India's economic growth has been hot, and that means big business for multinationals like Boeing (NYSE:BA). The aerospace giant predicted this week that the South Asian country will purchase $72 billion worth of commercial planes over the next 20 years. But while Boeing's recent record in India looks solid, rival Airbus and its parent company, European Aeronautic Defense and Space, or EADS, are maneuvering to maintain their sales lead in commercial planes and shut Boeing out of a major defense deal.
The resurgence in Boeing's commercial aerospace division continues to roll on, as reflected in the company's recent disclosure that private Indian air carrier Air Sahara will purchase 10 Boeing 737s for $700 million. Boeing has also had notable success in India in the past, including an $11.4 billion deal just last year with state-run Air India.
But, as seems increasingly common in the commercial-airplane business, Boeing has been sweetening its relationship with Indian buyers by investing in the country. It indicated that it will invest a total of $185 million for an aircraft-maintenance facility and pilot-training center as part of the Air Sahara transaction. It committed another $1.5 billion in investments in the wake of the Air India deal.
As impressive as Boeing's numbers seem, however, they pale in comparison with commitments from EADS, which will pour as much as $2.6 billion into India over the next 15 years. At least part of the rationale for the cash injection seems to be to curry favor from the Indian government to secure more commercial-plane orders. While India's airline industry has less state control than China's does, the government still has a lot of power. Indian Airlines, the state-owned domestic carrier, controlled 38% of the market last year.
In addition to growth in commercial aerospace, India's economic expansion has allowed for greater defense spending. In fact, the country is gearing up to seal one of the largest fighter deals in recent years, with plans to buy 126 planes. And surprise! EADS believes that its Typhoon fighter is an "excellent candidate" for the Indian Air Force.
Boeing hopes that India will choose its own F-18. But with EADS raising the ante on investments, Boeing faces a serious challenge, both on the commercial and defense side.
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Freelance writer Brian Gorman does not own shares in any of the companies mentioned.
