3 minute readBAE Systems quits DLSI JV with Mahindra

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BAE Systems and Mahindra Defence Systems issued a statement on Saturday announcing the sale of the former’s stake in their joint venture, Defence Land Systems India (DLSI).

Mahindra Defence Systems will be taking over BAE Systems’ 26 percent stake in the venture.

This comes less than three weeks after the two issued a statement announcing a strategic review of their joint venture, saying, “Developments in both the industry environment and in customer procurement frameworks and acquisition strategies have led the shareholders to institute a strategic review of the business. This review will assess any changes necessary to address the evolving market and to meet emerging customer requirements. No decision has yet been taken on the way forward.”

“Following that review, it has been jointly agreed that Mahindra & Mahindra will acquire BAE Systems’ 26 per cent shareholding in the entity,” said Saturday’s statement, which added, “This decision will enable both companies to consider each opportunity on a case by case basis, including continuing to explore opportunities for co-operating on specific defence projects.”

The statement quoted Brigadier (retired) Khutub Hai, Chairman and Managing Director, Mahindra Defence Systems, as saying, “This is a strategic decision and will enable both the companies to approach opportunities individually and to offer customized solutions to meet the needs of the Indian defence land systems domain.”

It also quoted Dean McCumiskey, Managing Director and Chief Executive, India, BAE Systems, who said, “We look forward to opportunities to collaborate with Mahindra and others to enhance the role of the private sector in the defence industry.”

This decision frees BAE Systems from any possible conflict of interest in engaging other entities in India on joint projects, especially artillery. For instance, Dean McCumiskey had expressed his company’s interest last year in helping the Indian Ordnance Factory Board (OFB) build the old Bofors howitzer.

Guy Griffiths, International Managing Director at BAE Systems told StratPost on Friday, “If the government’s procurement strategy for its artillery requirements is that it wants to build capability with OFB or with someone else, we would just be keen to support that process.”

“The authorities have decided the center of gravity around that activity is the OFB. So given that we are the originator of that gun and the drawings we are keen to provide whatever support the OFB need in order to make that program a success. Making that program a success would only bode well in terms of their appetite for future artillery procurement,” he said.

India is also planning to procure 145 BAE Systems M-777 light howitzers in a Foreign Military Sale (FMS) from the US government. Griffiths said, “At the moment there’s a Letter of Request (LoR) that’s been issued by the Indian authorities. The American authorities are due imminently to respond to that with a Letter of Acceptance (LoA). That exists in draft form and is being discussed. We’re hopeful that in quarter two of this year the LoA will be signed and the contract will be effective. This will not be the first and only tranche of M-777s that are ordered. We think there’s an operational requirement for many more. I could potentially see maybe three or four more tranches of the same size over time.”

Another possible fallout of Saturday’s announcement could be on the partnership between BAE Systems and Mahindra Defence Systems on the Indian design contest for the Future Infantry Combat Vehicle (FICV). While Mahindra Defence Systems was the prime bidder in the contest, it was supported by BAE Systems and Israel’s Rafael, who were knowledge partners on the project. BAE Systems was to help with design on the basis of an existing combat vehicle while Rafael was to have contributed the gun turret for the vehicle. It was also understood that if the proposal won, DLSI would produce the vehicle.

But the Indian government is expected to issue a fresh expression of interest on this project and it remains unclear whether the FICV partnership will remain unchanged in the next iteration.

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