The aerospace industry is extremely complex, fiercely competitive and technologically highly demanding. For airframe manufactures it is an intricate process of vendor identification, evaluation and selection as even the most marginal of shortfalls in quality, cost and schedule can disrupt the business model. The Boeing 737 Max is one example of a design failure and its hugely disproportionate impact on the company’s business.
For the vendors the challenge is equally daunting as airframe manufacturers demand lower costs and better products. This requires them to continuously innovate taking recourse to design thinking, using new weight and cost saving materials and finally looking at Industry 4.0 driven production planning and processes. Amongst the biggest transformations has been the introduction of additive manufacturing, high end composites and Al-Li alloys giving much higher strengths at substantial reduction of almost 8-10% in weights whilst posing complex machining problems.
Entering and staying in this industry is quite daunting. First, it is capital-intensive and requires major investments in complex machines, metrological instrumentation, quality including traceability concerns, specialised jigs, tools and fixtures various types of test equipment and of course the certification for air worthiness.
Second, it requires substantially high quality of human resources which have to be nurtured and trained – both at initial induction and through continuation training for upgrading skills and techniques.
Third, are the stringent requirements of the production processes that requires very large wastages of high cost materials during the machining and subsequent fabrication process.
Apart from these, there are also the systemic challenges manufacturers face in terms of the supply chain itself such as access to costly raw materials, availability of skilled personnel, technological requirements, procurement of parts from multiple manufacturers across various corners of the globe, test facilities and benches for airworthiness certification and the general reluctance of the OEM to accept local substitutes in the original Bill of Material and significant IP issues. Increasingly, air frame manufacturers are more comfortable with Built to Specifications – a performance outcome driven specification – which allows the niche design competency of the vendor to be fully leveraged to deliver innovative solutions rather than the earlier Built to Print approach which required the OEM to provide the technical and manufacturing data package to the vendor. This approach is not without problems as the IP for these systems or assemblies continue to reside with the vendor and not the OEM. This is one reason why it is nearly impossible for OEMs/airframe manufacturers to offer ‘technology’ as offsets as they don’t own it – something our offset gurus in government are not able to comprehend as yet.
Crucially infrastructure, which takes the longest time to create and plays the most critical role in building an A&D manufacturing base. This is an intensive exercise of several stakeholders working towards a common goal. Availability of land is the key consideration to develop a holistic and efficient aero manufacturing ecosystem. The lessons learnt from the automobile industry should be heeded. Whether the anchor investor was in Gurugram or Chennai ancillary hubs were created by intervention of the state governments in developing large industrial parks. Some of it is also seen in Hyderabad and Bengaluru and such models should be developed in other land surplus states that can create the Aero manufacturing hub in virgin airfields – Hisar is a great example – by local state governments incentivising an airframe manufacturer, for example for the NUH program, to use the airfield and the airspace for final assembly and check out, supported by a variety of manufacturing units in a cluster with common and shared pay by use facilities. As a national requirement the NUH program could be created at Hisar – as a completely green field facility minus the work ethics and managerial baggage that comes in being located at established aviation cities.
At the national level quick and easy customs procedures and ensuring good first and last mile connectivity for the global suppliers is a must. This would in turn create downstream industries at the small and medium level that could supply detailed parts, components and sub-assemblies to Tier 1 or Tier 2 vendors in the main cluster. Such an approach would cut down operating costs, logistic costs, create pools of human resources etc. and support the business case for the investment decision.
Such clusters can become a networked ecosystem which connects the multiple supply chain points in one location wherein specialised material sourcing for the manufacturing enterprises to undertake forging, casting, machining, fabrication, assembly etc are available in one compact location. This would not only support the sourcing requirements of the anchor investor but open up avenues for these SMEs to target a larger global market. Co-locating Aerospace related educational and vocational training institutions would continuously create a growing pool of skilled personnel with the opportunity to apprentice in the SMEs to be industry ready on graduation.
Finally, given the challenges and the long gestation period for payback and accruing real profits financiers are not impressed to make these investments without substantial askings for risk coverage and collaterals. Therefore, there may be a case to create a national development bank for aerospace industries that could raise low cost funds from international agencies to provide low cost sovereign guaranteed finance to entrepreneurs.
The benefits of globalization of the aerospace supply chain has percolated to many countries – including Mexico, Thailand, Indonesia, Philippines, Vietnam etc and is fuelled by the lowering of trade barriers, decreasing communication and transport costs, the emergence of global service firms and shortage of skilled labour in the OEMs home markets. Combining this with the larger displeasure of several nations with the COVID virus originator there are good opportunities for aerospace products companies to explore weaning away business from China to other parts of the world as long as costs, quality and schedule are matched or improved. India has the potential and opportunity to become a favoured destination for aerospace companies to set up businesses in India.
While there has been a sea change in the government’s attitude towards private companies in the A&D sector, the defence public sector undertakings, which hitherto held a monopoly, view the private sector as competition and in turn the private sector is faced with the situation that either contracts are nominated to the PSUs or become the defacto preferred partner for FOEMs given the benefits of admissible multipliers in offsets. This must change. Private sector must now say NO to Offsets if the prime beneficiary is the DRDO and DPSUs/OFB.
Apart from the challenges intrinsic to the industry the external ‘national’ environment for supporting the aerospace industry weigh in heavily in the investment decision. In any such consideration in-country professional competence to absorb technology and Industry 4.0 standards, ability of the host country to be able to incentivise the business through tax breaks, liberal EXIM regimes to facilitate the trans-border supply chain, the available infrastructure and finally a conducive policy environment weigh in on the business decision.
These together constitute the three pillars of business – way of doing business, cost of doing business and the ease of doing business. In the third count India has made remarkable progress whilst the first two need more attention perhaps.
Recalling that India is destined to become the largest aviation market in the democratic world, the DAP 2020 now offers the option of Buy (Global-Manufacture in India) provides just the right option for Foreign OEMs to offshore production in India. This is tremendous win-win-win opportunity for Government-Industry-Services. The UDAN is another pioneering initiative of the Government which has not been fully leveraged. Seaplane services have gained momentum.
FOEMs – Come, Make in India for the World. You cant get a better place and a better deal than here in India. Need help? Ask.