow of Dassault, Thales and Safran for the next 40 years. This could create an additional 4,000 jobs. The weapons system contract for the remaining 108 aircraft and its obligations could create additional 6,000 jobs. At the time of fulfilment my conservative assessment would be 30,000 trained, world class manpower would be deployed in Aerospace and Defence Industry. To put it in the perspective it is twice as many people we have now only on quantity,” Ravinarayanan detailed.

Nidhi Goyal, Director, Deloitte in India further observed that the Indian companies are already working on setting up their facilities for manufacturing parts of the planes, such as aero structures, aero components, electronics, etc for providing support to the overseas suppliers and to Hindustan Aeronautics limited. They have also started the process of obtaining industrial licence and certifications from the overseas suppliers — Cemilac, DGQA.

While the benefits will be immense to this sector, it will further have a cascading effect on other industries as well. “Many of the technologies which will be transferred can be easily adapted to commercial Aerospace. Some of them would be useful in next generation Automobiles. Also avionics, communication & electronic warfare technologies would be useful in Homeland Security products,” Ravinarayanan added.

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