A well-conceived aerospace ecosystem will help India position itself as a leading global aerospace hub with a low-cost advantage | The Indian aerospace manufacturers today are on the threshold of entering a new era where they will take on greater responsibilities in making the nation selfreliant in aerospace. The remarkable resurgence of India’s manufacturing sector, specifically in the areas of precision engineering, forging, and component manufacturing are poised to register strong growth over the long term.
“India, keen to strengthen its own aerospace industry, has been emphasising on technology transfer from global defence companies, which has finally resulted in ambitious projects in the form of Arihant, Sukhoi, Arjun MBT and several others. With India commanding one of the world’s largest defense budgets, at ` 2.24 trillion, the potential is huge in this segment”, said Aravind Melligeri, CEO and chairman, Aequs.
The country is poised to become an even larger commercial and defence aircraft market. According to a report from PriceWaterhouseCoopers, the defence offset policy has been under implementation and a formal civil offset policy is expected to be rolled out shortly. The total estimated spending in the next five years will be in the range of $25b for commercial aircraft and $100b for defence. Approximately 15-20% ($15-20b) is expected to be spent on military aircraft. Assuming an offset of 30% for the civil sector, the total offset opportunity for the aerospace sector alone could exceed $15b. As Indian manufacturing capabilities mature, it will certainly capture a large share of this opportunity.
The premise of the projected growth is based on the fact that India has a readily available pool of qualified engineering, science and computing graduates, an experienced model of production with precision instruments, and the presence of a viable IT industry which can actively contribute to its growth. Also, the manufacturing cost advantage and a chain of aeronautical development labs will be adding to the rapid growth of aerospace components manufacturing. Over the last 16 years, India has seen more engineering and R&D investments in aerospace than the US or Europe.
However, it is on the adoption and availability of technology, that India takes a backseat. “Partnerships with established players in aerospace can ensure that India’s potential is properly leveraged. We lack the experienced talent pool of manpower who have the understanding of aerospace manufacturing and assembly processes that can match the efficiency of the western industry’s benchmark”, Melligeri added.
There are a number of aeronautics organisations like HAL, NAL, and DRDO laboratories as well as a handful of related defence PSUs in the country that are driving the growth in aerospace. With the entry of private companies, an institutional arrangement becomes necessary that could harness the knowledge residing in these various entities. Such an institution could map indigenous capabilities, identify knowledge gaps, direct resources efficiently to address critical technology gaps. The offset policy can become a significant contributor and catalyst to the development of the Indian aerospace sector.
The successful implementation of offset policies of countries like Brazil and South Korea provide some encouragement that a similar success in India is achievable. It is in this context that joint ventures (JV) with global players become important and the industry bodies have a role to play. The recent visit of the Indo-American Chamber of Commerce (IACC) to Aequs SEZ in Belgaum, Karnataka, was drawn on similar lines with the motive of facilitating India with ventures in the US.
Aequs has built the nation’s first aerospace SEZ with a focus on offering holistic product-based solutions to its clients. Commenting on the visit, Melligeri asserted, “The ability to offer full sub-systems or assemblies to global aerospace entities is a vital factor in turning India into a major aerospace outsourcing hub. By creating the right infrastructure with a well-trained talent pool, it is possible for India to position itself as a leading global aerospace hub with a low cost advantage. You need to have a well-conceived aerospace ecosystem at a single location to deliver quality hardware which is what we are working towards.”
Explaining the visit and discussions, Rabindra Srikantan, chairman, IACC said, “Aerospace and defence manufacturing & service industry has now come of age in India. Given the significance of the US in this industry, IACC has formed an Aerospace & Defense Forum in 2011 and we have been actively encouraging Indo-US collaboration for further growth in this sector. Several US aerospace majors are looking at India.”
He further added, “Apart from global requirements, they are keen to tap domestic Indian demand. There is a growing base for manufacturing several aircraft components such as aircraft doors, landing gear, window glass, and cables from India. It is but natural that we speak to a growing company like Aequs that is making significant strides in setting up such a world class ecosystem within the country.”
Aerospace manufacturing is a high technology and capital intensive industry. Its value chain is characterised by a long project life cycle spanning R&D, engineering design, manufacturing, assembly, maintenance, repair and overhaul. Intensive technology and safety requirements require significant investments in R&D and quality control.
The strategic advantage of having players across the value chain in aerospace manufacturing in the SEZ, would be avoiding the highly time-consuming logistics required for moving aerospace systems and assemblies. Since each unit in the SEZ would be a specialist in their own segment this would be more of a win-win situation where everyone would gain. The theoretical business opportunity for Indian aerospace supply chain players is huge. What companies must do, is enlarge the size of the pie by moving up the aerospace value chain, thus gaining the confidence of aerospace OEMs and Tier one’s, and turning the potential into reality.
In the present competitive global market, major investments have to be made to enhance innovation in design, technology, and operations. These investments cannot and will not be carried by airframe manufacturers alone. Therefore, those high technology suppliers and Tier one’s who are able to invest in change are taken on board as risk-sharing partners with the airframe manufacturer.
This requires an expansive, organisational-wide learning process followed by development of a whole network of next level (Tier 2/3) partners. It is a strategy that will drive major changes in aircraft production. The airframe manufacturer therefore will no longer need to tell the partners what to do. They will instead search the global market for the most capable and reliable suppliers as risk-sharing partners.
The capacity of an aerospace supplier to appreciate, process, and absorb external knowledge and learning from past and present experiences is important. The aerospace industry continues to be challenged by increasing competition and cost pressures as well as rising energy costs, high raw material prices and a weak US dollar. To combat these challenges, airframe manufacturers, aerospace OEMs and Tier 1 suppliers are leveraging the advantages arising from the globalisation of the aerospace supply chain. They are adapting to these challenges by outsourcing more and more elements of technology, design, and component/ sub-assembly manufacture.
For the aerospace supply chain, this is an opportunity as well as a threat. It is an opportunity for those suppliers who can innovate, adopt high level technologies, implement best practices and invest in change – such suppliers will win larger amounts of work from their customers. Those suppliers who cannot do this, could find themselves removed from the airframe manufacturer/OEMs’ supply chain.