Aero India 2011: L&T, Cassdian joint venture finally takes off

In view of the government altering its current foreign direct investment (FDI) limit in the defence sector from 26% to a higher percentage, the joint venture (JV) between L&T and Cassidian - defence and security division of European Aeronautic Defence & Space (EADS) - has included a provision that would automatically raise the foreign ownership as and when the new rule comes into force.

According to informed sources, who did not want to be named, it was on this assurance of subsequent relaxation of the FDI cap that Cassidian has agreed to invest in the JV.

Initially, the Franco-German defence and security company did not want to come in as a minority stakeholder in the JV.

“We are hoping things will change soon and the government will rethink on the 26% FDI cap in the defence sector. Also, when a foreign firm enters into a joint venture with a local company, the new entity automatically becomes an Indian company. So why put a cap of 26%,” K Sreekumar, who will be heading the L&T and Cassidian JV said.

B Wenzler, CEO, Cassidian Electronics said he was expecting to eventually raise his company’s stake in the JV to 49%. “A 49% ownership will be good, but as of now, we are happy to share our technical know-how for developing products for Indian as well as global markets,” he said.

The 26:74 JV inked on Thursday will work closely with Cassidian’s new engineering centre in Bangalore, where systems design and engineering activities will be carried out in the fields of electronic warfare, radars, avionics and mobile systems.

“We have identified defence as one of the high growth sectors and have been looking for a partner with long term interest in India. We aim to become a billion dollar business in coming year,” said MV Kotwal, president (heavy engineering) and member of board, L&T. He said defence business would contribute over 10% to L&T’s total revenues in the next five years.

The company plans to invest $20 million in the first phase and will increase it at the same rate in subsequent phases.

Both L&T and Cassidian will transfer their existing contracts into the JV excluding those with binding clauses.