Since the 2001 opening of Indian aerospace manufacturing to private participation, manufacturers of high-tech precision products have made significant investment to serve the aeronautical and astronautical requirements of the aerospace industry.
Opening the aerospace industry up to private participation demonstrates the government’s intent to create an aeronautical manufacturing sector that can stand in its own right rather than limiting it to the defence industry. Also, dependence on other countries for high-tech supplies to the space and defence sectors can be reduced by broadening relevant manufacturing capacity within India.
Exports of aerospace products, particularly components, from India have seen dramatic growth in the past couple of years. Private sector manufacturers have been given the opportunity to participate in the increased astronautical spending intended to boost development of advanced satellite launch vehicles. Several have successfully established their credentials for delivering locally produced components. Aero structures, assemblies, tool kits, composite components and parts are being developed and produced in public-private-partnerships.
Airbus and Boeing have potentially a significant presence in Indian aerospace manufacturing. Both have partnered with Hindustan Aeronautics Limited (HAL) to source components for a variety of aircraft models.
Airbus plans to employ approximately 500 engineers by 2012 at its wholly owned research and design centre in India. This focusses on the development of advanced capabilities in the modelling and simulation critical for designing and producing high performance aircraft. Airbus has already been partnering with Indian companies for the design and manufacture of complex machine components and aircraft structures.
More than US$1bn of aerospace manufacturing work is expected to be brought to India by the Boeing Company in the ten years to 2017. Boeing has also established a wholly owned subsidiary, Boeing International Corporation India Private Limited, to support the growing demands of India's aviation, aerospace and defence industries.
The interest shown in aviation by industrial houses - from automotive manufacturers, through metal production to software design and development - suggests a real opportunity for India to develop a presence in international aerospace manufacturing. With economies like Brazil performing well in aerospace manufacturing the market opportunity in the sector has not gone un-noticed in India.
Tata Group’s JV with Augusta Westland for assembling helicopters from a US$30mn greenfield facility in Hyderabad is aimed mainly at the Indian defence sector and civil markets worldwide. It is expected to successfully roll out AW 119 helicopters by 2011.
Mahindra and Mahindra (M&M), a large company with diverse industrial interests, acquired Aerostaff Australia and Gippsland Aeronautics recently as part of INR1.75 billion investment and capability building foray into aerospace components and aircraft manufacturing.
Private sector aerospace manufacturers have also assembling entire aircraft with complete detailed parts (e.g P68C, Viator). In addition, they have been building prototypes for bigger aircraft (Saras) and trainer aircraft (Hansa). Indian manufacturers have also been exporting precision parts to international civil and military aircraft manufacturers.
Meanwhile Mahindra Aerospace (in conjunction with the National Aerospace Laboratories - NAL) plans to launch a 5 seat aircraft (NM5) by March 2011 and is targeting a 20% price advantage over similar Western-built equipment. Mahindra has supported NAL in designing the prototype, fabricating components and assembly, while flight testing is NAL’s responsibility. Once the aircraft is certified, Mahindra will handle production and marketing.
NAL is also developing the Hansa 3 trainer aircraft. Earlier versions of the aircraft are currently in use at 14 flying clubs across India, generally government operated. Such aircraft have generally been allotted at nominal costs. NAL had been planning to get overseas certification, initially in Australia however this process has stalled due to personnel changes. As a result attention has moved to the NM5. Since Mahindra has acquired two aircraft manufacturers in Australia, the intention is to obtain Australian certification for the NM5. The future of the Hansa 3 would be more positive if NAL could find a private partner as it did for the NM5, particularly one that can help in securing international certification.
India’s intent in the aerospace sector has recently been highlighted by the decision by the Government to set up a committee under Dr Madhav Nair, to prepare a feasibility study on the RTA70, a regional passenger transport aircraft seating 50-90 passengers. The committee has been allocated INR500 million for preparation of the report which is due for submission in April/May 2011. Should the government decide to go ahead with the project it would certainly provide a boost to the local aerospace sector, however the regional aircraft market is becoming quite crowded with existing players such as ATR, Bombardier and Embraer being joined by programmes being developed in China, Japan and Russia.
The legacy of the defence sector
Currently HAL is the leader in Indian aerospace manufacturing. It is primarily focussed on producing and servicing aircraft (Hansa, Saras) and helicopters (Dhruv, Chetah, Chetak) for Indian defence services. HAL has also been exporting transport aircraft and helicopters to more than 20 countries and is ranked 34th in the list of the world’s top 100 defence companies. With 19 production divisions and nine research and development centres HAL is equipped to manufacture more than 25 types of helicopters and aircraft and more than 1000 items of aircraft systems.
As part of the government’s offset policy, HAL is also expected to make substantial further investment in the sector. It aims to lift to capacity so that it might supply parts, assemblies and components worth 30% of India’s USD25 billion defence orders.
Indeed, aeronautical manufacturing in India is completely focused on the fulfilment of requirements of Indian defence services. HAL’s ability to manufacture spares and assemblies for aircraft under licence is limited to defence transport and combat fleet.
However, HAL has started contracting for OEM’s such as Boeing and Airbus. The production of airframe panels and beams for civil aircraft has been outsourced to India to take advantage of low cost production. At the same time, more than 95% of Indian manufacturers in the sector depend on subcontracting to HAL.
Recent acquisitions by Indian defence forces have generated a USD5 billion opportunity for Indian manufacturers, given the 50% offset obligations (increased from 30%) on current orders. However the existing aggregate capacity in-country is less than half of what is actually required to meet these obligations. As a result the government has recently relaxed conditions for the allocation of defence offsets, now allowing such expenditure to be directed to the civilian sector which is positive for both the commercial and general aviation sectors.
To mitigate constraints of capital, capacity, and capability the government has already opened the sector to private participation. Tata and Mahindra, with strong financial credentials, have entered into various alliances for manufacturing parts and assembling machines under offset agreements. However there are strong prospects and good reason for these groups to move from defence offset to licensed manufacturing and beyond to civil aviation manufacturing as the defence market becomes saturated.
To meet its own challenge of having enough trained personnel to respond to opportunities in the wider aerospace sector, manufacturers plan to focus on training specialist technicians and engineers. Society of Indian Aerospace Technologies and Aerospace is preparing to address this gap along the lines of the Automobile Components Manufacturers Association (ACMA).
In addition, an investment of over INR20 billion is expected to be made by leading aerospace manufacturers in the Devanahalli Aerospace Park, a Special Economic Zone at Bangalore, a designated design and manufacturing hub.
HAL and Mahindra Group have made strategic investments to develop internal design and manufacturing capacity to reduce dependence on assembling components under licence to OEMs. HAL is to planning to design and manufacture a Multi Role Helicopter for civil and defence use. The company expects a major upgrade in its capabilities by 2015 to allow it to begin to produce its own designed helicopters and aircraft.
With the support of the state in areas such as technology development, tax incentives, establishment subsidies, and access to state owned resources (both infrastructure and inter-governmental alliances for design and manufacturing) and a focussed and clearly articulated policy commitment to the sector, Indian manufacturers should be able to establish a strong presence in the global aerospace market over the next ten years from what, on the surface, appears to be small beginnings.
India’s airframe and components sector is small by global standards, although it has a good reputation for quality. This is driven in large part by the standards set by HAL. However, given (1) a large pool of qualified, English-speaking engineers in the country, available at lower cost than in the West, and (2) a strong industrial and engineering tradition, there are opportunities to substantially expand the sector on the back of the growth in aviation.
Again, there are several paths for development. The continuing expansion and diversification of HAL as a repository of the relevant expertise is an obvious one. At some stage, though, there may need to be a review and modification of how HAL is organised to work across quite different aviation sectors. In particular, as it diversifies away from defence contracts the company will enter potentially more volatile and competitive markets with different drivers of purchasing decisions. This may need to be recognised in its structure and how the different parts operate.
A second path, and one which will enable the sector to move ahead quickly, is to establish joint ventures with foreign manufacturers. This is already being progressed in some quarters to support existing aircraft types. It may also be a path to the production of local small aircraft, in which case the JVs need not always be with global industry leaders. There may be opportunities to exploit Indian production capacity to build a strong presence where innovative products have been developed in small or developing markets or to cater for particular niche demands.
Even if they do not lead to aircraft manufacture, joint ventures are relevant for outsourcing research and development and low-cost component manufacturing. Ideally, the juxtaposition of these capacities and the development of local skills and experience will see increasingly high value-added manufacturing undertaken within the aerospace industry.
The third path, possibly favoured for the speed at which it might be implemented and the transfer of technology and development of skills involved, might simply be to welcome direct investment by existing global manufacturers. This is the path of investment followed with respect to Airbus and Boeing. The aim would be to ensure that through such measures as investment and training policies, access to suitable land and premises, and development of a strong supply structure, that this trend increases the breadth and quality of products manufactured locally.