With A Long-Term Vision, It Could Be 'Game, Set & Match' India In Aerospace Manufacturing

Aravind Melligeri, Chariman & CEO, Aequs Aravind brings relentless focus on creating value to every Aequs endeavor. His long-term, strategic perspective is the driving force behind the company ’stremendous growth. He was recently awarded as the ‘Young Achiever Award’bythe Indo-American Society.

The eyes of the Aerospace and Defense(A&D)manufacturing world are presently on India. Does India have its eye on the ball? The global players are virtually willing India to win. Can we make the most of this tailwind to create a massive new manufacturing base to generate vast amounts of new jobs and wealth? That’s the $100 billion question.

A booming middle class is set to make India the third largest air passenger market by 2025. The aviation sector, with a combination of public and private investments in areas such as new aircrafts and airport infrastructure, is likely to witness $15 billion invested over the next five years. Maintenance, repair and overhauling(MRO spends for civilian aircrafts alone are likely to be in the vicinity of $1.5 billion in the next couple of years. And for airlines, MRO is the second largest expense head after fuel. In the defense sector, India’s increasing geo strategic stature and ambition already make it one of the world’s largest buyers with a budget of $50 billion.

In a country of India’s size, the potential opportunity of business for a new and rising sector will always seem dazzling on paper. Let’s look at why this opportunity isn’t a pie-in-the-sky and the reasons behind the A&D world looking at India with enormous interest.

In terms of manufacturing capacity, the global A&D players constantly look for geographical diversity and destinations that offer better return on capital. In the eastern hemisphere, where the economic centre of gravity has shifted, the cost of production is getting out of hand in regions such as the Korean peninsula, Japan and China. The only other obvious answer for them is India that not just offers a huge market but also a very large trainable workforce.

That’s the reason why the world’s two largest aircraft makers Boeing and Airbus are expanding relationships with Indian firms while investing heavily in their own facilities. The cost of components made in India can be 20 percent lower for A&D firms, but cost arbitrage alone isn’t the only game India is playing.
Today, few note worthy companies are competing with global markets and manufacturing complex machine parts for every plane flying, and what’s more, they are also the ‘Prime Reliable’ suppliers for these OEMs. Indian technology firms provide a host of critical services in areas such as repair and overhaul, missile and rotary-wing propulsion systems, electrical, communication and display systems, landing gear and large integrated assemblies. Many even within the aviation industry are surprised by the extent of high-end jobs done out of India. What with such achievements, India has already managed to create a clutch of cutting-edge, midsized ancillary companies in this sector on the lines of German mittelstand firms - small but truly world-class in what they produce.

While the government recognizes the importance of the A&Dsector in creating a large indigenous manufacturing base, there needs to be a 20-year policy vision in place that can withstand the vagaries of political and geopolitical situations. The government has recently set up a task force to lay out a blue print for making indigenous civilian aircrafts in India and is also considering a Rs.10,000 crore special purpose vehicle to spur investments in the sector. While that certainly is a shot in the arm for the sector, India for long has been hamstrung by the over dependence on public sector enterprises. Equal importance to the role of private investments in such plans is critical for sustainable and accelerated success.

Indian firms havealready benefitted from progressive policy measures such as the strategic partnership model that allows partnerships with global giants to make defense hardware ranging from submarines to fighter jets. By now, they have demonstrated their ability to compete globally when offered greater policy attention.

However, A&D manufacturing presents some of the most challenging entry barriers for new companies to emerge when compared to other manufacturing businesses such as automotive or capital goods. For one, it is more capital-intensive than others. Access to technology, that can often be highly sensitive and expensive, and longer gestation periods are two of the biggest challenges. Besides, the basic raw materials cost more; skilled labour for such high-precision manufacturing is less readily available than for making say switch gears.

Perhaps most importantly,to realise the government’s ambition of making India a force to reckon with in A&D manufacturing,there needs to be more ‘integrated hub’approach, similar to the automotive sector in India. Multiple manufacturing hubs will enable A&D firms to create ecosystems of innovation. These integratedhubs would not just allow global customers to source a lot of their components from one place, but also create a healthy regional competition.

The alignment of stars for the Indian A&D sector seems more favourable than ever. It is up to India to keep the eye on the ball and play it right.