Tata group and Airbus in $2.7 billion aircraft manufacturing deal

Tata and Airbus to enter aircraft manufacture deal
Tata and Airbus to enter aircraft manufacture deal

Indian Market
by 5paisa Research Team Last Updated: 2022-10-28T14:34:54+05:30

It may be a prestigious project at a national level, but then in a Federal set-up like India, mega investments always boil down to becoming a battle between the states. It was once again a cast of big business projects showing preference for Gujarat over Maharashtra. Just a few weeks after the state of Maharashtra lost the prestigious Vedanta Foxconn microchip factor project to Gujarat, there is another setback. Even the Tata, Airbus plan to manufacture high end aircraft for the Indian defence establishment, has picked the state of Gujarat over Maharashtra to set up its multi-billion plant. 

For now, let us leave aside the battle among states and focus on the key dimensions of the Tata Airbus project. Tata group and Airbus (the European aerospace consortium) have come together to manufacture the C-295 aircraft in India. This will mark the first such production by a private sector Indian company in India to cater to the defence needs. Currently, the only company that does make aircraft for the Indian defence services is Hindustan Aeronautics Ltd (Hal), which is a public sector undertaking based out of Bengaluru. This is likely to substantially raise the profile of Tata group in the defence franchise in India.

The Tata group and Airbus will jointly manufacture the C-295 transport aircraft in the country and will cater purely to the defence establishment in India. The manufacturing facility will incorporate the technology expertise and the best practices of Airbus worldwide to bring top class manufacturing process and quality control. Tatas will bring its sourcing of inputs, manufacturing assembly line specialization and its existing manufacturing ecosystem to the table. Above all, it is likely to be a big thrust for the defence business of the Tata group, which has already been grouped under Tata Advanced Systems Ltd (TASL).

Interestingly, the Indian government has set very ambitious targets of growing its defence exports four fold to Rs35,000 crore from the current Rs8,000 crore over the next 3-4 years. The projects like the joint venture between the Tata group and the Airbus group of Europe will go a long way in helping India achieve these lofty targets. India has always been a net importer of defence equipment and systems. However, the target is that over the next 3 years, India emerges as a significant defence net exporter to the world. The PLI scheme for defence is also designed on these lines to facilitate local manufacture and exports.

Currently, manufacture aircraft in India is only done by Hindustan Aeronautics Ltd. India does not manufacture any civilian aircraft and that is the reason most airlines in India have to still depend on either Airbus or Boeing for their aircraft needs. To begin with, the joint venture between the Tata group and Airbus will focus on defence aircraft catering to the defence services. However, once the ecosystem is set up, it would not be hard to fathom a situation wherein India would also develop the capabilities to manufacture aircraft for civilian use. But that would be some time into the future; and not in the immediate vicinity.

The foundation stone for the proposed project in Gujarat to be jointly run by Tata Group and Airbus will be laid by the prime minister, Narendra Modi. Gujarat also happens to be the home state of the prime minister and he was the chief minister of Gujarat for a long time before he went on to become the prime minister of India in 2014 after leading a successful election campaign in 2014. In the last 2 years, under his leadership, the NDA has won the central elections gaining an absolute majority in the Lok Sabha. Clearly, the success of make in India would get a feather in its cap if this project takes off in a big way.

In a statement, the Ministry of Defence has underlined that this would be the first project of its kind in which military aircraft will be manufactured in India by a private company. The total value of the project is estimated at $2.66 billion or nearly Rs22,000 crore at current exchange rates. It will entail the supply of 56 C-295 MW transport aircraft for the Indian Air Force. The first rollout is expected by September 2026. If this works out, then it opens the doors for more such joint ventures between private Indian companies and global majors in the technology-intensive and highly competitive aerospace industry.

The Indian Air Force has been having a problem of obsolescence in its aircraft fleet and this comes at the right time. The C-295 aircraft, when it is actually delivered to the Indian Air Force, will be able to replace the ageing British Avro fleet of the Indian Air Force (IAF). The aircraft will be fitted with advanced equipment manufactured by BEL and BDL. Once the company completes the delivery of 56 aircraft to the IAF, these Indian made planes can also be sold to civil aviation operators as well as exported to other countries. That is for the future.

Also Read: Tata Sons to raise $4 billion to capitalize Air India

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