Man­u­fac­tur­ing in aero­space: Tak­ing to the skies

SP's MAI - - AEROSPACE OEMSPEAK - [ By Nalin Jain ] The writer is Pres­i­dent & CEO, GE Avi­a­tion & Trans­porta­tion, South Asia. Views ex­pressed are per­sonal.

As the new In­dian Gov­ern­ment tries to trans­form the In­dian econ­omy from ser­vices-led to a man­u­fac­tur­ing plus ser­vices econ­omy, we know that it’s not re­ally a ques­tion of why but how. With­out the shift, the men­ace of growth sans job cre­ation will sti­fle our eco­nomic progress within the next decade. To ad­dress the how, the ‘Make in In­dia’ cam­paign is a sig­nif­i­cant and timely step by the new gov­ern­ment to raise the man­u­fac­tur­ing work­force over­all, and the en­gi­neer­ing work­force in par­tic­u­lar. There again, while China’s growth rate may be wan­ing, there are other economies that are com­pet­ing fiercely for a larger share of global man­u­fac­tur­ing in­vest­ment – from ASEAN coun­tries like Viet­nam, In­done­sia, etc., to Latin Amer­ica to even coun­tries in Mid­dle East. The land­scape is very com­pet­i­tive as each coun­try is try­ing to lever­age its strengths to at­tract in­vest­ment in man­u­fac­tur­ing. So we’re not just com­pet­ing with China but also with the rest of the de­vel­op­ing world. We all know that in a free mar­ket cap­i­tal flows to places which pro­vide best re­turn on cap­i­tal.

Why the Em­pha­sis on Aero­space Man­u­fac­tur­ing

The con­text of man­u­fac­tur­ing in aero­space is mul­ti­fold – it not only helps gen­er­ate jobs but also helps coun­tries achieve tech­no­log­i­cal su­pe­ri­or­ity and in­crease in­dige­nous ca­pa­bil­ity to be­come self-re­liant. Since the en­try bar­ri­ers are so high – once the aero­space in­dus­try ma­tures, the coun­try’s global com­pet­i­tive­ness im­proves and ex­ports grow. Be­sides, for a coun­try that is pro­jected to be the third largest avi­a­tion mar­ket by 2020, can we af­ford not to fo­cus on aero­space man­u­fac­tur­ing? China is a case in point – it has been fo­cused on aero­space man­u­fac­tur­ing right since the 1970s – ini­tially as a sup­plier of parts to global in­dus­try but now launch­ing its own air­craft pro­grammes after hav­ing achieved suc­cess in civil avi­a­tion and de­fence aero­space.

Since the new gov­ern­ment came to power – there has been a re­newed fo­cus on man­u­fac­tur­ing in aero­space through pol­icy in­ter­ven­tions like rais­ing FDI caps to 49 per cent and de­ci­sions of con­vert­ing pro­cure­ment pro­grammes like light util­ity he­li­copter (LUH) into ‘Make in In­dia’ pro­grammes. Th­ese are wel­come steps as In­dia can only re­al­ize its dream of be­com­ing a cred­i­ble aero­space player by first re­ly­ing on the large do­mes­tic mod­erni­sa­tion de­mand and then on ma­tu­rity push­ing ex­ports growth. How­ever, to re­alise the dream, In­dia needs to over­come sig­nif­i­cant com­pet­i­tive dis­ad­van­tages like skilled labour, high cost of power, high cost of cap­i­tal, lack of scale, in­fra­struc­ture bot­tle­necks and lack of core tech­nol­ogy which im­pacts the vi­a­bil­ity of aero­space man­u­fac­tur­ing in In­dia.

Growth Model

The key driv­ers for glob­al­i­sa­tion of aero­space in­dus­try are growth through new ge­ogra­phies as home mar­ket de­mand stag­nates, in­creas­ing com­petive­ness and strate­gic align­ments. For growth to hap­pen mar­ket ac­cess is crit­i­cal while com­pet­i­tive­ness is driven by low­er­ing costs of pro­duc­tion. As for strate­gic align­ments, aero­space is a very tech­nol­ogy and cap­i­tal in­ten­sive in­dus­try. To man­age growth and bring new pro­grammes to life global aero­space com­pa­nies typ­i­cally cre­ate risk shar­ing part­ner­ships and lever­age each other’s tech­nol­ogy strengths as build­ing all the ca­pa­bil­ity within one company is not vi­able.

In­dia, as the world’s largest de­fence and aero­space im­porter, does of­fer sig­nif­i­cant growth op­por­tu­ni­ties to global aero­space com­pa­nies com­bined with some cost ad­van­tages which can be re­alised over the long term. Given the cur­rent lev­els of ma­tu­rity of In­dian aero­space in­dus­try – risk shar­ing mod­els may take some more time.

Get­ting the Ecosys­tem in Place

For suc­cess in man­u­fac­tur­ing in aero­space in In­dia, the in­dus­try needs to work on mul­ti­ple fronts, viz. de­velop a strong sup­plier ecosys­tem, in­no­vate and de­velop new tech­nolo­gies and ac­quire ex­per­tise by part­ner­ing with global com­pa­nies. The sup­plier ecosys­tem will de­velop when the In­dian sup­ply base scales up its sup­plies of com­po­nents and parts to global com­pa­nies. To be­come Tier-1 and Tier-II sup­pli­ers to global OEMs In­dian sup­pli­ers will have to com­pete on a global level against coun­tries like China and Tai­wan. Pol­icy in­ter­ven­tions like off­sets are al­ready driv­ing growth in this area.

Fur­ther, to be­come pro­gramme in­te­gra­tors In­dian com­pa­nies will have to part­ner with global OEMs and bid for up­com­ing ‘Make in In­dia’ de­fence pro­grammes like LUH. The ben­e­fit of this model is the faster ramp up due to shorter new prod­uct in­tro­duc­tion cy­cles thus im­prov­ing vi­a­bil­ity of the in­vest­ments. How­ever, one key suc­cess fac­tor for such align­ments will be gov­ern­ment’s com­mit­ment to pro­cure­ment both in terms of vol­ume and time­lines as well as how th­ese in­vest­ments are man­aged beyond the ten­dered pro­cure­ment.

The In­dian aero­space in­dus­try is go­ing through an ex­cit­ing phase of steep learn­ing and growth. The new gov­ern­ment’s push on ‘Make in In­dia’ is pro­vid­ing it the right tail­winds from a de­mand stand­point. The gov­ern­ment pol­icy is evolv­ing in the right di­rec­tion – but a lot needs to be done on both fis­cal and in­fra­struc­ture front to im­prove com­pet­i­tive­ness. On the In­dian in­dus­try front, things have pro­gressed with some sig­nif­i­cant in­vest­ments in re­cent years us­ing some of the mod­els dis­cussed above. With the world keenly watch­ing In­dia, the op­por­tu­nity is clearly ours to lever­age. The key is to have a long-term vi­sion and cre­ate a pol­icy en­vi­ron­ment which mo­ti­vates the pri­vate sec­tor to act as a cat­a­lyst for growth.

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