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Aero India 2007: The Lure of India's Burgeoning Aerospace Market

Dr S. Samuel C. Rajiv is Associate Fellow at the Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile
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  • February 22, 2007

    The Sixth Aero India Aerospace and Defence Exhibition held from February 07 to 11, 2007 was by all accounts a 'big' event. The biennial gathering was organized jointly by the Ministry of Defence's (MoD) Department of Defence Production and the Federation of Indian Chambers of Commerce and Industry (FICCI). For the first time, Farnborough International Ltd., the organization that holds the Farnborough International Air Show, was involved. 503 defence companies from 33 countries were represented at the Yelahanka Air Force station in Bangalore, the venue of the show. This was an improvement from the 2005 Aero India event, which had attracted 380 firms. About 25 Chiefs of Air Staff along with over 20,000 business people also participated. These numbers testify to the interest shown by major platform and equipment manufacturers in cashing in on the business potential evident in one of the world's biggest defence market.

    With over 70 per cent of Indian defence inventory being of Russian/Soviet origin, the Indian armed forces have been trying to modernize their existing arsenal and procure more capable platforms and equipment since the late 1990s. This is to better face the myriad threats facing the country as well as to plug perceived deficiencies in their force structures. Since the opening up of the Indian economy in the early 1990s, robust economic rates of growth have also allowed policy makers to oblige the Armed Forces' modernization needs and demands for new equipment. India's defence budget in 1995 was about US$8 billion, while in 2006 $8.5 billion was allotted for just acquisitions and upgrades, out of a total budget of nearly $20 billion. The defence budget is expected to grow at the rate of 7 to 8 per cent annually over the next five years, totalling more than $140 billion, including $35-40 billion for procurement. Such allocations would not only give the armed forces the wherewithal to see through their modernization and acquisition plans, but also make India one of the biggest markets in the world for defence and aerospace products.

    The Indian Air Force (IAF) with a large inventory of platforms acquired over the last couple of decades has been most vigorous in modernizing its fleet and in acquiring new platforms. The outgoing Chief of Air Staff, Air Chief Marshal Tyagi, has stated that it is one of the goals of the IAF to streamline its inventory and reduce the types of aircraft so that savings could be made on the maintenance, training, and overhead costs. The IAF, which is being increasingly seen as a 'transoceanic' force with proven expertise in aerial re-fuelling capabilities, its requirements are very large. The $10 billion Medium Multi-Role Combat Aircraft (MMRCA) programme, which involves the expected purchase of 126 fighter aircraft, tops the list and has generated a lot of interest among the world's aircraft manufacturers. Among the contenders include RSK MiG with the thrust-vectoring MiG-35 variant, seemingly the current front-runner for the lucrative contract. Other contenders include Boeing's twin-engine F/A-18 Super Hornet, Lockheed Martin's highly successful single-engine F-16 fighter, Saab's Gripen powered by a single engine, the twin-engine Eurofighter Typhoon and Dassault's Rafale. The IAF's earlier supposed favourite, Dassault's Mirage 2000-5, is no longer in production, with the French company deciding to close its factory line in the face of delays in IAF's tendering process.

    The IAF is also in the market to buy heavy-lift helicopters, aerial tankers, light helicopters, transport planes for Special Forces (SF) operations, an array of air-to-air and beyond-visual-range (BVR) missiles, among other equipment. Its modernization needs are massive, and efforts are on to make its inventory comprising various MiG aircraft, Jaguars, and Mirages multi-mission capable, with better engines, provision of new avionics, mission computers, missiles, and communication equipment.

    The aerial needs of the Navy and the Army are also increasing. The Army has a requirement of nearly 200 medium-lift helicopters. Bell 407 or the Eurocopter FS 550C3 Fennec helicopters are the foreign platforms in contention. Bell has stated that it could deliver 60 aircraft from its US production line and manufacture the remainder with Hindustan Aeronautics Limited (HAL). HAL has, however, announced plans to make a Light Combat Helicopter (LCH) at Aero India 2007, to enter service by 2012. This would be a derivative of the Advanced Light helicopter (ALH). The Ministry of Defence had sanctioned $24 million in October 2006 for HAL to make 2 LCH prototypes by 2008. Analysts believe that if the LCH were to be acceptable to the Indian Army, the chances of Bell or Eurocopter securing the contract would diminish greatly.

    The Indian Navy (IN) is being increasingly called upon to perform a greater role to defend Indian interests. This would imply that it would have to acquire appropriate assets to defend its ships as well as for force projection. These assets include multi-mission surveillance and patrol aircraft, a plethora of missiles to equip these, carrier-borne fighters, among others. While the MiG-29K would equip the INS Vikramaditya (Admiral Gorshkov), the Navy is also looking to acquire jet trainers to train its pilots for carrier operations. Its requirement for eight multi-mission Maritime Patrol Aircraft (MPA) was valued at over $800 million. Aircraft in contention include Lockheed Martin's P-3C Orion, Boeing's P-8I, currently under development with an initial operational capability (IOC) slated for 2012-13, and EADS CASA's Airbus A319. The superior performance parameters of the P-8I, based on the Boeing 737 commercial airliner, offering a greater range and power than the alternatives makes it an attractive option, coupled with the fact that the Orions are already in the service of the Pakistan Navy.

    Russia continues to be the biggest supplier of defence equipment to India. Its current order backlog for Indian contracts is valued at more than $8 billion, including the $1 billion refit of the Admiral Gorshkov (to be rechristened INS Vikramaditya), $750 million for the 16 MiG-29Ks that will be based on the carrier, $850 million for upgrading 67 MiG-29s in the service of the IAF, $700 million for upgrading 140 Mi-17 helicopters, and $900 million for acquiring 80 new Mi-17s. At Aero India 2007, a contract to buy 40 additional Sukhoi 30-MKI fighters worth $1.5 billion was agreed upon, with the deal likely to be signed by March. The planes would be delivered within the next 3 years. HAL is currently producing 140 Sukhoi-30 planes under license from Russia. It has also entered into a $700 million joint venture agreement with Russia's Irkut Corporation to manufacture a multi-role medium transport aircraft (MTA). The MTA is intended to replace the Antonov An-12s, An-32s, and C-130 transport aircraft by 2015-20. Russia deployed the MiG-29 OVT at the Aero-India 2007, showcasing its thrust-vectoring capabilities. The MiG-35, in contention for the MMRCA contract, will also have this feature, which will provide it with super-manoeuvrability. HAL also plans to design and develop a fifth generation multi-role combat fighter with the Sukhoi design bureau in the next decade, estimated to cost about $5 billion. To be in serial production by 2015, the aircraft is intended to replace fighters like the MiG-29s, Jaguars and the Mirage-2000s.

    The Israeli presence at Aero India 2007 was significant. Israel has emerged as a valuable partner in meeting India's modernization requirements. India is Israel's biggest export market, and it sold arms worth $2.76 billion during 2002-06. Out of its total sales of $4.2 billion worldwide in 2006, India accounted for nearly $1.5 billion. The 2004 contract to supply three Phalcon Airborne Early-Warning (AEW) radars mounted on Russian Ilyushin Il-76 MD 'Candid' planes, to be delivered by 2007, is Israel's biggest contract so far at $1.1 billion.

    There was also a significant American presence at Aero-India 2007, testifying to the enormous hope US companies have in securing lucrative contracts. 52 firms were present at the show and a variety of aircraft were showcased, including the F/A-18 Super Hornet, the F-16, CH-47 Chinook troop-carrier helicopter, and C-17 Globemaster strategic transport aircraft. At Aero India 2005, the US had only two F-15's on static display and a mock-up of an F-16. Boeing estimates its Indian market to be potentially valued at over $15 billion over the next 10 to 15 years, depending on the orders secured for the Super Hornets, the CH-47 Chinooks, and the C-17s. In fact, Boeing has also offered to co-produce the Super Hornet in India, which would make it the only country that would manufacture the fighter plane outside of the US. The plane would also be equipped with the Active Electronically Scanned Array (AESA) radar, making it Network Centric Warfare (NCW) capable. Lockheed Martin, the world's biggest defence company, is in the market to sell its F-16s, P-3 C Orion surveillance aircraft, and C-130 J Hercules transport planes. India's impending acquisition of six C-130s, with an option to acquire six more, will be the first deal for military aircraft between the two countries.

    With the 2006 Defence Procurement Procedure (DPP-06) stipulating that Indian firms would have to perform 30 per cent of the value of contracts that exceed $65 million (Rs. 300 crores), there is much hope that Indian defence firms could cash in on the modernization needs of the armed forces and also improve their overall standards. The defence sector has been opened up to 100 per cent private sector participation, with Foreign Direct Investment (FDI) capped at 26 per cent. The Defence Offsets Facilitation Agency (DOFA) was established in September 2006 as a one-stop agency to facilitate the partnership of foreign contractors with Indian companies. Defence Minister A.K. Antony has expressed hope that the offset policy would lead to a greater degree of 'Indianization' in terms of defence procurement. According to Secretary, Defence Production, K.P. Singh, the offset policy would generate business worth over $5 billion (Rs. 25,000 crores) for Indian businesses over the next decade. Foreign firms and officials are, however, expressing reservations about the efficacy or capability of the Indian defence industry to service the local component of mega-deals, given their lower level of specialization and business strength.

    With Defence Minister Antony stating at Aero India 2007 that the government was in the process of acquiring "fresh capabilities for all three wings of our armed forces to optimise their operational effectiveness," in tune with its growing economy and rising role in world affairs, the Indian defence market is likely to continue on its upward spiral. Events like Aero-India 2007 will acquire greater status and prestige in the coming years, as places where firms can show their wares, with a platform to network, and hope for mega-deals to follow