• Need for offset monitoring and a suitable solution 2 • Electronic fuze: opportunities and market potential 8 • Tier-1 vendors now permitted to execute offset obligations 14 • Request for Information (RFIs) 16 • Request for Proposal (RFPs) 17 • List of Industrial Licenses (ILs) filed from 01/09/2011 TO 31/10/2011 19 • List of Industrial Licenses (ILs) filed from 01/11/2011 TO 31/12/2011 20 • New projects/investments/contracts 21 • Country-level deals and initiatives 23 • Industry buzz 24 • Sources 29 January 2012 Eye on defence Dear Readers, The Indian defence industry is entering an exciting phase with the Government of India embarking on rapid indigenization. The growing importance can be gauged by the proposed inclusion of defence in the Twelfth Five Year Plan (2012–17). Amidst this rapidly changing landscape, we are pleased to present the Eye on Defence, Ernst & Young’s quarterly newsletter on defence for the period October-December 2011. This issue of Eye on Defence covers key topics, which include the urgent need to monitor offsets and the market opportunities for relatively new technology prod-ucts such as electronic fuze. With the recent amendment in DPP-2011 allowing the tier-1 suppliers to discharge off- set obligations, we look forward to help the Indian industry identify such suppliers on a particular program. Among the regular sections there are industrial license applicants, new projects and investments, joint ventures and al-liances, country-level deals and the latest buzz in the industry. We hope you enjoy reading this issue. It has been our constant endeavor to make this publication more relevant to you and would appreciate your comments and suggestions in this regard. K. Ganesh Raj Partner and Leader Aerospace and Defence Practice
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Need for offset monitoring and a suitable solutionBackgroundWithMMRCAbecomingarealityinthenearfuture,aUS$6–7billionofbusinessfortheIndianindustryisexpectedfromthisonesingleprogram.SincetheinclusionofoffsetsinDPP2006,contractsworthINR140billionhavealreadybeensignedbytheIndianindustrywithforeignOEMsunderoffsetsaloneandareundervariousstagesofimplementation.However,therearemanymoreexcitingopportunitiesintermsofbusinesspotentialinoffsets,intheverynearfuture.IndustryinIndia,hastakenthisopportunityseriouslytilldatebothrelatingtocurrentopportunitiesandtheonesalreadyaccorded.Industrybuzzis,“Isittruethatsomanyhundredsofcroresofoffsetsarebeingdischarged,ifsowherearetheyandwhoarethebeneficiaries?”
a. DG(Acquisition)processestheRFP,getstheresponses,constitutestheTOEC(TechnicalOffsetEvaluationCommittee),makesevaluations,accordsacceptanceofprojectsandfinallysignsthecontract.
b. DOFA(DefenceOffsetFacilitationAgency)undertheSecretaryDP(DefenseProduction)expectedtofacilitateimplementation,assistpotentialvendors,assistinvetting,assistinmonitoring,etc.ThelistoffunctionsoftheDOFAisalongone,whichishithertotooambitiousandseldomaddressedbytheorganizationduetoitsratherlimitedbandwidth.
c. AnOffsetMonitoringCellwasthereaftercreatedinadditiontotheabovethroughadepartmentalorder,in2008,underSecretaryDP.WhiletheDOFAwasunderJointSecretary(ElectronicSystems),theOffsetMonitoringCellwasfunctioningfromunderDirectorS1/S2,inthesupplieswingoftheDDP,underadifferentJointSecretary.EvenwithintheDDP,theresponsibilitywasfurtherdistributed.
d. ThencametheprovisionofBankingofOffsetCreditsinDPP2008,whichwascreatedundertheAdditionalSecretaryDP,withmembersfromallstakeholders,ofwhichtheChairmanDOFA,providedsecretarialsupport,withhelpfromtheOffsetMonitoringcell.
Basic components of monitoringThebasiccomponentsofamonitoringprocessarebroadlysimilartothoseof“programmanagement”.Eachoffsetcontract,inanacquisitionprogram,isa“project”andtomanageallsuchindividualprojectsweneedprogrammanagement.Thevolumestobeencounteredinthisprogrammanagementaresubstantialandneedaveryeffectiveset-uptomanagethesame.Programmanagementisaboutdoingprojectsright.Andthisisdistinctlydifferentfromprojectmanagement,since,successfulprojectsaredeliveredontimeandareexecutedwithinbudgetandspecification.Successfulprograms,ontheotherhand,deliverlong-termimprovementstoanorganization,andtheMoDshoulddefinitelybefocusingonthat.Inthiscase,theterm“project”iscomplexwithdifferentIndianoffsetpartnersexecutingdifferenteligibleproductsandservices.
a. Monitoringeachindividualprojectforwhichoffsetscontractshavebeenconcludedforadherencetotheoffsetschedule.
b. Timeandcostover-runs,ifany,needstobemonitored.
c. Book-keepingofoffsetsdischarged,toensurethatthequarterlyreturnsandhalf-yearlyreturnsarefiledonschedulebytheOEMsandtheyareinconformationtothecontract.
d. AlistofforeignOEMsistobemaintainedforcomplianceandtosimultaneouslygeneratealistofIndianoffsetpartners(IOPs)whohavepartneredwithOEMs.
e. Concurrentlythelististobeupdatedforfreshcontractsawardedandalsotogenerateaproductprofile.
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f. AnalysisonsuchIOPsfordisplayofconcurrentproductprofilingandimprovementsaretobeshown.
g. Analysisontheperformanceofservicesvs.themanufacturingsectorindischargeofoffsetob-ligations,andcomparisonsofefficienciesthereofaretobecarriedout.Thiscouldpresentaverygoodpictureoftheinter-seperformanceamongvarioussectors.
h. Theacquisitionwingwillbeintimatedregardingnon-performanceofOEMswithregardtothecommitmentindischargeofoffsetsdespitereminders,forsuitablefollow-upaction.
i. Analysis,evaluationandapprovalofoffsetsdischargeforaccordofoffsetcredits,tobecarriedoutinnear-realtime.Thisisnotaschallengingasitmayseemandtheremustbeminimaldelaysinthisrespect.Unfortunately,theMoDfacesalotofflakinnon-performanceofthiscriticalfunctionandtheOEMsreportunduedelaysincreditingtheiroffsets,despitetheclaimsofcompletingthesame.Invariably,MoDdoesnotevenconsideritfittorespondtothequeriesoreventhereportssubmittedbytheindustry.SincethereisnoresponsefromtheGoI,theOEM’sversionprevails,forpublicconsumption.
Structure for monitoringMonitoringofoffsetsforimplementationisnotmerelyasimplisticjobofbookkeepingorprovidingreceiptsforthemailreceivedintheofficebythedispatchclerk.Thereneedstobelotmorethoughtinvolvedandthestructuremustflowfromthedesiretotargetachievablegoals.Themonitoringprocessmustprovidefoodforthoughttoshapefuturepolicies,provideremedialmeasuresforongoingprojectsandmanagetheprograminaneffectivemanner.
Electronic fuze: opportunities and market potentialAfuzeisadevicethatinitiatesanexplosivefunctioninammunition,causingittodetonateorreleaseitscontents,whenitsactivationconditionsaremet.Anartilleryfuzeisusedwithaprojectilefiredbyguns/howitzersandmortars.Thefuzedesignincorporatesthefollowingmechanisms:
a. Safetymechanism.Itprovidessafetywhileinstorageandtransportandinitialstageofflightbykeepingtheexplosivestrain(detonatorandmagazine)non-alignedfromthestriker.
b. Armingmechanism.Itarmsthefuzeatappropriatestageofflightbyremovingthesafeties.
c. Firingmechanism.Itfiresthefuzeonmeetingactivationconditions.
Classification of fuzesFuzesarebroadlyclassifiedbasedonoperatingmechanismasmechanicalandelectronicfuzes,thoughsomechemicalandopticalfuzesarealsoinexistence.
Tier-1 vendors now permitted to execute offset obligationsInDecember2011,theMoDreleasedanamendmenttoDPP2011.Itaddedaparagraph(1.7)toappendixD,Chapter1oftheDPP,permittingTier-1sub-vendorstodischargeoffsetobligationstotheextentoftheirworkshare(byvalue)onbehalfofthemain/primevendor.However,theoverallresponsibilityandliabilityfordischargeofoffsetobligationswillcontinuetoremainwiththemain/primevendor.Thisamendmentisapplicablewithimmediateeffect.
Boeing • Boeingbaggedadealforthesupplyof22heavy-dutyattackhelicoptersandgunshipstotheIAF.• Besidesthe22Apaches,thepackageincludes812AGM-114L-3HellfireLongbowmissiles,542AGM-
Russia IndiaandRussiareviewedtheirdefencetiesduringthevisitofIndia’sDefenceMinistertoMoscowfrom3to5October2011.Bothgov-ernmentsexpressedreadinesstotakenecessarymeasurestofurtherexpandthecooperationonamutuallybeneficialbasis.
Defence to be included in the five-year planThedefenceindustryhasfoundplaceinthePlanningCommission’sfive-yearplanforthefirsttimeever.ThereportsoftheWorkingGrouponDefenceEquipmentandAerospacewillbeincorporatedintheframeworkoftheindustryoutlookduringtheTwelfthFiveYearPlanfortheperiod2012–17.Themoveisexpectedtofacilitatetheindigenizationofthedefenceequipment.
(Source:“DefencePartofFiveYearPlan’sIndustryOutlookforFirstTimeEver,”Press Information Bureau website,http://pib.nic.in/newsite/AdvSearch.aspx,accessed15January2012.)
GoI freezes all defense shipyard joint venturesTheIndianMinistryofDefencehasputonholdtheformationofalljointventuresindefenceshipyardsuntiltheGoIformulatessuitableguidelines.ThisdecisionwasputonholdafterajointventurebetweenMazagonDockLtd.andPipavavDefense&OffshoreEngineeringCompanywaschallengedbyothercommercialshipyards.TheIndianDefenceministryisnowforminganewpolicyforpublic-privatebusinesspartnershipsforincreasedtransparency.
GoI advises not to import encryption equipment from ChinaMinistryofDefence,citingnationalsecurity,advisedthestate-ownedelectronicsequipmentmanufacturerandsuppliertotheArmedForces,BharatElectronicsLimited(BEL)tonotsourcecriticalencryptioncomponentsfromChina.ThewarningwasbasedontheapprehensionthatChinamaymodifytheequipmentanduseittomonitorIndia’sdefenceactivities.
Indian Army to procure armored recovery and repair vehiclesIndiawillsoonprocuremorethan600armoredrecoveryandrepairvehiclesforT-72battletanksatacostofINR10billion.AproposalinthisregardwasclearedbytheCabinetCommitteeonSecurity.TheorderisarepeatorderandthevehicleswillbebuiltunderatransferoftechnologyfromthePolishdefencefirm.Thesevehiclesareusedtorepairdamagedorbrokendowntanksandinfantrycombatvehiclesbothduringpeacetimeandcombatoperations.
Field evaluation trials of anti-tank missile soonThefieldevaluationtrials(FET)ofMBDAMissileSystem’sPars3LRfire-and-forgetanti-tankguidedmissile(ATGM),shortlistedalongRafaelAdvancedDefenceSystem’sSpike-ERfortheIndianArmy’sweaponizedAdvancedLightHelicopter(ALH)”Rudra,“areslatedtogetunderwaysoon.
Main Battle Tank Arjun debuts in military exerciseTheindigenouslybuiltMainBattletank(MBT)ArjunmadeitsdebutinSudarshanShakti,oneofthelargestmilitaryexercise,heldinrecenttimes.Arjunhasafavorableguntoweightratioandhasgotmorehorsepowerandgunpower.Itcameoutwithsuperiorperformanceonallparameters.Arjuntook37yearsofresearchanddevelopmentandwasbuiltatacostofINR3.5billion.
Indian army may revive Bofors howitzer plansTheIndianArmyseekstoreinstatelong-dormantABBoforsFH-77B155mm/39-caltowedHowitzerprogramthatwassuspendedin1980soverallegationsofcorruption.
Indian Navy plans to acquire Russian submarine Nerpa RussiawillhandovertheAkula-IIclass,nuclear-poweredsubmarine”K-152Nerpa”toIndiaona10-yearleaseafterthesubmarinerecentlyfinishedseatrials.ThesubmarinewillberechristenedINSChakraandisexpectedtoreachIndiabytheendofJanuary2012.
Indian Navy intends to upgrade Sea King and Kamov ChopperTheIndianNavywantstoupgradeitspresentfleetofSeaKingandKamovhelicoptersandpurchasenewhelicopterstoreplacethem.SeaKingisanti-submarinewarfarehelicopterwhileKamovisusedforairborneearlywarnings.
Yantar Shipyard tests INS Teg built for IndiaFrigateINSTeg(standsfor“saber”)builtbyYantarShipyardinKaliningradcontinuedseatrialsafteritsdamagedcruisingturbinewasreplaced.Thetrialprogramwassuspendedafteranaccidenttothefrigate’sportsidecruisingturbine.INSTegisthefirstProject11356frigateinthesecond3-shipseriesorderedbytheIndianNavy.MooringtrialsstartedinMarch2011,andinAugusttheshipwastransferredtoBaltiyskforthefirstphaseofshipyard’sseatrials.
GE Shipping arm cancels Mazagon Dock offshore vessel order on delayGreatEasternShippingCompany(GEShipping)cancelledanorderforamulti-purposesupportvessel(MSV),placedwithstate-ownedMazagonDockLtd.,duetonearlyatwo-yeardelayindelivery.Earlier,anarmofGEShipping,GreatshipGlobalOffshoreServices(GGOS)hadsignedcontractstobuildtwonewmultipurposesupportvessels(Builder’sYardNo.26775and26784)withMazagonDock,MumbaiinSeptember2007.
Naval exercise organized at Paradip to spread awarenessTheIndianNavyorganizedanavalexerciseintheseaoffParadiptospreadawarenessaboutthecapabilitiesofitswarships.Thisnavalexercisehelpedthepublictoknowmoreabouttheoperationofwarships.TheNavy’smostmodernmulti-purposestealthfrigate,INSShivalik,twoguidedmissiledestroyersINSRanvirandINSRanjit,twoguidedmissilecorvettes,INSKarmukandINSKuthar,andonelandingshiptank,INSAiravat,displayedtheiroperationalskills.Thewarshipsperformedoperationalmaneuversanddemonstratedtheirfiringpower.
India falters in getting its new submarine plan off the blockThelong-delayed“Project-75India”toacquiresixnew-generationstealthsubmarineshasbeendelayedandtheactualcontractisnowlikelytobeinkedonlyby2014–15.TheP-75Iboatsareexpectedtobereceivedonlyafter2020sinceittakessixtosevenyearstobuildanadvancedsubmarine.Thishappenedbecauseoftheinabilitytodecideontheshipyards,whichwillbeexecutingtheproject.OriginallythreeofthesubmarinesweretobeconstructedatMazagonDocks(MDL)inMumbai,andanothercameupattheHindustanShipyardinVisakhapatnam.Theothertwoweretobeeitherimportedfromtheforeigncollaboratororbuiltbyadomesticprivateshipyard.
Indian Navy to double orders for P-8I maritime reconnaissance aircraftTheIndianNavywillinduct24BoeingP-8Ilong-rangemaritimereconnaissanceaircraft,whichwillboostitssurveillanceandattackcapabilitiesoverIndia’sterritorialwaters.TheIndianNavyplacedordersfor12additionalaircraftoverandabovethe12alreadyonorderbringingthetotalto24.TheP8-Iiscapableofbroad-areasurveillanceandanti-ship,submarineandlandattackoperationsandisequippedwithHarpoonmissiles,depthchargesandtorpedoes.TheaircraftwillbeequippedwithsomeIndiancomponentsbecauseoftheindustrialoffsetrequirements.BharatElectronicsLtd.isalreadysupplyingtheDataLinkIIsystemtofacilitateP-8I’scommunicationswiththeIndianspace,naval,andland-basedassets.
Tejas LSP-7 all set for launchTejas,ahomegrownlightcombataircraftdevelopedbyHindustanAeronauticsLimited(HAL),completeditscrucialgroundrun(EGR)andisnowbeingputonlow-speedtaxitrials(LSTT).TejasLSP-7isthetwelfthaircraftfromtheprojectflight-lineandtheseventhfromthelimitedseriesproduction(LSP-7).TheaircraftisexpectedtodotheLSTTat150kmphandtheHSTTat250kmph.
21 more Hawks for IAF’s Surya Kiran aerobatics display teamTheIAFinitiatedtheprocurementof21additionalHawkaircraftbuiltbyHindustanAeronauticsLimited(HAL).HawkadvancedjettrainerswillallowtheSuryaKiranAerobaticsTeam(SKAT)toflyfaster,turntighterandmanoeuvremorespectacularly,thanwaspossiblewiththevintageKiranMarkIItraineraircraftthattheyhaveflownsince1996.
Third generation Nag test-firing in Pokhran ThethirdgenerationNagmissile’sfinaltestwasdoneinJaisalmer’sPokhranfieldfiring.The“fire-and-forget”missilehasbeendevelopedbytheDefenceResearchandDevelopmentOrganisation(DRDO).ThereweresometechnicalchangesandcorrectionsinthelaunchpadaccordingtoArmyrequirements.TheNag,oncefired,isguidedtohitevenafast-movingtank.
India to order 59 Mi-17s Indiaissettoorder59Mi-17sunderthefollow-onclauseinthefirstcontract.TheywillbeweaponizedforcombatoperationsandwillallowIAFtodeployadditionalchoppersforlogisticalsupportinanti-Naxaloperations.80Mi-17VswereorderedundertheUS$1.34-billioncontractsignedbyRosobronexport,JSCinDecember2008.ThefirstbatchofthecontracthasbeendeliveredtoIndiainNovember2011.ThehelicoptersaremanufacturedbyKazanHelicopters,asubsidiaryoftheRussianHelicoptersholdingcompany.TheR.E.T.Kronshtadt,amemberofTranzasGroup,basedinSt.Petersburg,alsoplanstobuildtwohelicoptersimulatorswithintheframeworkofthiscontract.
IAF sends Mirages to France for retrofittingTheIndianairforce(IAF)dispatchedtwoofitsMirage2000fighteraircrafttoFranceaspartofthedealbetweentheGoIandThalesandDassaultAviation.Thedealistoupgradearound50supersonicfighters.Accordingtotheagreement,theFrenchfirmswillmodernizethenavigationsystems,missioncomputers,electronicwarfaresystemsandradars,bringingtheaircraftuptothestandardsofmoreadvancedMirage-2000-5s.ThemodernizationwillcostanestimatedUS$2.4billionundertheagreementsignedbetweenIndia,ThalesandDassaultAviation.TheFrenchcompanieswillinvest30%ofthedeal’svaluebackintotheIndiandefencesectoraspartoftheoffsetpolicy.
214 Russian-Indian fifth-generation fighter jets to be inducted into the Indian Air Force by 2017214fifth-generationfighterjets,beingdevelopedjointlywithRussia,areexpectedtoentertheIndianAirForceby2017.Outofthese166areexpectedtobesingle-seaterand48two-seateraircraft.
Security forces get 19,000 night vision gadgetsTheGoIsanctionedmorethan19,000night-visiondevicesforthesecurityforcessuchasNSG,CRPFandITBP.Thehigh-enddevices,procuredfrompublicsectormanufacturerBharatElectronicsLimited(BEL),includeweapon-mountednight-visiontelescopes,nightsightsforrocketlaunchers,monocularsandbinocularsandhelmet-
SAAB–HAL JV to commence airborne electronic warfare systems productionThejointventureofSaabABandHindustanAeronauticsLimited(HAL)willstartproductionofairborneelectronicwarfaresystemsbyMarch2012inBengaluru.ThejointventurewasannouncedinFebruary2011inwhichSaabwillholdaminoritystakeof26%.ElectronicwarfaresystemssuppliedbySAABarebeingusedinDhruv-HAL’sadvancedlighthelicopter.ItalsoplanstoexporttheairborneelectronicwarfaresystemsfromitsBengalurufacility.
Rolls-Royce and HAL to set up aero engines unitInternationalAerospaceManufacturingPrivateLtd.(IAMPL),ajointventurebetweenHindustanAeronauticsLtd.(HAL)andRolls-Royce,commencedconstructionofanewmanufacturingunitatBengaluru.TheplantwillmanufacturecomponentsfortheTrentcivilaeroengines,aswellasmarineandenergygasturbines.IAMPLhasaround200employeesinIndia,andanother650engineersworkonasub-contractbasisintheengineeringcenteratBengaluru.Theplantisexpectedtocommenceproductionfrom2012.
HAL shortlists Goldman, 3 others for IPOHindustanAeronauticsLtd.(HAL)hasshortlistedfourbanksincludingGoldmanSachsandBarclaysforaninitialpublicoffering(IPO)thatislikelytoraiseUS$200million.Accordingtoreports,SBICapitaland
BEL bags Raksha Mantri’s Award in five categories for FY10India’sstate-ownedelectronicequipmentmanufacturerBharatElectronicsLtd.(BEL)wontheprestigiousRakshaMantri’sAwardsfortheyear2009–10infivecategories.BEL’sPanchkulaunitreceivedtheawardfortheBestPerformingDivisionofDefencePublicSectorUndertakings.TheawardwasreceivedbyBELChairmanandManagingDirectorAnilKumaralongwithGeneralManagerofBEL’sPanchkulaunitSureshNfromDefenceMinisterAKAntony.
Avantel to deliver first MSS system to BoeingHyderabad-basedAvantelLimiteddevelopedtheindigenousMobileSatelliteSystem(MSS)afterthreeyearsofintensiveR&Dindesign,engineeringandintegrationoftechnologiesrelatedtoradiofrequencydesign,satellitecommunication(satcom),signalprocessingandnetwork.IthassecuredordersworthUS$2.2billionforMSSfromBoeing,UStoinstallthesysteminP-81maritimeReconnaissanceAircraftfortheIndianNavy.AvantelLimitedisengagedinthemanufacture,sale,andexportofRF/microwave,telecom,andsatcomproductsinIndia.
Embraer completes first flight of EMB 145 EmbraercompleteditsmaidenflightofEMB145AirborneEarlyWarningandControl(AEW&C)aircraftdevelopedfortheGoI.Theplatformisequippedwithanin-flightrefuelingsystem,satcomcapabilityandincreasedelectricalandcoolingcapabilities,alongwithaerodynamicandstructuralchanges.Theseimprovementswillallowtheinstallationofadvancedelectronicsystems
Research facilities boost prospect for the Futuristic Main Battle Tank (FMBT)ThreenewresearchfacilitieswereopenedatCombatVehiclesResearchandDevelopmentEstablishment(CVR&DE)inAvadionSunday(Chennai),whichhasboostedtheprospectofthefuturisticmainbattletank(FMBT).CVR&DEisalaboratoryundertheDRDO.TwodedicatedtestfacilitieshavebeenopenedtotesthydrogassuspensionunitsusedinFMBTandfuturisticsemi-activesuspensionunits.Anotherfacility,theCombatVetronicsTechnologyCenter,willfocusontechnologiesthatincludein-vehiclenetworkingandembeddedsystemcontrol.
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26. “MaritimeSecurityIssuesDominateIndia-JapanDefencetalks,”Press Information Bureau website,http://pib.nic.in/newsite/AdvSearch.aspx,accessed15January2012.
27. “IndiaandRussiatoStepupDefenceTIES,”Press Information Bureau website,http://pib.nic.in/newsite/AdvSearch.aspx,accessed15January2012.
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