India Inc to get $10 billion in aviation offsets business

The central government's offsets policy on commercial and defence aviation big-ticket purchases is likely to bring in manufacturing and services deals worth over $10 billion to industries in the country within the next couple of years.

The government will acquire commercial and defence aviation products - including aircraft, components, services and equipment - worth $40 billion over the next 10 years. Each deal has an inbuilt offset component ranging from 30 per cent to 50 per cent.

Offsets are manufacturing and services contracts that the vendor company has agreed to award to Indian companies.

Under the present offsets policy, the government retains a minimum 30 per cent of the invoice value of any civil or defence aviation related purchase over a mutually agreed period of time, till the seller outsources manufacturing or services contracts equivalent to the amount of the offset share.

The objective of offsets is to upgrade aviation technology in the country and build a support system for the growth and upkeep of the industry.

Some of the deals already cleared that include offsets are:

  • 68 aircraft worth $6.7 billion from Boeing for Air-India (offset share: 30 per cent)
  • 43 aircraft worth $2.7 billion from Airbus for Indian (offsets: 40 per cent)
  • 200 defence helicopters worth around $20 billion from Eurocopter (offsets: 50 per cent) and
  • 126 multi-role combat aircraft (MRCAs) worth around $10 billion for which the vendor is yet to be decided (offset: 50 per cent).

Bangalore is expected to rake in the bulk of these deals, as no other city in the country has a comparable aviation industry presence, excepting Hindustan Aeronautics Ltd's (HAL's) other locations. India's aviation engineering business will be worth over $4 billion by 2020, say estimates.

This includes technology development and manufacture of sub systems, landing gear, structural body frames for aircraft, interiors, cockpit, and entertainment systems.