Sunday, February 13, 2011

India’s Industry Tries To Climb Supply Chain Ladder

Aviation Week & Space Technology Feb 14 , 2011 , p. 36
Neelam Mathews
Leithen Francis

Massive offset demands expected to help spur India’s industrial wherewithal
Printed headline: Building Project

India’s aerospace industrial growth strategy is about to get a major shot in the arm, with the government planning to spend more than $80 billion on procurement in 2011-15, triggering a huge inflow of offset deals by the winners.

The activity is also causing the industry to restructure, with streamlining efforts and consolidation on the horizon as businesses shift focus from serving the local market to becoming globally viable players.

India’s Defense Offsets Policy mandates that 30-50% of a contract total be plowed back into the domestic aerospace industry. New Delhi hopes that after years of unsuccessfully trying to get the aerospace industry to stand on its own two feet, this surge in activity will achieve a new level of industrial competence by expanding basic engineering skills and enabling companies to start delivering value-added products.

It is not just defense companies that are likely to benefit—the new policy permits commercial aviation (and homeland security projects) to be tapped by suppliers to meet offset requirements. And the civil aviation market will be a big part of offset plans for EADS, Boeing and others. That market is expected to expand at a compound annual growth rate above 18% and Boeing forecasts delivery in the next 20 years of 1,150 commercial aircraft in India worth $135 billion.

Maini Global Aerospace has secured a contract from Hindustan Aeronautics Ltd. to build drop tanks for a military trainer aircraft.Credit: MAINI GLOBAL AEROSPACE
There is little doubt that defense offsets are propelling the industry as many manufacturers aim to establish long-term supply bases in India, as Goodrich and Rolls-Royce have already done. The numbers of engineering centers and manufacturing facilities are increasing steadily.

India’s suppliers are also gearing up. Maini Global Aerospace last week signed an agreement with Marshall Aerospace to provide structural components for the extended-range fuel tanks of the Indian navy’s Boeing 737-based P-8I long-range maritime reconnaissance aircraft. “This is a test of performance of Indian capability,” says Naresh Palta, Maini’s CEO. “Once we reach [performance and quality levels], it is clear India can take on [large] programs.”

Diversifying from precision engineering to aerostructures and engine segments, the company has a long-term agreement with Germany’s MTU Aero Engines for precision components and subassemblies for a range of civil and military programs.

Maini is also considering moving into sheet-metal-forming, aircraft structures and systems, and airport and ground support equipment. The company says it has developed and manufactured more than 900 high-precision aircraft components and parts for prime contractors and their top-tier suppliers.

“India needs to go through a leapfrog strategy [to get a technology advantage]. . . . There is no option but to develop a national aerospace strategy,” says Air Vice Marshal Muthumanikam Matheswaran, assistant chief of the air force. For this, the industry will need support from top-level manufacturers and government backing, he adds.

Boeing, which has already sold the P-8I and C-17 to India, is looking to do more business in the country. It has much experience working with local companies, having contracted with government-owned Hindustan Aeronautics Ltd. (HAL), to manufacture Boeing 777 components and F/A-18 gun-bay doors, and TAL Manufacturing Solutions Ltd., a subsidiary of Tata Motors Ltd., to manufacture Boeing 787 floor beams.

Pratt & Whitney India’s country manger, Vivek Saxena, notes that his company has made a big investment in India by building up composite parts manufacturing capabilities there. A strategic relationship with Tata Advanced Materials Ltd. (TAML) makes it India’s sole exporter of spacecraft composites.

Pratt & Whitney parent United Technologies Corp. also has a joint venture with Tata Advanced Systems for manufacturing Sikorsky’s S-92 cabins, earlier manufactured in Japan, now to be produced in Hyderabad. More manufacturing joint ventures are in the works, including efforts to develop and manufacture a helicopter in India, industry officials tell Aviation Week.

While traditionally HAL and government ordnance factories have been the beneficiaries of partnering agreements, non-government entities increasingly are likely to benefit, Saxena says. Pratt is searching for talent beyond public-sector companies.

“It is interesting to watch the private sector grow, but it is still a challenge, as 70% of products for defense are still imported,” says Bob Gower, vice president and general manager of Boeing Military Aircraft-India.
Gower notes that if India really wants its industry to be self-reliant, the companies need to be globally competitive, and for that an international marketplace is essential.

HAL acknowledges the landscape is changing and that it, too, needs to work on its competitiveness. “We require consolidation in areas like avionics. . . . Only then can a robust industry be established,” says HAL Chairman Ashok Nayak. He notes that for the moment, “infrastructural costs, low-volume sales in military are constraints. . . . We [in the aerospace industry] should take small but sure steps. HAL cannot tackle everything on its own. Twenty-five percent of our value-add is through outsourcing and will grow in future.”

A first wave of consolidation is occurring, with larger groups paying a premium for niche capabilities in the small and medium enterprise (SME) sector. “We see this wave of consolidation strengthening over the near term because of the need of large players to speedily deploy specific capability in segments where large project opportunities are available,” adds Rahul Gangal, director of Aviotech’s defense advisory investments.

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