Airbus Mulls India Assembly for C295 Plane in Military Pitch

Airbus Group NV (AIR), aiming to pitch its C295 plane to the Indian Air Force, said it may set up a local assembly line for the military transport aircraft as it seeks to boost business outside the U.S. and Europe.

The planemaker will bid for the Indian contract next month, Christian Scherer, head of marketing and sales at Airbus Defense & Space, said by e-mail. India, the world’s largest arms importer, invited bids last year for 56 transport planes to replace its aging fleet of Avro aircraft.

“Clearly at present we have minimal revenues from the Indian defense market but the potential is enormous,” Scherer said. The C295 “has tremendous potential for industrial collaboration including the possibility of a final assembly line in India.”

Airbus is also eyeing an Indian Coast Guard order for transport aircraft, and plans to offer either the C295 or the smaller CN235, Scherer said. Over the past decade, India has boosted spending on upgrading military equipment as the nation looks beyond its traditional rivalry with Pakistan.

Scherer said Airbus is now “very close” to finalizing a contract to supply air-to-air refueling aircraft to the Indian military, a deal potentially valued at more than $1 billion. The company was named preferred bidder to supply six tankers, which are modified A330 passenger jets, in January last year.

Rafale Planes

Indian defense orders often face years of delays. In 2012, the government chose Dassault Aviation SA (AM) to supply at least 126 Rafale combat planes after initiating the purchase plan about five years earlier. A final accord has yet to be signed. In January, the nation scrapped a $753 million deal to buy helicopters from AgustaWestland following a 15-month corruption investigation.

“India is always going to be a challenge for international players,” Scherer said. “Naturally the defense business has its unique complexities, but I think we understand the Indian system much better today.”

Airbus will display its C295, as well as radars and missile warning systems at the Defexpo India exhibition in New Delhi starting tomorrow. More than 600 companies will participate in the four-day event.

Asia’s third-largest economy has tripled its military outlay over the past 10 years, and in 2013, the nation had the seventh-largest defense budget in the world. India is increasingly looking beyond Russia to modernize its military, turning to countries including the U.S. to buy arms.

The country is purchasing 10 C-17 transport planes, valued at about $5.8 billion, making it the largest operator of the aircraft after the U.S.

Rules Relaxed

The country is also buying eight P-8I maritime surveillance aircraft made by Chicago-based Boeing Co. (BA) as well as six Lockheed Martin Corp. (LMT) C-130J transport aircraft valued at about $1.2 billion.

India in 2012 eased its so-called offset policy to allow more time for foreign defense companies to meet rules. Norms for mandatory local purchases by overseas suppliers were also relaxed, according to the Ministry of Defense.

The government is also working to boost local production of defense gear with a goal to raise the proportion of equipment built at home to 75 percent from about 30 percent in the next 10 years.

Scherer said Airbus provided technical advice through India’s Defence Research and Development Organization on the nation’s light combat aircraft project. The plane won initial operational clearance in December, paving the way for its induction into service.

To contact the reporter on this story: Anurag Kotoky in New Delhi at akotoky@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net

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