US air power: Made in India?
Lockheed Martin and Boeing bid to outsource aerospace assembly. That could seed a manufacturing bonanza for New Delhi.
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"While it is not easy to estimate the number of jobs that have been directly lost because of offset deals, anecdotal evidence suggests a serious impact," writes Owen Herrnstadt, in a paper for a union-supported think tank in Washington. "As advanced industries like aerospace spin off to other countries, opportunities for US development of new technologies will be lost."
Parts made more cheaply abroad can boost the long-term competitiveness of firms like Boeing and Lockheed against international competitors, says Ashley Tellis, author of a study on the jet fighter tender for the Carnegie Endowment for International Peace. "If they can integrate India in the supply chain, lowering ... costs without compromising quality, that's to their advantage," says Dr. Tellis. "By the time Indians get smart about how to make F-18s, Boeing will have hopefully made enough money to transition to the F-18's successor and ... stay one step ahead."
The winner of India's jet fighter contract is expected to be tapped later this year.
Some assembly required
HAL's executive director, T. Sudhakar Rao, says the vision is for India to master the technologies needed to supply its defense needs and eventually become a defense innovator and exporter. But absorbing the offset and running the main production line in India will be challenging, says an executive at one of the six international bidders for the deal.
Under the deal, India will gradually take over more of the jet's construction. An early phase would follow a bike-in-a-box model – some assembly required in India. Subsequent phases would call for more parts to be made in India. The executive says there's some hope that the Indians will stay with the bike-in-a-box approach if domestic skills don't catch up. The 50 percent offset could be fulfilled through various alternative mechanisms.
Others see the possibility of India becoming an outsourcing location, but think it early to talk of it becoming an international developer. "The way the government is moving, I give it seven to 10 years ... [before] they would be ... counted as world-class manufacturers in their own right, rather than be piggybacking on foreign companies," says retired Maj. Gen. Mrinal Suman, who managed the Air Force team that formulated India's recent defense procurement policy.
Back at Aero India, Praveen lets on that some of HAL's technology is aspirational. Standing in front of a display of jet parts, he says: "Frankly speaking, some of these castings are coming from abroad and we are [just] machining them. Machining is simpler."
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.