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US air power: Made in India?

Lockheed Martin and Boeing bid to outsource aerospace assembly. That could seed a manufacturing bonanza for New Delhi.

By / Staff Writer / March 4, 2011

Indian Dhruv helicopters perform as they fly over F/A18 fighter aircraft on the eve of Aero India 2011 at Yelahanka air base on the outskirts of Bangalore, India, Tuesday, Feb. 8.

Aijaz Rahi/AP

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Bangalore, India

B. Praveen beams as he explains why the molded magnesium jet part in front of him represents a major step forward for Indian aeronautics – and coming competition for one of America's last bastions of high-end manufacturing jobs.

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With his finger, he traces the tunnels underneath the metal surface that carry oil seamlessly through the block. Workers at Hindustan Aeronautics Ltd. (HAL) succeeded in pouring liquid magnesium into every swiss-cheese crevice before the metal hardened.

"In this industry, we don't do things for 'good enough.' We do things perfectly," says Mr. Praveen, a HAL representative at Aero India, Asia's largest air show. "Originally we had some tie-ups with some [global] companies. From that learning, we have started making our own."

India is on the prowl for another such tie-up: an international order for 126 jet fighters. The goal is the same: To learn quickly how to make them at home. The two US firms bidding for the deal see not only a multibillion-dollar sale, but a chance to eventually outsource more manufacturing work to lower-wage India.

"We have a global supply chain that looks at capabilities around the world," says Orville Prins, a vice president at Lockheed Martin. "We intend to build those relationships [in India] on a long-term basis and make them part of our team so we can be more globally competitive."

Boeing's lead executive on the bid, Rick McCrary, sees potential for Indian aerospace companies: "If they are cost-effective, they have every opportunity to become part of our supply chain." India already builds "significant components" for commercial aircraft for Boeing, he notes.

If a US firm lands the deal, new US-based jobs will follow – in the short term. Mr. Prins sees some 35,000 US-based jobs if India taps Lockheed-Martin's F-16.

India's maturing industry

But as India's industries mature, the more than 500,000 US jobs in the sector could be affected, just as the information-technology sector felt the pinch after the rise of India's computer services firms.

India is forcing the issue through a mechanism known as an offset, which it instituted in 2005. Any major purchase of foreign defense equipment triggers a requirement that a portion be spent in India. For the jet fighter deal, the 50 percent offset means half of the roughly $10 billion price tag must be spent here. With the third-largest defense procurement budget in Asia, according to Global Defense Offset Review, India can demand that.

Why It Matters: If US aerospace firms trim budgets by outsourcing parts to India they will be in a better position to compete internationally. India‘s own spot as a global player could improve, too.

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