Vendors worried over pvt players in defence

Global arms majors have multiple concerns about the defence ministry's ambitious "strategic partnership" model that seeks to allow big Indian private players an entry to the defence manufacturing space, which remained a domain of state-owned factories in India all along.

The first project to be executed under the SP model is the 111 naval utility helicopters that will be manufactured in India.

The strategic partner would set up the manufacturing plant while the original equipment manufacturer would supply the technology.

Four OEMs are at the fray. They are Airbus Helicopters, Sikorsky (now owned by Lockheed Martin), Bell and Russia's Rosoboronexport.

There are six strategic partners – Tata, Mahindra, L&T, Reliance Defence, Adani Group and Bharat Forge.

The first point of concern for the OEMs is that the final commercial contract would be signed between the defence ministry and the Indian private company, selected as the strategic partner.

The OEMs can be a part of the contract only "if necessary".

"Its not desirable. There's no clarity at the moment on whether the OEM will be a part of the final contract. A tripartite agreement would have been better," a top executive of one of OEMs told DH.

While the OEM is free to enter into a joint venture with the Indian company for production of the helicopters in India, the JV company can't sign the commercial agreement.

But a separate tripartite pact involving the MoD, the OEM and JV will be considered.

The Rs 21,000 crore helicopter deal was approved by the defence ministry last month. The navy is expected to issue the Expression of Interest later this year to both OEMs and strategic partners in two parallel tracks.

The foreign companies would be asked whether they would like to transfer the technology in nine different areas, including flight control, flight dynamics, chopper blade and avionics. Also, they would be asked whether they are ready to re-export the platform from India.

Both are concern areas. "There's no clarity on intellectual property rights in the policy as all the components in a helicopter is not owned by a single company," he said.

Some of the companies participating in the NUH bid are cagey over transferring their technologies to a private player and re-exporting the platform to a third country.

Going by the rules, the defence ministry would play a key role in down-select the strategic partners from the initial pool of six firms on the basis of certain criterion and the Indian company's preference to work in a particular field.

The official handshaking between the OEM and strategic partner will happen only after the down-select.

"No one denies the need to create an alternate aerospace manufacturing space in the private sector. But the strategic partnership model is complete uncharted territory," said a source.