July 28 (Bloomberg) -- BAE Systems Plc and Rolls-Royce Group Plc signed an agreement valued at about 700 million pounds ($1.1 billion) to supply Hawk pilot-trainer aircraft to India, U.K. Prime Minister David Cameron’s office said.
The deal for 57 aircraft was signed with Hindustan Aeronautics Ltd. at the company’s headquarters in Bangalore, southern India, which Cameron visited today. The order is valued at more than 500 million pounds for BAE and as much as 200 million pounds for Rolls-Royce, Cameron’s office said in an e-mailed statement.
BAE, Europe’s biggest defense company, made India its seventh “home market” in January, meaning that it is building up a manufacturing presence there and not just seeking to export equipment built elsewhere. India has tripled defense spending in a decade as it competes with a Chinese military expansion that includes an almost fourfold budget increase over the same period.
India’s arms buildup has been hampered by a series of deals delayed or canceled, with an earlier order for 66 BAE trainers taking two decades to negotiate and hampered by a lack of parts. BAE is part of the Eurofighter GmbH group that’s competing with five manufacturers including Boeing Co. and Lockheed Martin Corp. for a contract to supply 126 combat aircraft.
BAE’s hopes of winning that order “might have been a motivating thing for the British in resolving” issues with the initial Hawk sale, said Kapil Kak, a director at the Center for Air Power Studies in New Delhi. “The robustness of the India-U.K. relations” facilitated today’s agreement, Kak said.
The Indian government last year halted a plan to buy further Hawks and opened new bidding after state-owned Hindustan Aeronautics (HAL) complained of delays in BAE’s transfer of technology to build the planes in India.
“All the problems with HAL have been resolved and we are thinking of a global relationship,” Andrew Gallagher, managing director and chief executive of BAE Systems India (Pvt)., said in Bangalore today.
Cameron said last week he wants increasing trade to be the central goal of British foreign policy. Indian imports from the U.K. rose 19 percent to $5.9 billion in the 12 months ending March 2009, the last fiscal year for which full figures are available, according to India’s Commerce Department.
“This is an outstanding example of India-U.K. defense and industrial partnership, and this agreement will bring significant economic benefits to both our countries,” Cameron said in the statement. “It is evidence of our new, commercial foreign policy in action.”
The Hawk will allow pilots to train for the Indian Air Force’s fleet of mainly Russian jet fighters, together with the batch of 126 planes that the country is planning to buy from either Boeing, Lockheed Martin, Eurofighter, Saab AB, Dassault Aviation SA or RSK-MiG. BAE says the Hawk is the world’s most successful advanced jet trainer, with more than 900 in service and 18 global customers.
“BAE Systems is extremely pleased to have secured this follow-on order for Hawk,” BAE Chairman Dick Olver, one of 39 business leaders who accompanied Cameron to India, said in the statement. “It reflects the long-standing successful relationship between BAE Systems and HAL and the importance of solid government support.”
India may also become BAE’s focus for the manufacture of artillery pieces. The Asian country would be a logical choice as an export hub because of the big market potential, skilled workforce and relatively low cost base, Guy Griffiths, managing director at BAE’s International division, said July 21.
India aims to raise the proportion of defense equipment produced at home from about 30 percent to 70 percent in the next 10 years. BAE struck an agreement with local company Mahindra & Mahindra Ltd. in November to establish an armored-vehicles and artillery venture in which it will hold a 26 percent stake.
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