The C-295 transport aircraft will be produced in India by the Tata group and Airbus (AIR.PA), the government announced on Thursday. This will be the first time a local private company has produced one of these aircraft as part of efforts to increase the country's defense industry.
India, one of the biggest importers of defense goods worldwide, has been attempting to decrease its dependency on foreign suppliers and promote domestic production. At the moment, only the government-owned Hindustan Aeronautics Ltd (HIAE.NS) produces aircraft primarily for the armed forces.
Airbus Group, the world's second-largest maker of commercial aircraft after Boeing, and Indian conglomerate Tata Group have agreed to produce passenger jets at a new factory in India.
Further, the venture will assemble A320 planes starting in 2019, targeting $2 billion in annual revenue by 2027. Airbus also plans to make its single-aisle A320neo there as it targets fast-growing domestic carriers that need cheaper planes to compete with state rivals.
Tata Motors will own 51% of the joint venture, AirWorks India, while European Aeronautic Defence & Space Company will own the remaining 49%. Airbus's commercial unit wants to further expand in Asia as China and other emerging markets grow demand for its planes.
As part of the deal, Tata will supply highly skilled engineers and a network of suppliers, helping Airbus cut costs by accelerating design and development in-house, said Patrick Lauinger, head of EADS Asia Pacific.
"The partnership strikes a very good balance between the two sides," he said. "Our customers are demanding more efficiency through local manufacturing, and this will help us keep prices low."
How do they welcome Tata as a source of funding?
The tie-up with Tata brings a welcome source of funding to Airbus’s market-leading single-aisle jet family as it bids for a more significant share in the future. Airbus said that it hoped to expand the manufacturing base beyond Europe to include China and Russia and was looking at more U.S. states as potential locations.
Airbus will finance the Bangalore facility with debt and long-term lease payments, which will help Tata make an initial operating profit. Airbus Chief Executive Officer Tom Enders has pledged to keep costs low and increase his unit’s market share to 30 percent by 2020 from 20 percent now.
In July, Airbus announced plans for a new plant in Alabama where it would produce narrow-body jets, including the A320 family, for delivery starting in 2018.
Airbus’s major players have been ramping up production of aircraft in India and China as global demand has grown. Airbus’s shares rose 0.7 percent to 81.79 euros at the close of trading in Frankfurt.
India is an important market:
According to the joint venture, India is a critical market for Airbus, with sales increasing 19% last year to 16 billion euros ($19 billion), second only to China at 26 billion euros.
Enders stated that India remains an important market for Airbus during a June visit to Bangalore, where he forecasted 30 percent growth in the civil aviation sector over the next decade. Airbus would open its first plant there by 2018 and two more by 2020, he said.
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