Wipro allies with EADS ahead of defence bounty

With an eye on the so-called defence ‘offset’ spending running into several billion dollars, infrastructure engineering division of Wipro has entered into a component supply agreement with CESA — or Compania Espanola De Sistemas Aeronauticos SA, a subsidiary of defence manufacturer European Aeronautic Defense and Space Company (EADS).

EADS along with another European defence manufacturer Dassault are the only contenders left in fray for the $12 billion (around Rs54,000 crore) Indian contract for supplying 126 combat aircraft.

Last month, India had rejected the bid of American manufacturer Airbus on technical grounds. Last week, defence minister A K Antony said the deal may be signed before March 2012.

“Growth in this industry will be driven by offset opportunities as well as growth in the aeronautics and defence space in India and other emerging markets in the Asia Pacific region,” said Pratik Kumar, president, Wipro Infrastructure Engineering.

Indian regulations require foreign suppliers winning contracts worth over Rs300 crore to source at least 30% of the contract value from Indian firms. This is often referred to as defence offset clause.

For the combat aircraft procurement programme, India has set the offset limit at 50%, implying that the firm winning the contract must source least $6 billion worth of parts and services from Indian suppliers. It is for a pie of such spending that firms such as Wipro are vying for.

As part of ramping up its presence in this industry space, Wipro will invest about $15 million set up a manufacturing plant in the new special economic zone for aerospace being set up at Devanahalli in Karnataka by that state government. Production from the new facility will commence towards the end of 2012, firm’s management said.

“Apart from the advantage of having a strong outsourcing partner for our current programmes, EADS and CESA will also have a reliable and credible partner to meet offset obligations in India,” said Jose Leal, CESA managing director. “Further, the Wipro-CESA combine will be able to jointly explore new and emerging opportunities in the Asia Pacific and other emerging markets.”