The Indian aerospace industry which, for many years, had remained laggard on account of the ‘stifling stranglehold’ it was subjected to by the political leadership of the country, could very well replace IT and software services as the new sunshine sector of the Indian economy in the years ahead. Analysts predict that this would be on the back of the rapidly growing defence and civilian aerospace needs of the country. According to Sanjay Kumar, Managing Director of Altran India, a subsidiary of the French research and development outsourcing consultancy outfit Altran, over the next five years, the Indian aerospace sector could witness a job boom and spell massive opportunity for the domestic design and manufacturing industry. However, the predicted rapid growth of the sector would be subject to easy access to technology, raw materials development capability, and the evolution of a sound certification process. Indeed, the growing role of the Indian private sector in giving an impetus to the aerospace sector in the country is assuming importance in the context of the Indian Government’s deregulation of the sector in 2001. However, aerospace industry stakeholders have highlighted the need for a comprehensive national aerospace policy that would spur the all round growth of this strategically important sector.
The key to the success of private players in the Indian aerospace sector lies in the building up of domain knowledge at a rapid pace and mastering state-of-the-art manufacturing processes. In this context, Aravind Melligeri, Co-founder and Chairman of Bangalore-based QuEST Global, an aerospace engineering and precision manufacturing enterprise, says that India’s private sector should move up the value chain in terms of what is delivered to the customers, especially in aerospace manufacturing.1 Melligeri is clear in his perception that the ability to offer full sub-systems or assemblies to the global aerospace entities is a vital factor in turning India into a major aerospace outsourcing hub. He points out that the massive acquisition of a range of military aircraft and associated systems to support India’s defence preparedness is a development that augurs well for the growth of the Indian aerospace sector. In particular, Melligeri says that the offset clause forming part of the Indian defence acquisition programme could help the Indian industry acquire new skill and expertise in the vital areas of aerospace design, development, and precision manufacturing. In this regard, it is to be noted that a study by the IT industry body National Association of Software and Services industry (NASSCOM) estimates that India’s aerospace services industry would touch US $4.2 billion by 2020. .2
For many years, the Indian state-owned aeronautical major Hindustan Aeronautics Limited (HAL) was synonymous with the fortunes of the Indian aerospace sector. Unfortunately, HAL’s operational philosophy and functional thrust meant that it could not transform itself into a forward-looking aerospace hub of global importance. The absolute control to which HAL was subjected to by the short-sighted defence bureaucracy and a sense of complacency that this public sector defence enterprise developed over the years in the wake of the captive orders from defence forces, led to the gradual frittering away of the design talent it had painstakingly built up over the years. Moreover, the lack of competition undermined the professional spirit and creative talent at HAL. And on top these negative factors, the flourish with which HAL took to the route of ‘licensed production’ deprived it of ‘original thinking and innovative design skill’. And this partly explains why the domestic sales of HAL have been on a steady upward spiral even as its track record on the export front is far from impressive. In the ultimate analysis, HAL’s progress over the years—in terms of building up a solid indigenous ‘human expertise base and technological infrastructure’ good enough to design, develop and produce a range of civilian and combat aircraft—has been nothing but dismal.
The recent nod given for 10 per cent disinvestment of the Government of India stake in HAL with a follow-up plan to restructure this defence public sector enterprise is considered a small beginning towards realizing the long-term goal of transforming HAL into a globally competitive and technologically resurgent aerospace entity. The bleakest part of the Indian aerospace scenario is that there are no Indian tier one suppliers comparable to Japan’s Mitsubishi Heavy Industries and Kawasaki Heavy Industries, which work closely with the global aerospace Original Equipment Manufacturers (OEMs). Therefore, according to Chris Rao, Vice President of Goofrich Aerospace Services, “India should focus on providing the talent, not just for the local industry but also for international companies. The low cost labour that is available in the country will remain competitive till 2020 and beyond.” .3
Against this backdrop, there is no denying the ground reality that India would need to look beyond HAL to give an impetus to its aerospace sector, which, in turn, has the potential to exert a ‘force multiplier’ effect on the national economy. As pointed out by Melligeri, by creating the right type of infrastructure at the right place with a well-trained and motivated human resources pool, it is possible for India to position itself as a leading global aerospace hub with a “low cost advantage.” In his view, “You need to have the right type of infrastructure and a well endowed aerospace eco system at a single location to deliver custom built hardware for the global aerospace industry year after year in a price competitive manner.” Indeed, Melligeri’s thesis is that a Special Economic Zone (SEZ) approach could go a long way towards giving the much-needed fillip to the Indian aerospace sector. For, in his reckoning, SEZs help create a supply chain cluster that can bring rapid growth and maturity of business process and system to the participants of the clusters.
As it is, India’s first aerospace-focussed SEZ that QuEST Global has set up at Hattargi village, near Belgaum in Karnataka, seeks to transform the Indian aerospace sector by striving to create a well-endowed aerospace ecosystem at one location. But then, as stated by Melligeri, dedicated aerospace zones would need massive capital outlays and committed industry captains capable of putting up with the long gestation periods normally associated with the technology-intensive and price-sensitive aerospace sector. Melligeri is of the view that aerospace SEZs are neither for fly-by-night operators nor for those on the look out for promoting “real estate interests”. As he has pointed out, locations such as Wichita in the United States and Toulouse in France matured into widely patronised aerospace hubs through the dynamics of the “cluster phenomenon”. And India is definitely well placed to infuse “energy and dynamism” into its aerospace sector through the creation of well-equipped supply chain clusters around dedicated SEZs. “Aerospace focussed SEZs with an ecosystem built around a full fledged supply chain cluster could easily meet the diverse needs of a customer at one location, thus helping him save time, money and energy required to source his requirements from widely dispersed locations,” notes Melligeri.
Melligeri further elaborates that the strategic advantage of having players across the value chain in the same location would result in significant time saving that would otherwise be wasted in moving parts from one location to another, and the associated cost of logistics. More importantly, by locating the high-tech aerospace SEZ away from an urban hub, QuEST Global has helped demolish the sedulously fostered myth that aerospace entities have difficult times operating away from Bangalore, considered the nerve centre of the Indian aerospace industry.
The thrust of the QuEST Global aerospace zone is to bring the capabilities that are either not available or difficult to come by within the country through the route of joint ventures. For instance, Aerospace Processing India (API), an independent third party facility set up as a joint venture between Magellan Aerospace and QuEST Global, provides approved aerospace surface treatments that are not readily available in India. Not surprisingly, many Indian aerospace and defence entities in the private sector are patronising API functioning from within the QuEST Global SEZ. Similarly, SQuAD Forging India that would go on stream in this SEZ sometime this year will meet the diverse and sophisticated forging needs of Indian and foreign aerospace and defence entities. As Melligeri points out, this forgings facility, a collaborative venture between Aubert Duval, SA, France, Setforge Societe Nouvelle SAS, and QuEST Global, is yet another instance of bringing to the Indian aerospace sector new and innovative “capabilities and expertise”. On another front, QuEST Global has joined hands with the Swedish defence and aerospace major Saab to float a joint venture named “Aero Assemblies India”. This joint venture would manufacture and supply assemblies for the technology-intensive commercial aero-structures market. Indeed, with this joint venture, QuEST Global has moved up the value chain—from being a supplier of components and sub-assemblies to the provider of entire integrated assemblies to the global aerospace industry. The current strength of QuEST Global SEZ lies in aero structures and actuation systems. “Since our competence is in the realm of aerospace design and manufacturing, we have a distinct advantage over other players,” notes Melligeri. Not surprisingly then, he is quite optimistic that in the future, the QuEST Global SEZ would look at engineering the entire integrated assemblies for global aerospace OEMs.
Significantly, QuEST Global aerospace SEZ has pulled off the distinction of becoming the first Indian private sector player to have bagged an order from Airbus Industries for the direct delivery of components. This is apart from the Memorandum of Understanding (MOU) that it had earlier signed with Belgian aerospace major SABCA, under which it manufactures metallic parts and assembly work for Airbus A-350XWB aircraft’s flap track assembly. A 350 XWB is expected to roll out of the assembly line sometime this year. QuEST Global SEZ is also into the supply chain system of Boeing aircraft.
But then everything is not hunky dory for the Indian aeronautical industry. For one, India lacks in-depth knowledge of cutting-edge manufacturing technologies in aerospace. The need of the hour, according to Melligeri, is to develop and nurture them through partnerships with leading international players. He further adds: “We lack experienced/trained talent pool of manpower who have understanding of aerospace manufacturing and assembly process that matches the cycle time of western industry benchmark.”
As it is, the forces unleashed by globalisation and liberalisation have created a web of interdependence and partnership across the global aerospace industrial landscape that aids mutual benefit and growth. Thus, the current trend in the aerospace industry is towards building partnerships, infrastructure, and network capabilities. In this context, Melligeri suggests that the Indian aerospace industry should exploit the high demand leading to larger volumes, cost advantages and IT competitiveness to consolidate its position in the global aerospace market. Major global aerospace entities are already eyeing the Indian market and scouting for outsourcing aerospace and defence production as India is fast emerging as a centre for engineering and design services. Indian aerospace firms are expected to develop strong competitiveness, especially across the lower end of the value chain, by offering good quality products at substantially lower costs.
As pointed by Anand Mahindra, Chairman and Managing Director of Mahindra and Mahindra Group, which has a full-fledged aerospace entity Mahindra Aerospace, today there are no ‘do-it-all-assemblies’ monolithic aerospace providers. They have been replaced by a widely dispersed network of suppliers and partners. From being centralised businesses with a strong geographic identity, the aerospace majors have transformed themselves into integrators, placing increasingly larger responsibilities upon a globally dispersed supply chain matrix. According to Mahindra, two of the key trends in the global aerospace industry are sourcing from target market and outsourcing to strategic partners as part of a networked supply chain. By becoming a part of this global network, Indian industry can hope to acquire best-in-class technologies and skills, which, in turn, will benefit the Indian aerospace industry at large.
The other domain where the Indian private sector could increase its participation in the global aerospace industry is in design engineering services. It is this emerging trend that the QuEST Global SEZ seeks to exploit to stay competitive in the global aerospace market. “We have targeted a revenue mandate of US$500-million from engineering services by 2015. Engineering services and integrated assemblies for global aerospace OEMs will be the key focus areas for us,” says Melligeri.
Of course, not even the sky is the limit for the Indian aerospace sector in so far as making it big in the rapidly expanding global market for aerospace systems and services. But then India would need to do the required ground work to position itself as a global ‘aerospace power house’. And this is a challenge and opportunity that the country cannot afford to ignore.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
1. All references to Aravind Melligeri’s views are based on the author’s discussion with the former at Belgaum in mid-October 2012.
2. Global Engineering Research and Development: Accelerating Innovation with Indian Engineering, (NASSCOM, May 2010).
3. Chris Rao’s talk at the seminar on “Aerospace and Defence, Karnataka: The aerospace hub of Asia,” held in Bangalore on 9 June 2012.
Promoting SEZs to Boost the Indian Aerospace Sector
More from the author
The Indian aerospace industry which, for many years, had remained laggard on account of the ‘stifling stranglehold’ it was subjected to by the political leadership of the country, could very well replace IT and software services as the new sunshine sector of the Indian economy in the years ahead. Analysts predict that this would be on the back of the rapidly growing defence and civilian aerospace needs of the country. According to Sanjay Kumar, Managing Director of Altran India, a subsidiary of the French research and development outsourcing consultancy outfit Altran, over the next five years, the Indian aerospace sector could witness a job boom and spell massive opportunity for the domestic design and manufacturing industry. However, the predicted rapid growth of the sector would be subject to easy access to technology, raw materials development capability, and the evolution of a sound certification process. Indeed, the growing role of the Indian private sector in giving an impetus to the aerospace sector in the country is assuming importance in the context of the Indian Government’s deregulation of the sector in 2001. However, aerospace industry stakeholders have highlighted the need for a comprehensive national aerospace policy that would spur the all round growth of this strategically important sector.
The key to the success of private players in the Indian aerospace sector lies in the building up of domain knowledge at a rapid pace and mastering state-of-the-art manufacturing processes. In this context, Aravind Melligeri, Co-founder and Chairman of Bangalore-based QuEST Global, an aerospace engineering and precision manufacturing enterprise, says that India’s private sector should move up the value chain in terms of what is delivered to the customers, especially in aerospace manufacturing.1 Melligeri is clear in his perception that the ability to offer full sub-systems or assemblies to the global aerospace entities is a vital factor in turning India into a major aerospace outsourcing hub. He points out that the massive acquisition of a range of military aircraft and associated systems to support India’s defence preparedness is a development that augurs well for the growth of the Indian aerospace sector. In particular, Melligeri says that the offset clause forming part of the Indian defence acquisition programme could help the Indian industry acquire new skill and expertise in the vital areas of aerospace design, development, and precision manufacturing. In this regard, it is to be noted that a study by the IT industry body National Association of Software and Services industry (NASSCOM) estimates that India’s aerospace services industry would touch US $4.2 billion by 2020. .2
For many years, the Indian state-owned aeronautical major Hindustan Aeronautics Limited (HAL) was synonymous with the fortunes of the Indian aerospace sector. Unfortunately, HAL’s operational philosophy and functional thrust meant that it could not transform itself into a forward-looking aerospace hub of global importance. The absolute control to which HAL was subjected to by the short-sighted defence bureaucracy and a sense of complacency that this public sector defence enterprise developed over the years in the wake of the captive orders from defence forces, led to the gradual frittering away of the design talent it had painstakingly built up over the years. Moreover, the lack of competition undermined the professional spirit and creative talent at HAL. And on top these negative factors, the flourish with which HAL took to the route of ‘licensed production’ deprived it of ‘original thinking and innovative design skill’. And this partly explains why the domestic sales of HAL have been on a steady upward spiral even as its track record on the export front is far from impressive. In the ultimate analysis, HAL’s progress over the years—in terms of building up a solid indigenous ‘human expertise base and technological infrastructure’ good enough to design, develop and produce a range of civilian and combat aircraft—has been nothing but dismal.
The recent nod given for 10 per cent disinvestment of the Government of India stake in HAL with a follow-up plan to restructure this defence public sector enterprise is considered a small beginning towards realizing the long-term goal of transforming HAL into a globally competitive and technologically resurgent aerospace entity. The bleakest part of the Indian aerospace scenario is that there are no Indian tier one suppliers comparable to Japan’s Mitsubishi Heavy Industries and Kawasaki Heavy Industries, which work closely with the global aerospace Original Equipment Manufacturers (OEMs). Therefore, according to Chris Rao, Vice President of Goofrich Aerospace Services, “India should focus on providing the talent, not just for the local industry but also for international companies. The low cost labour that is available in the country will remain competitive till 2020 and beyond.” .3
Against this backdrop, there is no denying the ground reality that India would need to look beyond HAL to give an impetus to its aerospace sector, which, in turn, has the potential to exert a ‘force multiplier’ effect on the national economy. As pointed out by Melligeri, by creating the right type of infrastructure at the right place with a well-trained and motivated human resources pool, it is possible for India to position itself as a leading global aerospace hub with a “low cost advantage.” In his view, “You need to have the right type of infrastructure and a well endowed aerospace eco system at a single location to deliver custom built hardware for the global aerospace industry year after year in a price competitive manner.” Indeed, Melligeri’s thesis is that a Special Economic Zone (SEZ) approach could go a long way towards giving the much-needed fillip to the Indian aerospace sector. For, in his reckoning, SEZs help create a supply chain cluster that can bring rapid growth and maturity of business process and system to the participants of the clusters.
As it is, India’s first aerospace-focussed SEZ that QuEST Global has set up at Hattargi village, near Belgaum in Karnataka, seeks to transform the Indian aerospace sector by striving to create a well-endowed aerospace ecosystem at one location. But then, as stated by Melligeri, dedicated aerospace zones would need massive capital outlays and committed industry captains capable of putting up with the long gestation periods normally associated with the technology-intensive and price-sensitive aerospace sector. Melligeri is of the view that aerospace SEZs are neither for fly-by-night operators nor for those on the look out for promoting “real estate interests”. As he has pointed out, locations such as Wichita in the United States and Toulouse in France matured into widely patronised aerospace hubs through the dynamics of the “cluster phenomenon”. And India is definitely well placed to infuse “energy and dynamism” into its aerospace sector through the creation of well-equipped supply chain clusters around dedicated SEZs. “Aerospace focussed SEZs with an ecosystem built around a full fledged supply chain cluster could easily meet the diverse needs of a customer at one location, thus helping him save time, money and energy required to source his requirements from widely dispersed locations,” notes Melligeri.
Melligeri further elaborates that the strategic advantage of having players across the value chain in the same location would result in significant time saving that would otherwise be wasted in moving parts from one location to another, and the associated cost of logistics. More importantly, by locating the high-tech aerospace SEZ away from an urban hub, QuEST Global has helped demolish the sedulously fostered myth that aerospace entities have difficult times operating away from Bangalore, considered the nerve centre of the Indian aerospace industry.
The thrust of the QuEST Global aerospace zone is to bring the capabilities that are either not available or difficult to come by within the country through the route of joint ventures. For instance, Aerospace Processing India (API), an independent third party facility set up as a joint venture between Magellan Aerospace and QuEST Global, provides approved aerospace surface treatments that are not readily available in India. Not surprisingly, many Indian aerospace and defence entities in the private sector are patronising API functioning from within the QuEST Global SEZ. Similarly, SQuAD Forging India that would go on stream in this SEZ sometime this year will meet the diverse and sophisticated forging needs of Indian and foreign aerospace and defence entities. As Melligeri points out, this forgings facility, a collaborative venture between Aubert Duval, SA, France, Setforge Societe Nouvelle SAS, and QuEST Global, is yet another instance of bringing to the Indian aerospace sector new and innovative “capabilities and expertise”. On another front, QuEST Global has joined hands with the Swedish defence and aerospace major Saab to float a joint venture named “Aero Assemblies India”. This joint venture would manufacture and supply assemblies for the technology-intensive commercial aero-structures market. Indeed, with this joint venture, QuEST Global has moved up the value chain—from being a supplier of components and sub-assemblies to the provider of entire integrated assemblies to the global aerospace industry. The current strength of QuEST Global SEZ lies in aero structures and actuation systems. “Since our competence is in the realm of aerospace design and manufacturing, we have a distinct advantage over other players,” notes Melligeri. Not surprisingly then, he is quite optimistic that in the future, the QuEST Global SEZ would look at engineering the entire integrated assemblies for global aerospace OEMs.
Significantly, QuEST Global aerospace SEZ has pulled off the distinction of becoming the first Indian private sector player to have bagged an order from Airbus Industries for the direct delivery of components. This is apart from the Memorandum of Understanding (MOU) that it had earlier signed with Belgian aerospace major SABCA, under which it manufactures metallic parts and assembly work for Airbus A-350XWB aircraft’s flap track assembly. A 350 XWB is expected to roll out of the assembly line sometime this year. QuEST Global SEZ is also into the supply chain system of Boeing aircraft.
But then everything is not hunky dory for the Indian aeronautical industry. For one, India lacks in-depth knowledge of cutting-edge manufacturing technologies in aerospace. The need of the hour, according to Melligeri, is to develop and nurture them through partnerships with leading international players. He further adds: “We lack experienced/trained talent pool of manpower who have understanding of aerospace manufacturing and assembly process that matches the cycle time of western industry benchmark.”
As it is, the forces unleashed by globalisation and liberalisation have created a web of interdependence and partnership across the global aerospace industrial landscape that aids mutual benefit and growth. Thus, the current trend in the aerospace industry is towards building partnerships, infrastructure, and network capabilities. In this context, Melligeri suggests that the Indian aerospace industry should exploit the high demand leading to larger volumes, cost advantages and IT competitiveness to consolidate its position in the global aerospace market. Major global aerospace entities are already eyeing the Indian market and scouting for outsourcing aerospace and defence production as India is fast emerging as a centre for engineering and design services. Indian aerospace firms are expected to develop strong competitiveness, especially across the lower end of the value chain, by offering good quality products at substantially lower costs.
As pointed by Anand Mahindra, Chairman and Managing Director of Mahindra and Mahindra Group, which has a full-fledged aerospace entity Mahindra Aerospace, today there are no ‘do-it-all-assemblies’ monolithic aerospace providers. They have been replaced by a widely dispersed network of suppliers and partners. From being centralised businesses with a strong geographic identity, the aerospace majors have transformed themselves into integrators, placing increasingly larger responsibilities upon a globally dispersed supply chain matrix. According to Mahindra, two of the key trends in the global aerospace industry are sourcing from target market and outsourcing to strategic partners as part of a networked supply chain. By becoming a part of this global network, Indian industry can hope to acquire best-in-class technologies and skills, which, in turn, will benefit the Indian aerospace industry at large.
The other domain where the Indian private sector could increase its participation in the global aerospace industry is in design engineering services. It is this emerging trend that the QuEST Global SEZ seeks to exploit to stay competitive in the global aerospace market. “We have targeted a revenue mandate of US$500-million from engineering services by 2015. Engineering services and integrated assemblies for global aerospace OEMs will be the key focus areas for us,” says Melligeri.
Of course, not even the sky is the limit for the Indian aerospace sector in so far as making it big in the rapidly expanding global market for aerospace systems and services. But then India would need to do the required ground work to position itself as a global ‘aerospace power house’. And this is a challenge and opportunity that the country cannot afford to ignore.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
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