Boeing Begins Offsets In India

(MoneyWatch)  India recently has begun buying military equipment from major European and United States defense contractors. This is a move away from their traditional Russian suppliers and attempts to develop an indigenous defense industry. Many rules in India had made it difficult for businesses to win contracts or do work there but because the South Asian country realizes that the easiest way to upgrade the technology of their weapons was to procure advanced weaponry the Government has made moves to open up the market.

Many of the major corporations like Boeing (BA), Lockheed Martin (LMT), EADS (EADS.P) and BAE Systems (BAE.L) are eager to sell overseas in order to mitigate the possibility of reductions or cuts in the domestic U.S. and U.K. budgets. The biggest on-going contract is for a new fighter which attracted bids from U.S., French, Russian, Swedish and the joint European Eurofighter. This contract is in the early stages with the Indians looking at capabilities of the proposed aircraft with an eye to narrow down the bids.

India did go ahead and order P-8I maritime patrol aircraft from Boeing. This contract is worth over $2 billion and will see modified 737 aircraft provided to perform this mission. The U.S. Navy is also investing in the P-8 to replace the venerable P-3C Orion aircraft. One of the rules that India has relaxed is the requirement for offsets by the winning contractors.

Previously the offset requirements where a company is obligated to spend money in India either on parts, equipment or services related to the program or on equivalent goods were so onerous that companies did not want to bid. This was lowered to where thirty percent of the contract value must be offset. Boeing announced yesterday that they have begun to execute their offsets for the P-8I contract.

Over $600 million in contracts will be issued to Indian aerospace and electronics companies to provide equipment and parts for the P-8I. In another relaxation of stifling rules India will now allow joint ventures to be formed between Indian and foriegn companies to bid on defense contracts. In the past this right was limited to only government sponsored arms companies which limited foriegn investment and interest in contracts.

India hopes that this new offset and joint venture policy will increase investment in their already growing economy. At the same time there companies will gain knowledge of better and newer technology that will enhance the domestic weapon industry. The desire for foriegn companies to get work with an uncertain domestic market will spur them to invest in India.

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