NEW DELHI -- India's Mahindra Defense Systems, or MDS, a subsidiary of automaker Mahindra & Mahindra, has signed a deal with U.S. aircraft maker Boeing to build F/A-18 Super Hornet fighter jets in India. Hindustan Aeronautics will also participate.
This is Mahindra's first foray into offensive weaponry. Up to now it has made noncombat defense equipment, such as armored vehicles and radar systems.
Representatives from the three companies unveiled the deal in April at the Defexpo India trade show in the southern city of Chennai.
Details on when and where production will start, how many planes will be built and the cost of the project were not disclosed. A joint statement by the partners said they will manufacture the fighter locally for the Indian armed forces. The companies will also cooperate on research and development, the statement said.
A Mahindra insider said that the deal is based on a memorandum, and that details are yet to be worked out, but that the company will initially supply the fighter to the Indian military and may export in the future. Prime Minister Narendra Modi and Defence Minister Nirmala Sitharaman also expressed a desire to export homegrown weapons during the event.
The statement did not specify the roles of the companies in the project, but a Mahindra executive said Boeing will license the technology for the F/A-18, HAL will be the main assembler of the plane and MDS will make components. The executive said the company's experience in manufacturing aircraft parts and exporting in the civil aviation market will come in handy.
At the trade show, MDS also announced it will work with ShinMaywa Industries to make components for the Japanese company's US-2 amphibious rescue aircraft.
MDS, established in 2012, had sales of 3.46 billion rupees ($51.3 million) and a net profit of 126 million rupees on a parent-only basis in the year ended March 2017. The company has three defense-related subsidiaries, including a joint venture with Telephonics of the U.S., Mahindra Telephonics Integrated Systems, in which it has a 51% stake. Mahindra Telephonics' sales reached 200 million rupees in the year ended March 2017.
Mahindra & Mahindra, which fully owns MDS, is primarily an automaker. It was India's No. 3 manufacturer of passenger cars and its second-largest commercial vehicle maker in the year ended March. The company also has a big slice of the SUV market and those skills help MDS in making armored vehicles.
Experts say the success of the tie-up depends how many planes the Ministry of Defense decides to buy. The ministry determines the equipment needs of the armed forces.
Annual spending on weapons and other defense equipment has fallen in recent years, according to documents released by a defense committee in the Indian parliament. The hardware budget has fallen since the fiscal year through March 2015, when it peaked at 736.5 billion rupees.
As part of its push to foster the defense industry, the Modi government in 2014 raised the cap on foreign investment in the defense sector to 49% from 26%. Despite the policy change, foreign direct investment, which promotes technology transfers, has been flat.
A senior Mahindra official hinted that the government is to blame for the vague partnership plans with Boeing. In an apparent show of frustration, the official said in an interview with the Nikkei Asian Review during Defexpo that more orders from the ministry would boost foreign investment, not the other way around.
Considering that the air force is a more active buyer of weapons, in both total budget terms and in the number of direct orders to foreign companies, than India's other military branches, the MDS partnership with Boeing seems sensible. But if it wants a vibrant defense industry, Modi's government must devise a transparent and consistent national strategy explaining how it plans to promote domestic production.
The government has cited procurement of defense equipment as an important part of bilateral diplomacy on many occasions. At the same time, it has tried to prioritize technology development through the Defense Ministry's Defense Research and Development Organization.