Electronics major Samtel Display Systems Ltd and French defence and aerospace major Thales have formed a joint venture to manufacture cockpit helmet mounted displays and a range of other high-end avionics for fighter aircraft.

Electronics major Samtel will hold a 74 per cent stake in the joint venture, with Thales holding the remaining 26 per cent in the joint venture, in line with the government's equity cap on foreign direct investment in the defence sector.

The joint venture will have an initial capital of $12.5 million with more investments to be pumped in as the joint development efforts progress, officials of the two firms said at a press conference.

The joint venture plans to invest Rs60 crore for the initial foray into cockpit helmet mounted displays and plans to step up funding as it takes up more projects.

The joint venture will help Thales discharge its off-set obligations in defence contracts. Under the offset clause of the defence procurement policy, a foreign company must generate 30 per cent of the value of products in the country.

For large projects such as the 126 multi-role fighter tender, the offset obligation will be as much as 50 per cent.

The joint venture will initially help upgrade the Indian Air Force's aging fleet of over 50 Mirage fighters. The upgrade includes multi-target, multi-mode radar, multi-channel digital video and data recording, mission data processing unit, mass memory, LCD glass cockpit and improved tactical and long-range weapon firing.

Thales is a major shareholder in Dassault, which is offering its Rafael aircraft for the tender. In case it is successful, Dassault will have to discharge offsets worth over $5 billion (Rs20,000 crore).

Negotiations are in the final stages and the value of the contract is not known.

Thales is already engaged in a mega project for assembling six French-origin Scorpene submarines in Mumbai.

Samtel and Thales are also partnering the supply of head mounted sight and display for Indian Navy's MiG 29K fighters. The first batch of the fighter is expected to arrive around September this year. Samtel also supplies cathode tubes to Thales for avionics displays.

Samtel officials said the company has an ongoing relationship with the defence ministry and the joint venture would open up new opportunities.

"We will develop and manufacture the products within the new joint venture with the aim of creating truly Indian systems," said Francois Quentin, senior vice president for Thales in charge of aerospace activities.

"Thales is a truly local player in India and the next step will be to solidify this cooperation. It will be winning the first contract," Quentin said.

The joint venture will capitalise on the mutual strengths of the two companies in avionics, said Satish Kaura, chairman and managing director of Samtel, adding his company was already working with Hindustan Aeronautics in this area.

"Samtel and Hindustan Aeronautics are jointly working on display systems for the light combat aircraft programme," added Rajesh Kakkar, Samtel's vice president for strategic planning and business development.

Delhi-based Samtel has a manufacturing unit in Germany.