Eye on Defence January 2015

Contents title

Contents subjects

December 2014 Eye on Defence

Dear readers,

The Ministry of Defence (MoD) of the Government of India has announced a number of programs that involve indigenous manufacture of defence equipment, including under the “Buy Indian,” “Make” and “Buy and Make Indian” categories. The helicopter-acquisition programs, especially the Naval Utility Helicopter and Reconnaissance & Surveillance Helicopter program (Army), have generated both excitement and introspection.

This edition of Eye on Defence looks at the current inventory of the Indian armed forces in terms of the force readiness of its helicopters and also details the various helicopter-acquisition programs in the pipeline. The probable competitors of these programs are highlighted along with a capability map of Indian companies engaged in the segment. While the level of success these programs may achieve will only be revealed in time, they have provided India’s private sector an unprecedented opportunity to graduate to system integrators in partnership with foreign technology partners.

The new Government has made self-reliance in defence, indigenisation and growth of the country’s defence industrial base the cornerstone of its defence policy. Its project-related announcements under predominantly indigenous manufacture categories are a step in this direction. However, there is a lot to be done to ensure the success of these programs from an operational standpoint. The processes enshrined in the Defence Procurement Procedures (DPP) for the categories “Buy Indian” and “Make” have significant room for improvement and are yet to be tested in acquisition projects. This edition of Eye on Defence studies these processes and make recommendations for improvement of these processes from an operational point of view.

Among our regular sections, we include relevant details about industrial license applicants, RFIs/RFPs released, new projects and investments, joint ventures and alliances, country-level deals and the latest buzz in the industry.

I hope you find this issue useful. It has been our constant endeavour to make this publication increasingly relevant to you, and we would appreciate your comments and suggestions on this.

We would like to take this opportunity to wish our readers a prosperous and happy new year!

K. Ganesh Raj Partner and LeaderAerospace and Defence practice

ContentsIntroduction 2

India’s goal of achieving self-reliance and Defence Procurement Procedures (DPP) 4

Acquisition and development: military helicopters in India 7

Request for information (October–December 2014) 14

Request for proposal (October–December 2014) 15

New projects/investments/ contracts 16

List of Industrial Licenses (ILs) filed for September 2014– October 2014 17

Industry buzz 25

2 | Eye on Defence

The MoD follows Defence Procurement Procedures to meet its capital procurement needs in conformity with the General Financial Rules. The first such document was released in 2005. Since then, successive refinements have been incorporated in new versions of the DPP. Ever since they were first enshrined in DPP 2005, the objectives of the procedures have been the same — “to ensure expeditious procurement of the approved requirements of the Armed Forces in terms of capabilities sought and time frame prescribed by optimally utilizing the allocated budgetary resources. While achieving the same, it will demonstrate the highest degree of probity and public accountability, transparency in operations, free competition and impartiality. In addition, the goal of achieving self-reliance in defence equipment will be kept in mind.”

Because the DPP has been evolving ever since it was set up in 2005, the MoD has had to perform a balancing act, and in the process, has not been able to fully comply with the tenets enshrined in its own objectives. Expeditious procurement and the degree of probity and accountability have suffered while reactive measures such as “blacklisting” of companies and “abeyance orders” have led to confusion. It is perhaps pertinent to note that the most important tenet of self-reliance has suffered due to lack of procedural clarity and frequent apathy until last year when granting priority to procurement from indigenous sources was included in the DPP 2013.

While categorization of projects under “Buy Indian,” “Make” and “Buy and Make Indian” is a step in the right direction, much needs to be done to ensure the operational success of these models. This paper aims to highlight the lacunae in the existing process of Buy Indian,” “Make” while recommending some changes that may bring more clarity and accuracy to the processes discussed.

Buy IndianLet us analyze “Buy Indian,” for example, and see how this is formulated. Incidentally, this category is to be considered the preferred mode of procurement. “Buy Indian” mandates indigenous content of a minimum of 30% on a cost basis (definition of indigenous content provided in Appendix F to Chapter 1 of the DPP 2013). However, there is no clarity on the guidelines laid down to arrive at this categorization. Moreover, the private sector’s participation in the planning

India’s goal of achieving self-reliance and the DPP

and categorization processes requires definition. Criteria also need to be defined (e.g., indigenous development with a certain level of success or if this technology is available with any research agencies with a certain level of technology readiness or if the Indian industry has the capability to manufacture even with incremental support) and communicated to the most important stakeholders, i.e., the armed forces, the private sector and the DRDO, to ensure

ownership of the process. Buy Indian and Buy Global: In terms of “indigenous content,” the DPP does not differentiate between, “Buy Indian” and “Buy Global.” In the case of “Buy Indian,” 30% indigenous content is specified and in the case of “Buy Global,” a minimum 30% offsets is mandated, though not in all cases. This means that any foreign OEM can participate in a RFP and provide equipment with 70% foreign content while being compliant with the provisions of “Buy Indian.” Therefore, “Buy Indian,” in its present form, is a misnomer and needs tweaking, especially in the context of the present Government’s concept of “Make in India” and “Made in India.” President Abdul Kalam had suggested reversal of the trend of 30:70, but we are still stuck at it.

How can this change be brought about? To achieve this, we need to revisit the definition of “Buy Indian,” as outlined in the DPP (which has remained unchanged from DPP 2005 till DPP 2013). To quote the DPP 2013, “Buy Indian” must have a minimum of 30% indigenous content on a cost basis. This clearly implies that the minimum indigenous content expected is 30%, and definitely this is not the maximum expected indigenous content. If this were true, then why is it that the MoD has not specified even a single “Buy Indian” proposal, with a requirement for indigenous content of more than 30%, till date? This is due to two major factors:

• The MoD needs to be constantly updated, since officials are posted on a rotation basis and there has been no development of the concept of “Systemic Knowledge” or any precedence available. There are often cases where considerable development has already taken place. All such proposals may be categorized as “Buy Indian” with the prescribed indigenous content, which may be more than 60% in many cases.

• The private sector is hamstrung by the minimum requirement of indigenous content without the adequate support of the Government or the DPSUs (which are in fact competing with the private sector for some projects). Policies should incentivize and not penalize.

3Eye on Defence |

While the MoD tries to balance the dual objectives of helping the armed forces achieve operational readiness at the earliest and ensure a vibrant indigenous defence industrial base, the move to award major contracts under categories including indigenous production is laudable. However, intent without action is detrimental to the cause. In the context of indigenization, the MoD must realize, appreciate and make provision for the fact that aerospace grade raw materials and some core technologies necessary for modern systems are unavailable indigenously. There is some flexibility required in this aspect as well as the systemic support of the Government to ensure transfer of technology, and more importantly, its absorption. The DRDO has a key role to play in this. Should this not take place, despite considerable efforts made in indigenous development, and categorization of projects in the Buy Indian (or Buy and Make Indian) category, foreign companies may find an Indian company willing to front end the tender by just a minimum 30% indigenous content and beat the price, as against a genuine

4 | Eye on Defence

indigenous product that may have a higher amount of indigenous content

Where else does the fault lie? There is a basic problem arising out from the larger issue of the planning process — it fails to acknowledge self-reliance as a reality, as is evident from minimum order quantities (MoQ). For example, whereas an MoQ of 126 aircraft was granted in the case of the Medium Multi Role Combat Aircraft MMRCA, a mere 20 was granted for the Light Combat Aircraft LCA’s development program. How then can the program be expected to be a success? Can there be a model of buyers’ assurance for relevant developmental programs, which will then incentivize the private industry to make upfront investments.

“Make” procedure

The “Make” procedure, as enshrined in the DPP, is complicated and difficult to understand and execute. This is evident, in part, by the failure of many “Make” project to be conceived, even after eight years of it being introduced in the DPP. Some key aspects of this are discussed in the subsequent paragraphs.

Discussions on the “Make” procedure were initiated in 2003, and it took more than three years to finally include the first procedure as part of DPP 2006. The concept was that the DRDO was not efficient in conceiving projects that required designing and development, and therefore, such large projects with a huge financial outgo needed to be handled by the SHQs/MoD. However, even after eight years of the procedure being in practice, not a single project has been conceived thus far. Therefore, fundamental changes may be required in the procedure and merely tweaking itmay not yield the desired results.

Risk ability: The procedure is a high risk for industry and low risk for the Government. The need for procedural checks before funds can be released can be a deterrent rather than an incentive. Therefore, the Government needs to demonstrate a greater risk taking ability in the interest of the project.

Integrated project Management Teams (IPMTs) vs project director: The concept of integrated PMTs is to replace the project directors and program directors of DRDO ‘Make’

programs by personnel from within the MoD. The issue that arises here is that a floating population may not be able to handle long gestation projects and the period indicated (e.g., three years) is considered a routine insertion, since anyway, the authorized tenure of any officer in armed forces is three years and all others have longer tenures. Bureaucrats, who handle such projects at the decision-making levels, also have shorter tenures.

The IPMTs must be fully empowered and enabled to take informed decisions in time on timely completion of projects. Other committees or agencies must only exist in advisory roles. IPMTs must have an indefinite tenure, with defined milestones to be achieved in definite time periods before any change can be incorporated. All time overruns must be accommodated in this tenure.

Domain knowledge: The IPMT does not and cannot have domain knowledge in program management and related functions. While the various committees are in an advisory capacity, the IPMT needs to be enabled with greater powers to be able to take informed decisions. However, it will always lack in domain knowledge in design and development, which are far more complicated than mere print to manufacture. The risk-taking ability of program directors/the IPMT, which is in direct proportion to their domain knowledge, has a strong bearing on the success of a program.

IPRs and their custody: Intellectual Property (IP) created must remain with the agency that has developed it. Government has no right to claim the IP just because it has funded it. Moreover, development agencies must have the liberty to use the IP so developed for commercialization for supply within the country. However, a control mechanism can be established for exports, since the technology belongs to the country as a national asset.

Finance/Advisor cost: These are really not required in the

5Eye on Defence |

feasibility study, since it is all about capability-building. Inclusion of personnel from the Finance Department must be on a need basis and not at each stage, since this has the potential to cause delays in capability-building.

MSME: Merely paying lip service to the inclusion of MSME organizations in the feasibility study may not serve the purpose of developing them. The “Make” procedure may mandate a minimum percentage of sourcing from MSMEs by value in each project. This must be a necessary condition in the Expressioin of Interest (EOI) and subsequently in the Detailed Project report (DPR). Such a mandate may be included in all “Make” projects.

Time and cost overruns: Time and cost overruns are mainly a function of the decision-making ability of the IPMT. Projects normally take a different shape on the ground than as they are seen on paper. Maneuvering various aspects of a project, such as validations/variations of designs, innovative solutions, market volatility, raw material supply Vs demand, integration of various sub systems and so on do have tremendous effect on the project. Since no advance funds are allocated by the government to the development agencies, huge risk taking ability from industry cannot be expected overnight.

Categories defined under “Make in India”:

• Categories B and C: Since the Government is not funding these, they need to be considered under “Buy Indian” with the provision that all testing facilities will be made available, free of cost. There may be no restriction of the number of Developement Agencies (DA), since this would have no impact on costs as far as the Government is concerned. More companies should be encouraged to come forward for No Cost No Commitement (NCNC) testing of prototypes. At the critical mass of projects, RFPs can be issued without waiting for complete finalization of all the stages.

• Category C: There must be a definite incentive for Category B and Category C type of projects, especially the former. Once an industry has successfully demonstrated a product as desired, it can be categorized as “priority lien” over the product. Such industries and products must be included under “BNE/BFE” in all acquisitions that include these. There is no need for the primes of such contracts to be procured from any other source when a tested one is available.

Design and development: This is the most crucial part of the process and there should not be any restriction on the essential parameters of proven products and neither are they desirable for unproven ones. Such restrictions inhibit the requirement of capability-building and the armed services may have to settle for less, even in “Make” programs that have long gestation periods.

Accountability: Fixing of accountability in collegiate decision-making for a floating population (unique combination) is difficult. It is important to device a mechanism to ensure accountability and the IPMT must be held accountable for delays, time and cost overruns, non-starters or release of funds in time. To summarize, as the Government embarks on the ambitious project of achieving self-reliance in defence production, it must ensure that the procedural and structural environment reflects the intent of its policies.

6 | Eye on Defence

Acquisition and development: military helicopters in IndiaProfile of the existing inventory The Indian Air Force (IAF), Indian Army (IA) and Indian Navy (IN) have been operating different types of helicopters for attack, search, rescue and relief operations over the years. Presently, the Indian armed forces hold in their inventory more than 750 helicopters of all types and classes, including some specialized ones. Most of the requirements in the helicopter segment are met through foreign procurement, either directly or by transfer of technology.

The majority of India’s military helicopters, nearly 78%, are light or medium lift transport ones and include the Aérospatiale Alouette and Lama Helicopters, which are called the Chetak or Cheetah and Mi series.

The shelf life/life cycle of a typical helicopter is around 15–20 years. A large section of India’s helicopter fleet, comprising the Chetak or Cheetah and Mi series helicopters, are more than 20 years old. The figure above depicts the

7Eye on Defence |

helicopter platforms of the three defence services and their vintage models.

Indian Air Force

The current helicopter fleet of the IAF mainly comprises Mi series helicopters (Mi-8/Mi-17 variants), Dhruvs, Chetaks/Cheetahs/Cheetals. Mi 25/35 are used for the attack role and heavy lift Mi-26 helicopters for special tasks. Nearly 78% of the helicopters have already completed their prescribed life-cycles and have gone through Total Technical Life (TTL) extension to extend their lives. The IAF’s helicopter fleet currently stands at 62% against its current operational requirements. The HAL Dhruv —Advanced Light Helicopter is the latest entrant in the IAF and is being used currently.

Indian Army

The Army Aviation Corps (AAC) currently flies more than 230 helicopters. Its inventory predominantly consists of utility helicopters — the 100 HAL Chetak (Alouette II) and 50 HAL Cheetah (Alouette III) helicopters for light surveillance and observation purposes. The army is operating with slightly more than 70% of the helicopters against its current operational requirements. Nearly 60% of the helicopters have already completed their prescribed life-cycles and TTL extension has been carried out on them to extend their lives.

Indian Navy

The Navy has around 148 helicopters operating from shore bases and on-board warships including the aircraft carrier INS Virat, which embarks a complement of Sea Harriers and Kamov Ka-31s, Sea King and Chetak helicopters. The Kamov Ka-31s provide Airborne Early Warning (AEW) support for the fleet and the Sea King Mk 42A/B and Kamov Ka-25/28 are used in anti-submarine warfare.

Indian Coast Guard (ICG)

At present, the ICG has an inventory of 17 Chetak single-engine helicopters and 9 twin-engine Dhruv advanced light helicopters — all supplied by Hindustan Aeronautics Ltd. (HAL). Around 82% of the Chetak helicopters in the inventory are more than 15 years old.

Source: Compiled from Sipri database accessed between 1 December 2014 and 15 December 2014

Present fleet of helicopters with the Indian Armed Forces

IA

30%

IN

20%

IAF50%

Utility helicopter Qty 95+ Nos

Anti Submarine Warfare Qty 55+ Nos

Attack helicoptersQty 23+ Nos

Utility helicoptersQty 155+ Nos Utility helicopters

Qty 200+ Nos

Transport helicoptersQty 215+ Nos

Attack helicoptersQty 30+ Nos

Vintage spread Indian military helicopters

57%30%

16%30%

27% 40%

Existing Platfrom Desired Platform

20+ years 10-20 Years 0-10 years

8 | Eye on Defence

Market opportunity

The armed forces have now expressed a strong desire to quickly overcome the gaps in the desired number of helicopters. The MoD has responded by tying this procurement to its objective of giving a boost to indigenous manufacturing and to encourage the involvement of the private sector in defence manufacturing. It has initiated a series of contracts for the country’s private sector under the Buy-Make category of the DPP. Indian companies will need to partner with global Original Equipment Manufacturers (OEMs) to meet this demand.

Under the Buy and Make India category, Indian companies are expected to ensure a minimum percentage of indigenization in helicopters assembled in the country through transfer of technology from foreign OEMs. While this seems to be a step in the right direction, there are planning and operational issues that must be ironed out before the relatively new Buy and Make India categories can achieve success. Partnerships with global OEMs are expected to motivate private companies to undertake complex manufacturing of complete defence systems. Private enterprises have traditionally held back from such activities due to issues relating to financial viability, technical know-how and their lack of experience in developing complete defence products.

Key programmes in the pipeline:

• Acquisition of 440 Reconnaissance and Surveillance (RSH) helicopters for the Indian Air Force and Indian Army.

• Procurement of 100 Naval Utility helicopters

9Eye on Defence |

Apart from the above, there are various on-going and future programmes that are likely to provide opportunities to the private sector, which can participate as component/sub-system suppliers or offset partners. A brief summary of the major on-going and future helicopter-procurement programmes of the three defence services are as follows:

Major on-going and future procurement

Indian Airforce

Mi-17 V-5 59+12* US$1.9 billion First batch of 19 Mi-17 V-5 has been delivered. The remaining 40 helicopters are to be supplied by the end of 2015.

* Nos. 12 for Ministry of Home Affairs

Light utility helicopter 125 Over US$2 billion Combined order of 384 units for IAF and IA Likely foreign contenders: Kamov, Airbus, Sikorsky, Bell Helicopters and Augusta Westland

Indian contenders: Tata Group, Mahindra & Mahindra Group of Industries, Larsen & Toubro, Bharat Forge, Punj Lloyd, Taneja Aerospace and HAL

ALH Dhruv Mk III 38 US$2.5 billion Combined order for IAF and IA (105 for IA and 54 for IAF) Deliveries ongoing from HALRudra Mk IV Weaponised

Utility Helicopter16

Attack helicopters 22 US$1.4 billion Apache AH 64D of Boeing declared as L1 helicopter; commercial negotiation ongoing; option for additional nos.: 22

Heavy-lift helicopters 15 US$650 million Boeing’s Chinook selected over Russia’s Mi 26T2 as L1; commercial negotiations ongoing

VVIP helicopters 12 US$900 million Three of the 12 helicopters already delivered; deliveries of others stalled

Light combat helicopters 65 US$1-1.5 billion - composite figure

Combined order of 179 for IAF and IA; to be manufactured by HAL, which has built two prototypes till date

Indian Army

Light combat helicopters 114 US$1–1.5 billion - composite figure

Combined order of 179 for IAF and IA; To be made by HAL. As of now, HAL has built two prototypes.

ALH Dhruv Mk III 45 US$2.5 billion Combined order of 159 units for IAF and IA, with 83 Dhruv Mark III utility helicopters and other 76 Mk IV helicoptersRudra Mk IV 60

Light utility helicopters 259 Over US$2 billion Combined order of 384 units for IAF and IA

Likely foreign contenders: Kamov, Airbus, Sikorsky and Bell Helicopters

Indian contenders: Tata Group, Mahindra & Mahindra Group of Industries, Larsen & Toubro, Bharat Forge, Punj Lloyd, Taneja Aerospace, HAL

Indian Navy

Multi-Role Helicopter (MRH) 16 + 44 follow-on order

US$1 billion US S-70 Bravo from Sikorsky shortlisted; CNC to now commence

Naval Multi-Role Helicopter (NMRH)

75 US$4 billion RFI issued on 8 October 2014

Likely foreign contenders: Eurocopter, Bell Helicopter, Sikorsky and Kamov Co.

Kamov Ka - 31 5 US$195-200 million

Approved by Government, Deal yet to be signed

ALH Dhruv 32 US$1.2 billion Combined order for Indian Navy and Coast GuardDAC clearance given recently

Source: Compiled by Q-Tech Synergy and EY from various open sources accessed between 1 November 2014 and 15 December 2014

10 | Eye on Defence

A large proportion of the current helicopter fleet of the armed forces will be reaching the end of its operational lives in the near future, leading to an acute shortfall in the number of operational helicopters. The Defence Ministry has plans to add more than 1000 rotary wing aircraft of different categories (valued at billions of dollars) to the current aircraft capacity of the armed forces in the coming decade to meet this deficiency. The figures projected for procurement include 500 helicopters by the IA, 350 helicopters by the IAF, and 200 helicopters by the IN and ICG. If we include requirements from civil sector, the figure will cross the 2,000 mark. The numbers justify the investment and the long-term sustenance vision of India’s private sector.

1000+ Helicopters by 2027

440

179

16+7522

181

59100

Attack Heavylift

VVIP

15 9

MI 17 MAH NavalUtility

LUH Dhruv LCH


11Eye on Defence |

Furthermore, keeping in view the procurements in the pipeline mentioned above, it is projected that the armed forces are likely to spend around US$15-20 billion (INR550–1100 billion) on acquisition of military helicopters till 2027. Taking into consideration the civil helicopter market, the figure zooms up to US$30-40 billion (INR1650–2200 billion) in the next 15 years. This definitely represents an opportunity for India’s private sector in coming years. It needs to grasp this opportunity and gear up to tap it.

India’s aerospace industry

As far as indigenous capability to design, develop and produce helicopters is concerned, government-owned HAL has been the leader. HAL’s Helicopter Division has produced 336 Chetak and 246 Cheetah helicopters so far and overhauled more than 200 helicopters of both the types. It has also undertaken Category “B” repairs of more than 75 helicopters and put them back into operation. HAL is currently developing and producing variants of the ALH Dhruv for the armed forces and civil services.

HAL has acquired 610 acres of land in the Tumakuru district of Karnataka, to meet the requirements of the Light Utility Helicopter program (designated by the MoD as the RSH program), and is expected to provide employment to 3000 people at this facility. HAL had frozen the design of its indigenously produced LUH in 2012 and has completed assembling its Ground Test vehicle. It is expected to utilise its experience in the areas of engines, gearboxes, cockpits and avionics from the Dhruv project and data bank from flight test PGMS of Dhruv, Rudra and LCH. It is now in the process of development of rotor blades at its Composite Manufacturing Division

The private sector’s participation in the aerospace/helicopter-manufacturing segment has been as suppliers, fabricators to HAL and OEMs so far. Some major private players intend to develop the technological capabilities required to undertake the complex manufacturing required in the sector, but they are likely to start as system integrators or recipients of technology.

The major private players today include the Tata Group, Reliance Industry Limited (RIL), Mahindra, Magnum Aviation, Larsen and Turbo (L&T), Max Aero Space, Taneja Aerospace and Dynamatics Technologies, etc. Apart from these, there are some private companies that have been issued Industrial licences for helicopter sub-systems/avionics. Major Indian companies such the TATA group, Reliance, Mahindra and L&T have been eager to join the helicopter-manufacturing industry for a long time.

Indian Military Helicopter Market Projection - 2014-2017

IA 500 units

48%

IN 200 units

19%

IAF 350 units

33%


12 | Eye on Defence

Most helicopter platforms are imported from major global OEMs such as Boeing, Airbus, Kamov, Bell Helicopter, Sikorsky, Eurocopter, etc. These OEMs have a presence in the Indian market and have set up JVs or technical centres in the country. Overseas companies such as Airbus, Alten, Altran, Assystem, CAP GEMINI, Honeywell, GE and Safran have also set up their own captive centres in India to cater to the growing need for engineering services in the country. These companies have plans to expand their operations in India further and some have tied up with Indian players.

TATA: Tata Advanced Systems Limited (TASL) is the only private company in India to have an assembly line to manufacture helicopter cabins. In 2009, TASL tied up with US-based Sikorsky to make passenger helicopter S-92 cabins for the company at its facility in Hyderabad. These cabins are meant to supply Sikorsky’s export orders. Tata Advanced Systems and the Sikorsky Aircraft Corporation already have a joint venture in India, Tara Aerospace, to make a range of sub-components and parts for aircraft and helicopters, including for S-92. TASL aims to ship 48 assembled kits.

Dynamatics Technologies: Dynamatics Technologies has been making airframe components and details parts for Bell 407 at Dynamatic Park, Peenya, since December 2013. The company has already successfully completed the First Article Acceptance of Aft Fuselage detail parts for Bell 407 and recently commenced production for shipment to Bell’s aircraft assembly site at Mirabel, Canada. It has also signed a Memorandum of Understanding (MoU) and a Model Purchase Contract with Boeing for manufacture of Aft Pylon and Cargo Ramp Assemblies for Boeing’s CH-47F Chinook helicopter. Work is scheduled to commence by the end of 2014

Bell Helicopters (part of the Textron Group in the US) intends to increase its sourcing from Indian companies, and Dynamatics is at the centre of its strategy. Bell may also look at assembling complete cabins for Bell 407 in India in the future.

Taneja Aerospace and Aviation Limited (TAAL): TAAL is a recognized manufacturer of aero structures, engineering solutions and aircraft maintenance support systems. While its main customers include Hindustan Aeronautics Limited (HAL), ISRO, NAL and Aeronautical Development Establishment (ADE), TAAL has also upgraded Mi 17 helicopters. It has been recently awarded a contract to maintain and repair Mig 29 aircraft.

13Eye on Defence |

L&T: L&T has been engaged in the fields of design, manufacture and supply of components, subsystems and systems for aerospace applications, but not in manufacturing helicopter parts.

Mahindra Aerospace: A relatively a new player, at present in partnership with the National Aerospace Laboratories (NAL), the company is developing a new five-seat light-utility aircraft. It is also working on a new 10-seat turbine and an 18-seat twin turbine aircraft.

Reliance Industry Limited (RIL): RIL has entered tie-ups with global OEMs, Boeing and Dassault Aviation, to manufacture the latters’ sub-systems/components under Indian offset programmes relating to defence deals. RIL has tied up with Boeing to manufacture the components of the P8I LRMR and C-17 military transport aircraft, which is being developed for the Indian Air Force and Indian Navy, respectively. Furthermore, it is working on a similar collaboration for Apache attack helicopters and Chinook heavy-lift helicopters. However, its manufacturing operations are yet to take off.

Several SMEs including major Indian IT service companies such as Infosys, Wipro, Mahindra-Satyam, TCS, BAeHAL, QUEST (now Aques), CADES and GENSER have entered the aerospace engineering design services business (including to meet software- and system-related needs) and are looking at upcoming helicopter programs with hope.

Conclusion

The Government has taken a step in the right direction to involve the private sector in helicopter manufacturing by implementing two major helicopter programmes for it. The coming years are likely to see procurement programmes that can be bought under the “Buy and Make” category. Opening up of indigenous helicopter design and production capability to the private sector is expected to reduce delays and inefficiencies, and widen the manufacturing base and competition in the country. In addition, it may also help to reduce the cost of leading edge technologies and products due to export-related possibilities and economies of scale.

However, the Government should ensure that it clearly understands the difficulties new private players may face in transitioning to manufacture of military helicopter integrators and that the foreseen fleet size (indicated in tenders) should be adequate for private companies to bid for and lead to a comprehensive and satisfactory industrial return oriented to serious transfer of technology. The LUH project is likely to be a test case for the “Buy and Make Indian” category.

References:

• Man Mohan, “Defence deals: Indian pvt sector joins hands with foreign firms”, The Tribune, 6 June 2014

• http://www.sipri.org/, aerospace and defence related custom searches, accessed 5 September 2014

• Ajai Shukla, “’Indian’ Dhruv Copter get Italian makeover”, Business Standard, 13 September 2010

14 | Eye on Defence

Date of issue RFI details Response date

Issued by Defence service

2 Dec 2014 Thermal night sights for assault weapons and un-cooled thermal night sights for special forces

15 Jan 2015 Directorate of Special Ops & Diving

For IN

2 Dec 2014 Preparation of detailed project report and consultancy for Naval Aviation Management Systems (NAMS)

30 Jan 2015 Directorate of Air Projects and Plans

For IN

28 Nov 2014 Passive surveillance 28 Dec 2014 Directorate of ASR (EW ) For IN

20 Nov 2014 Uncooled thermal imager- based Drivers’ Night Sight (DNS) for T 90 Tank

20 Dec 2014 Directorate of General Mechanical Forces

For IAF

13 Nov 2014 Mini trucks 12 Dec 2014 MGO branch For IA

5 Nov 2014 De-militarisation of obsolete/unserviceable explosives

3 Dec 2014 MGO branch For IA

5 Nov 2014 Tracked Light Dozer (TLD) 12 Dec 2014 E-in-C branch For IA

31 Oct 2014 Integrated ASW defence suite 15 Nov 2014 Principal Director Staff Requirements, IN

For IN

31 Oct 2014 Reconnaissance and Surveillance (RSH) helicopters 23 Dec 2014 Army Aviation For IA

28 Oct 2014 Construction of four Multi- Purpose Support Vessels (MPVs)

11 Dec 2014 Directorate of Ship Production

For IN

22 Oct 2014 Assault Rifles, Qty.- 32,000 Nos. 21 Nov 2014 Date extended to 2 JAN 2015

Directorate General of Perspective Planning AIR HQ (VB)

For IA

21 Oct 2014 Comprehensive upgrade of BMP 2/2K for IA 15 Nov 2014 DGMF For IA

15 Oct 2014 Remote actuator of influence mines 17 Nov 2014 MGO branch/MGO COORD/PPO

For IA

8 Oct 2014 20 mm SAPHEI ammunition 5 Nov 2014 MGO PPO For IA

8 Oct 2014 Naval Utility Helicopter (NUHs), simulators and associated equipment

24 Nov 2014 Directorate of Information Technology

For IN

Request for information (October–December 2014)

15Eye on Defence |

Date of issue

RFP details Response date

Issued by Remarks

14 Dec 2014 Bullet-proof jackets, qty —2058 30 Dec 2014 --- For IA

9 Dec 2014 Automatic electronic warning system 26 Dec 2014 Air Force Station Bidar For IAF

9 Dec 2014 Air rifles and pistols, ammunition and allied accessories

22 Dec 2014 282 Medium Regiment For IA

7 Dec 2014 Tactical vests, qty — 2000 30 Dec 2014 GOC-in-C,HQ Northern Command For IA

4 Dec 2014 Heat exchanger air to air aircraft for Mirage aircraft — qty 4

1 Jan 2015 ACAS (Eng-B) For IAF

4 Dec 2014 Full-body protector, qty — 5200 2 Jan 2015 Commandant Proc- cell Director General

For CRPF

3 Dec 2014 Low-tech ammunition for Assam Rifles 31 Dec 2014 HQ DGAR For Assam Rifles

29 Nov 2014 Counter Radio-Ied System (CRIS), (IS), qty —182

29 Dec 2014 GOC-in-C, Northern Command For IA

26 Nov 2014 Ammunition pouches and grenades made in disruptive and RAF patterns

5 Feb 2015 --- For CRPF

26 Nov 2014 Surveillance-ROV (SROV) for detection of CBRN

16 Dec 2014 Research Development Establishment

Issued by DRDO

25 Nov 2014 Personnel protective gear Items 15 Dec 2014 --- For ITBP

25 Nov 2014 22 free rifle Anschutz and accessories 8 Jan 2015 NCC Group For IA

19 Nov 2014 NBCD and fire-fighting Items 3 Dec 2014 Coast Guard Region (NW) For ICG

18 Nov 2014 Electro stun guns 26 Dec 2014 DG, CISF For IA

14 Nov 2014 V/UHF radio (MXF 4027 V2) 3 Dec 2014 CABS*Centre For Air Borne System

Issued by DRDO

14 Nov 2014 Impact Fuze DPICM to ARDE 27 Nov 2014 ARDE*Armament Research & Development Establishment

Issued by DRDO

14 Nov 2014 Weapon-mounted target-acquisition system and image- acquisition device, qty 4

3 Dec 2014 OIC ACSFP, HQ Western Command

For IA

12 Nov 2014 NBC filter type 2 Dec 2014 *Research & Development Establishment —RDE(E)

issued by DRDO

12 Nov 2014 Security equipment (multifunctional electronic target system, qty 3 six-lane and qty1 four-lane

16 May Director ACSFP CELL

For IA

12 Nov 2014 EOI for development of active protection system for armoured fighting vehicles

29 Jan 2015 *Combat Vehicles Research & Development Estt. (CVRDE)

Issued by DRDO

5 Nov 2014 For IAF 13 May GOC-in-C, HQ Northern Command

For IA Qty: 6

3 Nov 2014 Integrated weapon training simulator 18 Nov 2014 Regimental Centre Kamptee For IA

28 Oct 2014 Hand-held thermal imager laser range 16 Dec 2014 Directorate of Special Ops & Diving

For IN

Request for proposal (October–December 2014)

16 | Eye on Defence

28 Oct 2014 Reflex sight for 5.56 mm Tavor assault rifle, qty200

8 Dec 2014 HQ Northern Command For IA

28 Oct 2014 Border surveillance management system, qty 6

8 Dec 2014 HQ Northern Command For IA

27 Oct 2014 Small arms interactive console simulator, qty3 6 Nov 2014 ACC&S For IA

23 Oct 2014 Development and supply of PEC radar interface

18 Nov 2014 For IN

20 Oct 2014 Thermo vision camera 20 Nov 2014 Centre for High Energy Systems and Sciences

Issued by DRDO

20 Oct 2014 EOI for indigenous development of centrifugal pumps for Talwar Class ships

14 Nov 2014 Directorate of Indigenisation For IN

18 Oct 2014 Deep search metal detector, qty199 19 Nov 2014 ACSFP Cell Udhampur For IA

17 Oct 2014 V/UHF radio (MXF 4027 V2) 29 Oct 2014 *Centre For Air Borne System (CABS)

Issued by DRDO

14-Oct-2014 Life jackets, qty 2000 29 Oct 2014 OIC ACSFP, GS (Jt Ops), Chandimandir

For IA

11 Oct 2014 SAKRIYA radio and cell phone jammer counter IED system, qty 22

7 Nov 2014 GOC-in-C For IA

10-Oct-2014 Bomb suit, qty 6 26 Nov 2014 DG SSB For SSB

8 Oct 2014 Replacement of existing UTD-20 engine and manual transmission for Infantry Combat Vehicle (ICV) BMP-I

1 Dec 2014 EME Dte For IA

4 Oct 2014 Gun powder for 155MM ammunition 28 Oct 2014 O.F. Bhandara Issued by OFB

1 Oct 2014 Night sight for 5.56MM Galil assault rifle, qty 25

11 Nov 2014 HQ Northern Command Arty Branch

For IA

Request for proposal (October–December 2014) (cont’d.)

17Eye on Defence |

List of Industrial Licenses (ILs) filed for September 2014–October 2014

Application no. and date Name of applicant Items manufactured

30616/09/2014

Harish Viswamurthy Harohalli RF and MW system for use in radar and EW systems; high-power transmitters including travelling wave, tube amplifiers, microwave power

30505/09/2014

Cecilia Dsouza Optical instruments and equipment

30405/09/2014

Nathu Lal Choudhary Explosive class 2 (bulk emulsion)

30305/09/2014

Dr. Amarnath Gupta Military fuses of all types including filing and assembling

30205/09/2014

Jiju John Parts and accessories of articles from headings 9301 to 9304

18 | Eye on Defence

New projects/investments/contracts

Name of entity Project details Value

Government of India • ► The Government has cleared a proposal to build six stealth submarines at a cost of INR500–600 billion each.

• ► It will allow foreign companies to participate in the program through JVs with Indian enterprises.

• ► DCNS of France, Kockums of Sweden, Rosoboron Export of Russia and ThyssenKrupp of Germany are in talks with Indian companies to provide technology and supervise production of submarines in the country.

INR3,000 billion

Government and Airbus Defence and Space

• ► India has entered a deal with Airbus Defence and Space for delivery of a dedicated facility in the country to maintain and repair its submarine fleet periscopes.

• ► Airbus is partnering with Tata Consultancy Services and H&H Precision Private Limited to set up the facility. The project is due to be completed in September 2016.

• ► Setting up of this facility is the first step in the establishment of an in-country service capability for India’s future naval operations.

INR988 million

Indian Air Force (IAF) • ► The IAF is likely to procure 106 more Pilatus PC-7 basic trainer aircraft, adding to its current fleet of 53.

• ► The largest number of PC-7 aircraft will be produced in India with a license from the Swiss aircraft-maker Pilatus.

• ► The Defence Acquisition Council (DAC) is yet to give final clearance to the proposal.

INR700 billion

Indian Army • ► The Indian Army will procure 814 mounted gun systems (MGS) as part of its Field Artillery Rationalization Plan (FARP).

• ► The DAC has cleared the army’s proposal to tender for these truck-mounted self-propelled 155 mm gun systems.

• ► The army can import the initial 100 guns, but it will have to procure the remaining 714 from Indian vendors, licensed by foreign vendors or manufactured with indigenous technology.

INR158 billion

19Eye on Defence |

Government and Rafael • ► India is expected to sign a deal with Israel’s Rafael Advanced Defence Systems Ltd. to procure 8,300 Spike-MR missiles and more than 300 launchers.

• ► Spike MR, a lightweight third-generation man-portable missile system, is especially designed for medium-range anti-tank operations, urban and traditional warfare, to provide ground support and for special missions.

• ► The weapon system operates in the fire-and-forget mode for autonomous and medium range target engagement of up to 2.5 km.

INR32 billion

Indian Navy and HAL • ► HAL will supply 12 Dornier Do-228 Maritime Surveillance and Patrol Aircraft (MSA) to the Indian Navy.

• ► The Defence Acquisition Council (DAC) has granted Acceptance of Necessity (AON) for the proposal.

• ► The new aircraft will be produced at HAL’s Transport Aircraft Division (TAD) in Kanpur, and deliveries are expected to begin from 2016.

INR19 billion

IAF and Taneja Aerospace & Aviation

• ► IAF has awarded a contract to Taneja Aerospace to upgrade MIG 29 aircraft.

• ► The contract will be executed over a period of three years, starting 1 December 2014.

INR127 million

IAF • IAF is planning to take up the job of assembling Pilatus PC-7 aircraft at its Base Repair Depot (BRD). IAF’s BRD at Coimbatore is likely to execute the project.

• A team from the Swiss aircraft maker, Pilatus, visited the BRD and gave the first go-ahead to the IAF.

NA

20 | Eye on Defence

New projects/investments/contracts (cont’d.)

Ministry of Defence (MoD) • ► The MoD plans to acquire 440 new helicopters for the armed forces.

• ► Most of these helicopters will be procured from Indian companies, including government-run HAL.

• ► In addition, the MoD plans to purchase 56 transport aircraft. Only Indian private sector companies and joint ventures (JVs) will be eligible for the deal.

NA

Government • ► The Government has cleared 19 defence sector projects, including those of Reliance Aerospace Technologies Ltd., Bharat Forge, Mahindra Telephonic Integrated Systems and Tata Advanced Materials Ltd,, in a bid to boost manufacturing in the country.

• ► These projects, which have been pending for a long time, received the go-ahead in view of the recent liberalization of the Foreign Direct Investment (FDI) policy in the defence sector along with delicensing of several defence items.

• ► This clearance is expected to give a major impetus to advanced manufacturing in India’s defence sector as well as to the Government’s “Make in India” campaign.

NA

Rosoboronexport • The Government has finalised a contract with Rosoboronexport of Russia for procurement of 42,000 rounds of fully formed AMK 339 tanks.

NA

Defence Research and Development Organization (DRDO)

• The DRDO plans to develop new variants of its indigenously developed cruise missile Nirbhay and making it an all-weather and all-terrain system.

• Initially built as a land-attack weapon system, Nirbhay will have ship-, air- and submarine-launched variants in the near future.

• While the Army version of the missile is expected to be ready for production in next three years, the DRDO is planning to make its naval and air variants ready in the next five years.

NA

*The values of the deals have been converted to Indian rupees using the Oanda currency conversion tool — 1US$ = INR60; €1= INR76.

Sources:1. “Taneja Aerospace shines on inking a contract with Indian Air Force”, Accord Fintech, 28 November 2014, via Factiva. 2. Shishir Arya, “IAF may assemble PC-7 trainer aircraft”, The Times of India, 26 November 2014, via Factiva. 3. “India approves $2.6 bln mounted gun purchase – official”, Reuters News, 22 November 2014, via Factiva. 4. Rajat Pandit, “India likely to order 106 more Swiss Pilatus PC-7 aircraft to train pilots”, The Economic Times, 22 November 2014, via Factiva.5. “India to order 106 more trainer aircraft”, The Times of India, 21 November 2014, via Factiva.6. “India inks euro 13 million deal with Airbus Defence and Space,” Press Trust of India, 20 November 2014, via Factiva.7. “Armed forces to acquire 440 helicopters: Jaitley”, Samay Live, 11 November 2014, via Factiva, ©Sahara Samay. 8. “India to sign $525-million deal for Israeli Spike system”, SP’s MAI, 1 November 2014, via Factiva.9. Atul Chandra, “HAL to supply 12 Do-228 MSAs to Indian Navy”, Flight International, 28 October 2014, via Factiva, © Reed Business Information

Limited. 10.“Govt’s decision on boost for private shipyards”, Business Standard, 27 October 2014, via Factiva, ©Informatics (India) Ltd.11. “DRDO to develop Nirbhay variants”, New Indian Express , 19 October 2014, via Factiva12. “Centre clears 19 long-pending defence projects to boost local manufacturing”, Indian Express, 8 October 2014, via Factiva.13. “Ministry of Defence”, Press Information Bureau website, pib.nic.in/newsite/AdvSearch.aspx, accessed 12 December 2014

21Eye on Defence |

Joint ventures and alliances


Bell Helicopters and Dynamatic Technologies

• ► Bell Helicopter has signed an agreement with Dynamatic Technologies for supply of major airframe assemblies for Bell 407 GX helicopters.

• ► The seven-year contract includes provisions for extension of the life of the product.

• ► Its agreement with Dynamatic is aligned to Bell’s global sourcing strategy for its 407 GX helicopter.

NA

Snecma and Max Aerospace • ► French engine-maker Snecma has signed an agreement with Max Aerospace to set up a JV, Max Aero Engines Private Limited (MAEPL), for maintenance of military aircraft engines.

• ► Under the agreement, MAEPL will provide complete engine- support solutions, in particular shop-level maintenance and flight line services, and cover all maintenance, repair and overhaul services in India.

• ► It will provide maintenance services for the Snecma M53 engines powering Mirage 2000H Vajra fighters for the IAF, starting 2015.

NA

Airbus and Tata Advance Systems Limited (TASL)

• ► Airbus Defence and Space is teaming up with TASL in its bid to replace the IAF’s fleet of Avro 748 small tactical transport aircraft with the Airbus C295 twin turboprop medium airlifter.

• ► The main competitor for Airbus C295 for the bid is Alenia Aermacchi with its C27J Spartan.

• ► If the C295 were to be chosen for the contract, Airbus would supply the first 16 aircraft “in flyaway condition from its own final assembly line”, and the remaining 40 would be manufactured and assembled by TASL in India.

NA

Safran and Bharat Forge • ► French engine manufacturer Safran has tied up with Bharat Forge to manufacture components for commercial aerospace applications.

• ► The companies have decided to tie-up after 18 months of trial production of forgings in a variety of materials. They plan to explore further opportunities in India’s civil and military aerospace segments.

NA

22 | Eye on Defence

Joint ventures and alliances (cont’d.)


Rockwell Collins and Zen Technologies

• ► Rockwell Collins and Zen Technologies signed a Memorandum of Understanding (MoU) to combine their strengths in simulation and training to offer solutions to their military clients in India.

• ► Rockwell Collins will provide aviation simulation and training products, systems and integration solutions and Zen Technologies will add capabilities in ground military simulation and training methods.

• ► The partnership will open up avenues to further extend Rockwell’s reach in India’s defence market and enable it to offer superior end-to-end solutions to the Indian armed forces.

NA

Honeywell and Tata Power Strategic Electronics Division (SED)

• ► Honeywell Aerospace has signed a licensing agreement with Tata Power SED, enabling it to produce Honeywell’s Tactical Advanced Land Inertial Navigator (TALIN) in India.

• ► TALIN, a Honeywell-patented technology, enables vehicles and artillery to navigate precisely, even where GPS satellite guidance is not available, to increase the safety of troops and maximize the success of missions.

• ► TALIN 2000 will be initiated in 2015, with production and manufacturing of system components expected by 2016.

• ► The agreement will be extended to cover Honeywell’s TALIN 3000, 4000 and 5000 product offerings.

NA

Magellan Aerospace and Aequs • ► Aequs (formerly QuEST Global) and Canada’s Magellan Aerospace plan to expand their JV plant at Aequs SEZ in Belgaum as a measure to strengthen their capabilities in the growing global aerospace market further.

• ► This expansion is aimed at enhancing special aerospace processes such as Tartaric Sulphuric Acid (TSA) anodizing and cadmium plating for aerospace OEMs.

• ► The plant is expected to be operational by January 2015. The new TSA process is a newly developed technology that will replace the more hazardous traditional chromic acid anodizing one.

NA

Rosoboronexport and Ordnance Factory Board (OFB)

• ► OFB (in Kolkata) has entered a Transfer of Technology contract with Rosoboronexport of Russia for indigenous manufacture of AMK 339 tanks.

NA

Sources:1. “Bell Helicopter ties up with Dynamatic Tech”, Financial Express, 20 Nov 2014, via Factiva, © Informatics (India) Ltd. 2. “Snecma, Max Aerospace create JV for military aircraft engine maintenance”, India Strategic, 14 November 2014, via Factiva.3. David Learmount, “Airbus Defence teams with Tata for Indian Air Force bid”, Flight International, 4 November 2014, via Factiva, © Reed Business

Information Limited. 4. “Rockwell Collins and Zen Technologies offer solutions in simulation and training to Indian customers “ , SP’s Mai, 9 October 2014, via Factiva.5. “Honeywell signs licensing agreement with Tata Power ‘s SED in India “,MarketLine Company News, 3 October 2014, via Factiva.6. “Aequs, Magellan Aerospace Joint Venture to Expand Special Processing Plant in India”, India Energy News, 23 September 2014, via Factiva, ©

Contify7. “Ministry of Defence”, Press Information Bureau website, pib.nic.in/newsite/AdvSearch.aspx, accessed 12 December 2014.

23Eye on Defence |

Country-level deals and initiatives

Country Nature of transaction Additional details

France • ► French Defence Minister Yves Le Drian visited India and expressed France’s desire to be part of the Government’s “Make in India” initiative.

• ► He also discussed possibilities for the French defence industry’s contribution to this initiative.

• ►The French Defence Minister also reviewed the progress of negotiations between India and France for purchase of 126 Rafale fighter aircraft.

• ►Mr. Drian and his Indian counterpart Manohar Parrikar reviewed preparations for a major joint aero-naval exercise, Varuna, in April 2015, which will be France’s maiden aero-naval exercise in the Indian Ocean.

Indonesia • ► India’s Air Chief Marshal Arup Raha visited Indonesia on invitation from the country’s Air Chief Marshal Ida Bagus Putu Dunia.

• ► This was the first visit by an Indian Air Chief to Indonesia in over a decade and took place against the backdrop of the East Asia Summit meeting between Indonesian President Joko Widodo and Indian Prime Minister Narendra Modi.

• ► During the visit, Indonesian Air Force officers expressed their keen interest to augment their scope of cooperation with the Indian Air Force through increased interaction in the future.

• ► India’s Air Chief also met General (retired) Ryamizard Ryacudu, the Indonesian Minister of Defence.

• ► The Indonesian Minister of Defence was appreciative of India’s ongoing initiatives in the field of defence cooperation and underlined the immense scope and potential to further engagement between the armed forces of the two countries in the future.

Mauritius • ► The Mauritius Government has ordered a Dornier-228 aircraft (worth INR1 billion) from India’s state-run HAL for surveillance on the sea.

• This is the third Do-228 order from Mauritius and will boost India’s defence export efforts.

24 | Eye on Defence

Country-level deals and initiatives (cont’d.)

Country Nature of transaction Additional details

Russia • ► Russia and India have discussed the prospect of launching their joint production Sukhoi Superjet-100 medium-haul airliners on Indian soil.

• ► The planes can be produced for the Indian market and for export to foreign countries.

• ► India is also interested in co-operating with Russia on joint production of the MS-21 medium-haul passenger airliner and for production of helicopters.

Russia • ► Avia Indra I-Phase II, a joint Indo – Russia Air Force exercise, was held at Air Force Station Halwara (Punjab).

• ► During the exercise, fighter aircraft, and the helicopter and missile crew of the two countries operated together.

• ► The exercise included air-to-ground firing and fighter sorties over the Himalayas.

• ► Select members of the Russian team were introduced to India’s indigenous programs such as the Tejas and Dhruv.

United Arab Emirates (UAE) • ► Three Indian Navy ships have docked at Dubai as part of India’s ongoing mission to train naval and Coast Guard trainees and foster maritime goodwill in Arab countries.

• ► The ships, INS Tarangini, INS Sujata and INS Tir, belong to the Southern Naval Command (SNC), the Training Command of the Indian Navy.

• ► Naval officers from the two countries held discussions on the potential of maritime cooperation between the two countries.

Sources:1. “Ministry of Defence”, Press Information Bureau website, pib.nic.in/newsite/AdvSearch.aspx, accessed 12 December 2014.2. “France eager to be part of ‘Make in India’”, The Hindu, 2 December 2014, via Factiva, © Kasturi & Sons Ltd. 3. “Mauritius to buy Dornier from HAL”, The Hindu, 29 November 2014, via Factiva, © Kasturi & Sons Ltd. 4. “Indian naval ships dock at Dubai port,” Press Trust of India, 13 October 2014, via Factiva5. “India, Russia may clinch deals on producing mid-range civilian aircraft, military helicopters”, The Economic Times, 14 November 2014, via Factiva.

25Eye on Defence |

India test flies light combat helicopterHAL has successfully conducted the maiden test flight of its Light Combat Helicopter (LCH) as a technology demonstrator. The multi-role combat helicopter was escorted by HAL-built Dhruv Advanced Light Helicopter (ALH). The LCH is intended to be an effective weapon platform for the IAF to make precision strikes at high altitudes. HAL plans to achieve initial operational clearance (IOC) for the LCH in the next 10 months after its four prototypes make a series of test flights. It plans to roll out 179 light combat helicopters for the defence forces, primarily the IAF and the Indian army.

Source: “India test flies light combat chopper,” Indo-Asian News Service, 12 November 2014, via Factiva.

MoD turns to domestic companies for IAF’s helicopter program The MoD is turning to domestic companies to build Light Utility Helicopters (LUHs) for the IAF, after failing to acquire LUHs through global tenders twice. However, domestic organizations have no experience in building such helicopters and may have to partner with overseas companies.

The MoD’s effort to acquire helicopters from private domestic players is an attempt made by Indian companies to kick-start the “Buy and Make in India” initiative.

Source: Vivek Raghuvanshi, “India tries new tack in troubled Helo program“ Defence News, 13 October 2014, via Factiva, ©Army Times Publishing/ “Private companies to make unmanned aerial vehicles for defence “, The Economic Times, 5 October 2014, via Factiva.

Indian Army completes Prithvi-II trial successfullyThe Indian Army has successfully completed the triil of the surface-to-surface medium range nuclear-capable ballistic missile Prithvi–II as part of its operational exercise. A Limited Stock Production (LSP) test was conducted by the Strategic Forces Command (SFC) of the Indian Army from a mobile launcher, with an objective of gauging the efficiency of the missile in a real time situation. Prithvi, the first missile developed under the Integrated Guided Missile Development Programme (IGMDP), has a length of 9 metres and a diameter of 1 metre. It is powered bya liquid propulsion twin engine. Prithvi-II, which has a strike range of nearly 350 km., uses an advanced Inertial Guidance System with reasonably good accuracy, and the warhead uses a radar

Industry buzz

correlation terminal guidance system. The missile has the capability of carrying a payload of 1000 kg., but if it this reduced by half, its striking range can be enhanced.

Source: “Prithvi-II trial successful”, The Statesman, 15 November 2014, via Factiva.

Indian Navy preparing to increase its influence on the Indian OceanThe Indian Navy has commissioned three frontline warships, boosting its fleet to 140 vessels. Shipbuilders are building another 41 warships, including the 40,000-tonne aircraft carrier INS Vikrant. These warships will join a “blue water” Navy, and will aim to increase India’s influence across the Indian Ocean. The Navy’s strike power will centre on at least two Carrier Battle Groups (CBGs) — self-sufficient flotillas built around a floating air base. Each carrier will be escorted by multi-role corvettes, frigates and destroyers, which can together handle threats from all three dimensions — underwater, on the surface and in the air.

Source: Ajai Shukla, “India’s navy: Strong on aircraft carriers, short of submarines”, Business Standard, 30 September 2014, via Factiva.

India’s successful launch of its third navigation satellite India has successfully launched its third navigation satellite, IRNSS 1C, on board ISRO’s PSLV C26 rocket from its spaceport at Sriharikota, moving a step closer to setting up the country’s own navigation system and to bringing it at par with the US’ Global Positioning System (GPS). Twenty minutes after the launch, the vehicle successfully placed the 1,425.4 kg. satellite on its scheduled orbit. This was the seventh time ISRO was using an XL version of the PSLV rocket for its missions. The mission life of the satellite is 10 years. The navigational system will provide two types of services — the Standard Positioning Service, which is provided to all users — and Restricted Service, which is encrypted and is only provided to authorized users. The IRNSS system, which will ultimately have seven satellites and ground stations, is scheduled to be completed at a total cost of INR14.2 billion in 2015.

Sources: “India successfully launches third navigation satellite IRNSS 1C”, Samay Live, 16 October 2014, via Factiva.

26 | Eye on Defence

Imminent rollout of New Defence Procurement Policy (DPP) India’s new DPP is expected to be announced by January 2015. It is likely to include fresh rules for blacklisting organizations, attracting investments and engaging agents. The main focus of the new DPP will be on transparent and accelerated procurement for the armed forces. It is also expected to include measures to boost the “Make in India” initiative as well as attract increased foreign investments in India’s defence sector.

Source: “New DPP to rollout soon”, Q-Tech Synergy, 29 November 2014, via Q-Tech Synergy Newsletter.

MoD announces new amendments for industrial licenseThe MoD has streamlined the procedure for grant of industrial licenses. According to the new procedure:

• Two extensions of two-years each will be allowed over the initial validity period of three years.

• The stipulation of a fixed annual capacity in the industrial license will be removed. However, a licensee will have to submit a half-yearly production return to the MoD’s Department of Defence Production (DoDP).

• The licensee will be allowed to sell defence items to government entities under the control of the Ministry of Home Affairs, state governments, Public Sector Undertakings (PSUs) and other defence licensed companies without prior approval from the DoDP.

Source: “Industrial license: new amendments”, Q-Tech Synergy, 25 October 2014, via Q-Tech Synergy Newsletter.

India launches drive to buy half of its weapons from indigenous sources At least half of India’s total weapon and equipment needs in the next 10 to 12 years, worth more than INR6,000 billion, could be produced in the country under the Government’s new policy. This new approach is based on the countrywide “Make in India” campaign launched by Prime Minister Narendra Modi to boost the domestic industry. Under the policy, the categories of “Make India” and “Buy and Make India” will be used for around half the weapon purchases and tenders will only be awarded to the domestic industry.

Source: Vivek Raghuvanshi, “India launches drive to buy half of its weapons from indigenous sources”, Defence News, 27 October 2014, via Factiva, ©Army Times Publishing.

Private companies to make unmanned aerial defence vehicles The Government is set to issue at least half a dozen licenses for manufacture of Unmanned Aerial Vehicles (UAVs) to private players, although civilian use still remains a closed area. The Department of Telecommunications has agreed to allow UAV manufacturers to use the spectrum band allocated to the defence forces, thereby paving the way for issuance of licenses. This is aligned to the Government’s push to cut defence imports by allowing private participation in the sector. Dynamitic Technology is expected to bag the largest block of licenses, clearing a plan to allow it to make 10,000 unmanned aerial systems and vehicles. Featuring among the largest players is Ashok Leyland, whose proposal to manufacture 600 UAVs, along with armored vehicles, unmanned ground vehicles, has been pending with the Government. Other players expecting licenses include Taneja Aerospace, Avaana Software, Basant Aerospace, SasMos HET Tech, Swallow Systems and Om UAV Systems.

Source: “Pvt cos to make UAVs for defence”, The Times of India, 4 October 2014, via Factiva.

Dassault Systèmes’ play in the Defence and Aviation space in IndiaA winning program in the aerospace and defence (A&D) scenario is one that meets all defined requirements, performing on budget and on schedule, and identifying and effectively managing all potential risks. Historically, this has been a challenge for most companies because they lacked tools that could enable them to efficiently capture and reuse intellectual property across programs, quickly explore alternative designs to find the best one and simulate the impact of decisions on the program throughout its lifecycle. Dassault Systèmes, the 3DEXPERIENCE Company, has introduced an industry solutions experience for A&D companies called ‘Winning Program’ which helps address all these key concerns of the aviation and defence industry.

‘Winning Program’ is designed to help A&D companies to configure the right concept for their customers and know from the earliest stages that they can deliver it on budget and on time.The program enables innovative A&D companies to effectively perform front end business activities defining new offers and/or win new business and comprehensively execute the requisite system engineering choices and associated trade studies.

27Eye on Defence |

By providing a means to fully understand the elements of each proposal/offer, along with a detailed roadmap of how each element will be delivered, Dassault Systèmes’ 3DEXPERIENCE platform with the ‘Winning Program’ industry solution experience enables companies to increase their win ratio and deliver more innovative offerings to market without the associated risk.

With our Prime Minister’s recent call to ‘Make in India’ the focus in the aviation industry has shifted strongly to indigenisation along with modernisation of this vertical in India. There has also been a sharp focus on IT adoption and research in high technology space. Dassault Systèmes’ Aerospace & Defence 3DEXPERIENCE industry solution can help the Indian industry to become more competitive.

For more information, visit www.ey.com/in

Connect with us

Assurance, Tax, Transactions, Advisory A comprehensive range of high-quality services to help you navigate your next phase of growth

Read more on ey.com/IN/en/Services

Our services

Centers of excellence for key sectors Our sector practices ensure our work with you is tuned in to the realities of your industry

Read about our sector knowledge at ey.com/IN/en/Industries

Sector focus

Easy access to our knowledge publications. Any time.

http://webcast.ey.com/thoughtcenter/

Webcasts and podcasts

www.ey.com/subscription-form

Follow us @EY_India Join the business network from EY

Stay connected

28 | Eye on Defence

Why choose Team EY?

Unique Team Experience Offset Structuring Industrial Connects End to End Solutions

• Team member was a part of the team that wrote the Indian Defence Offset policy in 2006.

• Team member founded the DOFA.

• Team member has written a complete book on Offsets with the CII.

• Offset Structuring worth US$ 3.7 Bn executed successfully.

• Total experience of 66 man years in the Armed Forces.

• MoD experience of 14 man years.

• Team has members from the Auto practice-India’s only proven manufacturing competence

• We have offices in Bangalore; Pune Hyderabad & Chennai where these manufacturing and IT capabilities reside

• Industrial License Application

• FIPB approval

• Due-diligence services

• Transaction Advisory for M&A

• Tax Mitigation in offset contracts

• Creation of a compliant Offset Schedule

• Quarterly Offset progress report

Unparalleled Support & Advantage for OEM’s & Indian Companies

29Eye on Defence |

30 | Eye on Defence

Services offering – Tax & Regulatory

Contract negotiation stage

Post contract signing support

Other Compliance

and AdvisoryPre bid stage1 2 3 4

► Review the clauses of RFP in order to highlight the clauses/terms from a tax & regulatory perspective.

► Suggest alternative approaches where necessary

► Advising on tax issues Association of Persons ('AOP') exposure under the consortium model and suggesting adequate safeguards.

► Identification of a suitable business model.

► Formulate appropriate tax positions

► Back End advise on tax and regulatory clauses in the bid negotiation with the objective of optimizing the tax & regulatory implications.

► Responding to queries pertaining to any tax or regulatory issues which may arise during the discussion stage

► Assistance in set up of the agreed upon business model.

► Advise on subcontracting/ local purchase arrangements from tax and commercial perspective

► Formulate appropriate tax positions

► Plan for advance ruling for upfront certainty/ clarity

Serv

ices

Off

erin

gSu

ppor

t at

eve

ry

stag

eContracting Process

► Corporate tax and indirect tax compliance

► Accounting services► Background check

(Fraud investigation) on viability of the chosen Indian Offset Partners (IOP’s)

► Foreign Investment Promotion Board (FIPB) & Industrial License (IL) application and clarifications for IOPs

Impo

rtan

ce ► Develop certainty with respect to impact and incidence of direct and indirect taxes in India

► Establishment of a tax efficient and regulatory compliant structure in India

► Compliance with ever evolving tax and regulatory regime in India

► Upfront identification of tax and regulatory implications under the RFP

Services offering - Defence Offset

Bid Stage Contract negotiation stage

Post contract signing support

Pre bid stage

1 2 3 4

Offset process► Help evolve an

understanding of the offset process and stakeholders

Indian offset partners(IOPs)► Identification of IOPs (M&A

/ JV / Licensed Manufacture / Sourcing)

► Clarification from DIPP/FIPB/MoD regarding their regulatory status

Support services► Industrial Licensing for

IOPs► IOPs financing► Joint venture structuring

Offset Proposal► Identification of methods

of offset discharge► Structuring/vetting of

Technical and commercial offset proposals

► Support in answering the queries of the MoD

Indian offset partners(IOPs)► Structuring contractual

arrangements with IOPs ► Valuation of offset

attributable► Financial & Background

due diligence of IOPs

► Continuous support through on call advisory

► Support in preparation of appropriate responses to MoD queries

► Identification of stand by IOPs in case of removal of existing ones

► Any other support as maybe required.

Serv

ices

off

erin

gSu

ppor

t at

ever

y st

age

Contracting process

► Support in compiling documentation required for offset discharge

► Support in preparation of quarterly / half yearly reports on fulfillment of offset obligations.

Impo

rtan

ce

► To ensure a suitable Technical and commercial offset plan that should find favour with the TOEC and the CNC.

► Support in getting the technical offset proposal approved in time so that it does not obstruct main contract signing

► Continued support for offset execution to avoid penalties and loss of faith with the MoD

► Evolve understanding of offset process amongst the core team for optimal planning

► Identification of eligible and viable IOPs who can sustain through the duration of the offset program

► Planning for submission► Identifying the right

partners and methodologies

► Getting the documents right for submission

► Building the right offset program

► Getting the optimum economic value for offsets

► Documentation of offset execution

Our offices in India

Kolkata 22, Camac Street 3rd Floor, Block C” Kolkata-700 016 Tel: +91 33 6615 3400 Fax: +91 33 2281 7750

Mumbai 14th Floor, The Ruby 29 Senapati Bapat Marg Dadar (west) Mumbai-400 028, India Tel: +91 22 6192 0000 Fax: +91 22 6192 1000

5th Floor Block B-2 Nirlon Knowledge Park Off. Western Express Highway Goregaon (E) Mumbai-400 063, India Tel: +91 22 6192 0000 Fax: +91 22 6192 3000

NCR Golf View Corporate Tower – B Near DLF Golf Course Sector 42 Gurgaon–122 002 Tel: +91 124 464 4000 Fax: +91 124 464 4050

6th floor, HT House 18-20 Kasturba Gandhi Marg New Delhi-110 001 Tel: +91 11 4363 3000 Fax: +91 11 4363 3200

4th & 5th Floor, Plot No 2B Tower 2, Sector 126 NOIDA-201 304 Gautam Budh Nagar, U.P. India Tel: +91 120 671 7000 Fax: +91 120 671 7171

Pune C—401, 4th floor Panchshil Tech Park Yerwada (Near Don Bosco School) Pune-411 006 Tel: +91 20 6603 6000 Fax: +91 20 6601 5900

Ahmedabad 2nd floor, Shivalik Ishaan Near. C.N Vidhyalaya, Ambawadi Ahmedabad-380015 Tel: +91 79 6608 3800 Fax: +91 79 6608 3900

Bengaluru 12th & 13th floor “U B City” Canberra Block No.24, Vittal Mallya Road Bengaluru-560 001 Tel: +91 80 4027 5000 +91 80 6727 5000 Fax: +91 80 2210 6000 (12th floor) Fax: +91 80 2224 0695 (13th floor)

1st Floor, Prestige Emerald No.4, Madras Bank Road Lavelle Road Junction Bengaluru-560 001 India Tel: +91 80 6727 5000 Fax: +91 80 2222 4112

Chandigarh 1st Floor, SCO: 166-167 Sector 9-C, Madhya Marg Chandigarh-160 009 Tel: +91 172 671 7800 Fax: +91 172 671 7888

Chennai Tidel Park, 6th & 7th Floor A Block (Module 601,701-702) No.4, Rajiv Gandhi Salai Taramani Chennai-600113 Tel: +91 44 6654 8100 Fax: +91 44 2254 0120

Hyderabad Oval Office 18, iLabs Centre Hitech City, Madhapur Hyderabad - 500081 Tel: +91 40 6736 2000 Fax: +91 40 6736 2200

Kochi 9th Floor “ABAD Nucleus” NH-49, Maradu PO Kochi - 682 304 Tel: +91 484 304 4000 Fax: +91 484 270 5393

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

Ernst & Young LLP is one of the Indian client serving member firms of EYGM Limited. For more information about our organization, please visit www.ey.com/in.

Ernst & Young LLP is a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008 in India, having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata - 700016

© 2014 Ernst & Young LLP. Published in India. All Rights Reserved.

EYIN1407-082 ED None

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young LLP nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

GM

EY refers to the global organization, and/or one or more of the independent member firms of Ernst & Young Global Limited

Ernst & Young LLPEY | Assurance | Tax | Transactions | Advisory

For more information , please contact:

K. Ganesh RajPartner and LeaderAerospace and Defence PracticeErnst & Young Pvt. Ltd.Tel: + 91 120 671 7110Email: [email protected]

Udit NarulaSenior ConsultantAerospace & Defence, IICErnst & Young Pvt. Ltd.Mob: + 91 9654452626Email: [email protected]