BAE’s US arm to shift Howitzer assembly here

By: |
New Delhi | Updated: January 21, 2015 5:22:06 AM

Ahead of US President Barack Obama’s visit to India, the US arm of the London-headquartered BAE Systems...

Ahead of US President Barack Obama’s visit to India, the US arm of the London-headquartered BAE Systems has offered to transfer its entire M777 155mm/39-calibre ultra lightweight Howitzer (ULH) assembly line from the US to India to revive the stalled sale of 145 guns to the Indian Army.

The proposal had hit an impasse last year over offsets and price issues as it also involved direct import of the Howitzers from the US in a foreign military sales route (FMS) under the buy (global) category of the Indian Defense Procurement Procedure (DPP).

The new offer is in line with Prime Minister Narendra Modi’s ‘Make in India’ initiative and will be on the agenda of delegation-level talks between the two sides. The gun has been extensively tested and evaluated in India previously. The proposal has been scrutinised in nine meetings of the Defense Acquisition Council (DAC) and eight versions of the offset proposals have been submitted to the Indian government for approval till October 2013.

indiaThe US leader, during his meeting with Modi, is expected to pitch for scaling up India-US defense trade and push for Defense Trade and Technology Initiative (DTTI), which was launched in 2012 and 2013 by his new defense secretary-nominee Ashton B Carter.

John Kelly, BAE System’s vice-president for business development and strategic planning platforms and services land systems and armament, who is spearheading the renewed campaign for sale of the M777 guns to India, confirmed: “We have offered to bring the gun’s assembly, integration and testing to India.”

The proposal also involves increasing the indigenous component of the gun. But the quantity that India orders should be significantly larger for this offer to be more attractive. “If the quantity is higher, then we have more opportunity for indigenisation and that’s what we are working through at the moment,” he said. Last year in July, the then defence minister Arun Jaitley had told the Parliament, “The case for procurement of ultra-light howitzer guns through the US government has not progressed due to cost issues and because the vendor has not been able to come up with a proposal fully compliant to the offset requirements.”

The ministry of defence (MoD) declared that the earlier offsets proposal from BAE Systems was non-compliant because the BAE Systems-owned US subsidiary, which manufactures the gun at Watervliet, New York, was not taking responsibility for the mandated 30 % offsets.

The stalled proposal involved sister companies under the BAE Systems’ group umbrella for fulfilling the then $209 million offsets on behalf of BAE Systems, Hattiesburg, Mississippi. But the MoD insisted on offsets being implemented by the prime for the contract.

The problem now seems to be resolved. “With regards to the possible Foreign Military Sale of the M777 Ultra-Lightweight Howitzers between the the two countries, the US government will contract with BAE Systems Global Combat Systems Limited and with other wholly owned subsidiaries of BAE Systems for the purposes of supporting our offset obligations,” a BAE Systems official later clarified.

This suggests that under the fresh bid, BAE Systems Global Combat Systems will be the prime for the contract, which will actually be signed by the US Department of Defense (DoD). The US Department of Defence (DoD) which underwrites the deal with India, has also accepted the “clarifications” and BAE Systems has identified 40 Indian Offsets Partners with a wide geographical spread to execute the offsets obligations..

The other problem over “cost issues” appears exaggerated due to a misunderstanding. The first offer, which stated a $697-million price, expired in October 2013. This necessitated the matter being referred to the US Congress for the second time for approval, which was done in August 2013. This Congressional notification provides a five-year validity to the offer, a BAE Systems official said.

“The Congressional approval left a generous headroom by stipulating a price ceiling of $885 million. This was wrongly seen as the new price, which is unlikely to hit that ceiling. We’ll keep the price within the 6-8 % boundary,” said Kelly, suggesting a new price to be close to $750 million.

The renewed offer to shift the assembly line to India involves Transfer of Technology to a chosen local partner, Kelly said. All local players, including the Ordnance Factory Board (OFB), could be considered. The technological challenge involves the use of Titanium. The FMS proposal does not envisage a joint venture, he said. Significantly, the gun barrel of the American gun cannot be made in India. This is barred by the Berry Amendment, a Congressional Act in the US.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
161 firms made open offers worth Rs 23,000 cr in 2014
2BSE Sensex, NSE Nifty hit new highs; metal, banking stocks soar
3Mutual fund exposure to IT stocks drops to Rs 34,000 crore in Dec