NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS AUGUST 13-17, 2007

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SUBJECT: NEW DELHI WEEKLY ECON OFFICE HIGHLIGHTS AUGUST 13-17, 2007


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1. (U) Below is a compilation of Economic highlights from Embassy
New Delhi for the week of August 13-17, 2007.

NO BANK FUNDING FOR DOMESTIC
M AND A ACTIVITIES IN INDIA
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2. (U) In a conversation with Vishwavir Ahuja, Managing Director
and Country Chief of Bank of America (BA),we learned that banks in
India are not allowed to fund mergers and acquisition activities in
India. Ahuja said that while BA is a leader in financing India's
outbound mergers and acquisition activities -- such as Tata's
acquisition of Corus steel and Birlas' Hindalco Company's
acquisition of the American aluminum company, Novelis -- Indian
companies cannot leverage the banking system to finance domestic M &
A activities, which could be a great business opportunity for BA,
he added. Ahuja observed that one of the reasons why Indian
companies seek to acquire companies overseas is because of the
leveraging facilities that foreign banks in India offer. Although
the deals are closed overseas, the financing plans are originated in
India and foreign banks underwrite the loan based on the Indian
companies' balance sheet.


3. (U) According to Ahuja, the banking regulator, the Reserve Bank
of India (RBI),is concerned that if Indian companies are allowed to
borrow from banks for M & A operations, they would instead use the
money to buy back their shares or play the capital markets, as has
happened in the past. Ahuja said that the RBI considers capital
markets and real estate very sensitive and risky for banks, and
wants to limit the banks' exposure. Instead of bank loans, Ahuja
believes that the growing M & A activities in India are funded by
private equity or internally generated profits. In some cases,
Indian companies also use resources raised from the domestic public
capital market to make acquisitions of other Indian companies.
Foreign companies seeking to acquire Indian companies have to bring
in capital from overseas and cannot leverage funds from Indian or
foreign banks in India.

BOEING VIES FOR INDIAN
DEFENSE CONTRACTS
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4. (SBU) During a meeting with the Charge on August 16, Ian Thomas,
President of Boeing International and President of Boeing India,
outlined the company's strong presence and growth strategy in Indian
aviation. Thomas is working closely with Boeing's Integrated
Defense Systems and Commercial Planes for better coordination
between the two divisions and follow through on Boeing Chairman Jim
McNerny's advice to stop working as two separate companies in India.
With the Indian aviation market poised for tremendous growth,
Boeing plans to increase its local manpower from 300 to 3000
employees. Thomas is focused on completing Boeing's offset
commitment of USD 1.8 billion from the historic Air India sale of
2005 worth more than USD 11 billion for 68 planes. Within days,
Boeing will complete its MOU on an offset agreement with the
Ministry of Civil Aviation.


5. (SBU) Boeing's future plans in India include developing
strategic partnerships with Indian industry and seeking
opportunities in the aerospace and defense industries. On the
commercial side, Thomas projects Boeing sales worth USD 15 billion
over the next 10 years and purchase of 911 plans by Indian carriers
over the next 20 years. India is one of the top three markets for
Boeing aircraft, along with Russia and China. As part of the
company's longer term commitment to infrastructure, the company has
invested USD 100 million in a maintenance, repair, and overhaul
(MRO) facility in Nagpur; Boeing expects to break ground at the
Nagpur MRO in October 2007. Also, the company has committed USD 85
million for a pilot and flight crew training center, now expected to
come up in Hyderabad. Boeing has also sought out local Indian
partners - including products worth few millions with HAL and a
pending proposal (expected to be approved soon) with Tata
manufacturing for a floor beam for the new 787 aircraft. Thomas

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also sees India as the fifth largest potential market for raw
materials production of titanium, critical for aircraft
manufacturing.


6. (SBU) In comparison to Boeing's major competitor Airbus, Boeing
has a 60 percent market share. However, according to Thomas, the
company needs to be more active on the defense market. Boeing
intends to offer the Super Hornet to the Indian Air Force for its
upcoming Multi-role Combat Aircraft (MRCA) competition. In April,
Boeing submitted a proposal to develop and deliver eight long-range
maritime reconnaissance and anti-submarine warfare aircraft to the
Indian Navy. The Boeing P-8I Multi-mission maritime aircraft, a
variant of the U.S. Navy's P-8A, is currently under consideration by
the Indian Ministry of Defense for India's maritime requirements.
Boeing hopes to significantly increase defense sales in India and
views India as one of the potentially largest defense markets for
Boeing products outside of the U.S., following the Middle East,
Japan, and Korea in importance, and bigger than Singapore and
Australia.


7. (U) Visit New Delhi's Classified Website:
http://www.state.sgov/p/sa/newdelhi

WHITE