M&M eyes Boeing in Australia

Mahindra & Mahindra (M&M) is looking at buying one of the Australian facilities of Boeing.

The US-based Boeing is present in 17 locations in Australia; its divisions there include aerostructures, commercial aeroplanes and defence products, among others. The facility M&M may buy is either a components or aircraft manufacturing facility.

The Mahindra Group is an automotive, farm equipment, financial services, trade and logistics and information technology conglomerate.

When asked, Hemant Luthra, President of Mahindra Systech, the umbrella entity of M&M’s components and engineering activity, said, “Boeing is one of the companies we are in talks with, but I am not going to comment on any specific deal. We are also in talks with Airbus and others to take advantage of the offset clause.”

The said clause refers to the Indian government policy that any contract with a foreign supplier for military equipment above a certain level imposes on the vendor an obligation to source business through Indian companies of a certain proportion of the contract.

Talk of a Boeing deal surfaced even as M&M’s Managing Director Anand Mahindra said recently that the company planned to invest Rs 250 crore ($54 million) into the aerospace business. He had also said, “Mahindra will invest Rs 150 crore into aircraft component manufacturing, and another Rs 100 crore in aircraft manufacturing.”

Aerospace aims
An M&M spokesperson said, “M&M has made clear its intent to grow the aerospace business aggressively and looks forward to working with multiple partners, who are likely to be interested in the company’s sophisticated facilities and planned capabilities. However, the company does not comment about speculation regarding specific business transactions.”

If it fructifies, this will be the third acquisition in Australia for M&M in this line of business. It bought majority stakes in component firm Aerostaff Australia and in aircraft maker Gippsland Aeronautics for Rs 175 crore in December 2009. The purchase was made with Kotak Private Equity.

The possible acquisition would make Mahindra Aerospace Pvt (MAPL), a part of Mahindra Systech, a contract manufacturer of aircrafts and components for third parties, it is learnt. Boeing India President and Boeing International Vice-President Dinesh A Keskar said, “We continue with our commitment to develop the aerospace ecosystem in the country. However, we do not comment on a specific business transaction.”

With Rs 8,000 crore worth of defence contracts signed in the past two years under the offset policy mandated by the government, Indian component suppliers are gearing up to cash in on contracts worth Rs 1,30,000 crore which would be up for grabs in the next few years.

Gokul Chaudhri, Partner, BMR Advisors said, “The offset clause in defence and aerospace is pretty well defined, which is 30 per cent of the contract value for a contract higher than Rs 300 crores. This deal will also help the company’s industrial products division to rapidly ramp up and provide compatible offerings to MNCs (multinational corporations). These MNC’s have to put in place certain arrangements to be in line with the 26 per cent Foreign Direct Investment cap and the 30 per cent offset clause mandated by the Indian government. These clauses will help the aerospace manufacturing industry in India to boom.”