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Shekar, President, Aerospace Industry Development Association of Tamil Nadu (AIDAT) shares unmissable insights on how India’s aerospace industry is structured, measures that need to be undertaken by the industry and the government for it to realize its true potential, and the top challenges that need to be addressed.
Around the same time last year, DMI Editor Aanand Pandey had a detailed conversation with N. Shekar, President, Aerospace Industry Development Association of Tamil Nadu (AIDAT) on the aerospace industry roadmap of Tamil Nadu and India at large. The published interview received an overwhelming response from our readers, given the highly incisive, insightful and prescient views he shared with us on the subject. It was therefore only natural that we turned to Mr Shekar for his take on the central theme of our current issue: ‘India’s aerospace industry: How can it realize its true potential’. Presenting, edited excerpts from a detailed talk Mr Shekar had with the DMI editor wherein Mr Shekar shares his illuminating perspective on the subject and a range of underlying topics. It’s a must-read for anyone who is interested in understanding the structure, the present and the future, the teething challenges and the untapped opportunities of India’s aerospace industry.
What is your view on the numbers reported in the AeroDynamic Advisory-Teal Group study (please refer to the cover feature’s opening note for details) that India’s share in the global aerospace industry is one percent, if one considers verticals such as aircraft manufacturing, space manufacturing, missile and UAV manufacturing, airborne defence electronics, MRO, and R&D activities?
As per the study, India’s aerospace industry at one percent would be worth about $8 billion. In my view India’s aerospace industry should be much bigger.
India is one of the fastest growing aviation markets in the world. I believe that it’s growing at a rate of nearly 20 percent year-on-year. The commercial aviation industry in particular is growing fast to keep up with the rising demand for air travel. Air travel has become a better alternative to the railways not only to the upper middle class, but also to the leisure traveler and,ofcourse,the business traveler.
The financial health of the airlines is clearly a matter of concern. Rising costs and operational inefficiencies could be precipitating these issues, but with over 20 percent growth, commercial aviation is facing a ‘high demand, low supply’ issue. If you remember, we saw a similar trend in the IT industry during the Y2K (Year 2000) problemthat created a lot of demand for software engineers globally. India’s IT industry was unprepared at first, but it soon recognized the opportunity and began to meet the demand, thanks to the available academic infrastructure. It resulted in a period of fast growth for the IT industry in India that lasted till the financial crisis of 2007-2008. The crisis woke up the IT industry and made it follow a mature model where the skill-sets required became very selective and specialized.
Today, India’s airline industry is facing a similar trend.There is a high demand for skilled people but they are hard to come by. The problem is even greater because the airline industryismuch more regulated than the IT industry. For jobs such as those of pilots, aircraft maintenance engineers and technicians and others, you need the right kind of skilled and certified professionals who are trained in all the safety norms.
According to various reports, India needs more than 10,000 pilots over the next 10-12 years – I think currently the total number of pilots employed at all the Indian airlines would be perhaps less than 3,000.
These numbers portend big employment opportunities in aviation. Pilot training is one such area. The National Civil Aviation Policy 2016 outlined a number of measures to support the skill development and pilot certification processes, including a plan to subsidize pilot training at the existing institutes. Similarly, setting up of flight simulators in India is big area of opportunity. Therefore I see the current size of the Indian aerospace industry as both an opportunity and a challenge, the latter being the execution of plans necessary for the realization of opportunities.
In fact, I would go as far as to say that the opportunity for us is huge. Every stakeholder of the manufacturing industry has to see how they can seize this opportunity and run with it. Be it a large company or an SME – aerospace presents a rewarding manufacturing opportunity that India needs to take advantage of, without delay.
How would you map the structure of the Indian aerospace industry, in terms of all the manufacturing activities and opportunities?
There are three prominent areas where the Indian manufacturing industry caters to the aerospace industry. One is space industry-related manufacturing, then second one is defence, and third one is commercial aviation. Space manufacturing is a major area, primarily because ISRO is very efficient in working with private enterprises. They have highly efficient methods and best practices that support the industry very well. Their procurement policy, for example, is very effective and they work on a long-term basis with suppliers, unlike how it is in the defence industry.
ISRO has another advantage in that it is both the designer ofthe products – i.e. launch vehicles and satellite systems et al – aswell as the end user. It outsources most of the manufacturing to private enterprises under strict monitoring from an internal quality team. That is the reason that they have grown very fast – from two to three launches a year, now they doing almost 10 launches a year. I believe that in the next five years, they will be doing 30 launches in a year. There is big demand globally for launching satellites for military, commercial, and scientific purposes.
Hence the Indian space industry is growing but the market itself is very small because it has only one buyer: ISRO. What ISRO could dobetter would be to loosen some of its stronghold that it has in terms of who owns the product. Much like the model one has in the US, whereSpaceX is working closely, yet independently with NASA.
NASA had stopped its manned space shuttle program in 2011. Now they are about to resume it with SpaceX and Boeing, which means that NASA is working with private industry as an equal partner. In India, that mindset is somewhat non-existent. The government should take a big brother approach rather a big daddy approach to space manufacturing. There are quite a few aerospace startups in India that don’t get any support. The most glaring example is that of a Bengaluru-based aerospace startup called Team Indus. Team Indus was one of the five teams – and the only Indian team – shortlisted by Google Lunar XPrize for the ‘New Space Race’, a global competition [that ended in 2018] sponsored by Google for privately funded teams to land a robotic spacecraft on the Moon, travel 500 meters, and transmit back high-definition video and images.
The aerospace startup did not get the support it needed from either the Indian government or ISRO because of which it lost a huge opportunity. [Team Indus is now part of a U.S consortium that NASA has shortlisted for its Commercial Lunar Payload Services contracts. – Editor]
In defence manufacturing, the ecosystem is very different from space [manufacturing]. In defence, organizations that design, monitor quality, manufacture, and those that use the products are all different entities. Here, research and development is done by DRDO, NAL, etc. As for manufacturing, some of it is done in HAL, some of it by the ordnance factories, some is done in the commercial market.Then we have the quality assurance bodies such as DGQA (Directorate General of Quality Assurance) and DGAQA (Directorate General of Aeronautical Quality Assurance). The end users are, of course, the armed forces. When you have so many layers, then there’s many a slip between the cup and the lip. The end users are not really involved that much in the entire process—that needs to change.
I understand that among the three defence services,the one that is doing reasonably well on this front is Navy because it doesn’t depend on DRDO that much – they have their own design bureau, the Naval Design Bureau (NDB).They also started this a few decades back. Similarly the Army has recently set up its own Army Design Bureau, but I don’t think the Air Force has any such bureau. There needs to be better collaboration between the end users and the industry for the latter to move faster but as it appears, it will take a long time as the wheels don’t move that fast.
How about the commercial aviation industry?
Commercial aviation is where India doesn’t do much in comparison to other aerospace verticals. There are a handful of companies that work with large international commercial aerospace companies such as Boeing and Airbus – what these companies source from India is just a drop in the ocean. When Airbus said [in 2017] that they sourced about $500 million worth of supplies from India, that was a small slice of the pie given that the company’s overall global turnover was around $75 billion during the same year. Similarly Boeing’s India sourcing has quite a long way to go – I think they have only about 30 suppliers in India. There are two reasons that account for the low sourcing volume, one is the manufacturing capability available is India; the second aspect is the stringent quality requirements and repeatability requirementsthat global majors want from suppliers. There are, of course, some success stories. We have Tata Sikorsky, an aerospace company in Hyderabad that was started about ten years ago; it’s doing very well now. To give you an idea of the norms and the work involved, the company, which manufactures helicopter cabins for global OEMs, took about three years to achieve the level of quality that the OEMs accept. Now they supply in larger quantities to Sikorsky every month.
The other success story is that of an aerospace company based in Bangalore called Dynamatic Technologies. What they have achieved is unprecedented for an Indian company. They have become a Tier-1 supplier of the A330 Family Flap-Track-Beam for Airbus. Not only that, Dynamatic has become the world’s largest producer of Flap-Track-Beams. That didn’t happen overnight; it took them over ten years to reach this stage. Flap Track Beams are Class-1 Flight Critical Assemblies that are connected to an aircraft’s wings. We need many more of such inspiring success stories.
What should be the best roadmap for the Indian aerospace manufacturers? Should they work with the big global manufacturers for exports as well as serve the domestic industry? What should be the right interplay?
Any established industry has a pyramid structure.The automotive industry, for example, has a pyramid structure, where it has the big OEMs at the top, the Tier-1 and Tier-2 suppliers in the middle and the SMEs and the MSMEs at the bottom. If you look at the global aerospace industry, it has a pyramid structure. The big guys only do 20 to 30 percent of value-add. The other 70 percent is done by Tier-1, Tier-2 suppliers and the MSMEs. MSMEs form a big part of this segment – they probably contribute about 40-50 percent in value as they manufacture a lot of components and subsystems whereas the Tier-1 and Tier-2 suppliers do the system-level work.
That [pyramid] structure does not exist in India’s aerospace and defence industry at present. The reason is that the only type of manufacturing that used to happen till about ten years ago was done at the PSUs – they never developed a tiered structure. They did about 80 percent of the work and only outsourced 20 percent. It meant that the private enterprises industry did not get many opportunities for growth. Therefore there are a lot of MSMEs currently that supply to defence but they mostly do reverse engineering or indigenization type of work. Very few companies have products of their own, and fewer own them in the form of intellectual property. In essence, the industry needs to evolve like other established industries – that will take some time.
What would you advise manufacturing companies that are looking to expand into aerospace? What should be their short to long term strategy in terms of getting business and scaling up?
If yours is a large company, then you might look at tying up with global OEMs or Tier 1 or Tier 2…
You mean a large company that is not present in aerospace but operating in a somewhat similar industry like automotive, or a large company that is already serving aerospace but is looking to further expand its presence?
It could be either. For example, big companies like the TVS Group could easily cater to the aerospace sector. Larsen & Toubro already has solutions for the defence industry. Mahindra & Mahindra has a notable presence in the commercial aerospace sector through Mahindra Aerospace.
Big companies looking to enter the aerospace market should tie up with aerospace companies of equal size and adopt technologies, systems, process and quality norms to be able to avail of global opportunities in aerospace. In doing so, they will also be able to serve the Indian market with world-class products and services.
Sure, Indian companies will have to address the issue at home of talent shortage as manufacturing to aerospace specifications consistently requires a highly specialized form of training. For example, automotive manufacturing is a high-quality, high-volume manufacturing and a good part of it is automated. In aerospace manufacturing, on the other hand, working with global OEMs requires one to conform to extremely stringent norms in terms of parts handling and precision; not everything is necessarily automated and there is no place for error, no exemptions. That said, automotive companies are perhaps best suited for a faster transition.
How about a mid-size company?
A mid-size company could tie up with Tier 2 or other SMEs globally. In India an SME is anywhere between Rs 5 crore ($0.7 million) to Rs 200 crore ($28 million) in size, whereas in the global context an SME would be between half-a-billion dollars to $5billion. The scales are very different. Therefore, let’s say a Rs1000 crore (≈$145 million) Indian company could look at tying up with a $1 billion company, which would be a Tier-2 [or lower in tier] company at that size. Speaking of partnerships, I see that most Indian companies want to do everything themselves – that doesn’t go well with the global partnership model. Globally, companies are expected to share work and risk with partners, get things done faster, and thereby expand the ecosystem.
Ever since the start of the US-China trade war, Mexico in particular has taken advantage of it to strengthen its aerospace exports to the US, the world’s biggest aerospace market. India has strong business ties with the US, can India not use the shift in global trade dynamics to help grow its aerospace industry?
Mexico has been able to take advantage of it because of its physical proximity to the US. It’s easy for US companies to manage manufacturing plants in Mexico, station their experts, create products, and shift the facility or deliver products to the US, all in a very short timeframe. Also, Mexico’s aerospace industry has been growing irrespective of the US-China trade war, thanks in a good part to labor arbitrage. I don’t know whether the ongoing trade conflict has impacted China’s aerospace industry. China’s manufacturers are working with US majors like Boeing for the last 25 years. I don’t think Boeing is going to suddenly drop vendors from China because the US government told them so – China supplies some of the critical fuselage components and structural parts to Boeing. Perhaps you can see some global shift in mass manufacturing, but not in aerospace.
For India to replicate Mexico’s success in aerospace, we need to have a developed manufacturing ecosystem in India. India’s offset policy can help develop the domestic commercial aerospace industry – if the defence offset policy can be modified to allow executing offset projects in commercial aerospace sector – i view of the fact that India is going to buy another 2,000 -plus aircraft in the next 15 years.
In defence manufacturing, India is apparently moving away from Russian platforms to western platforms as evidenced from India’s recent withdrawal from FGFA (Fifth Generation Fighter Aircraft) project. What impact will such a move have on India’s defence manufacturing sector?
After India’s economic liberalization that began in 1991, western nations started to see the Indian economy more favorably in terms of strategic partnerships. What helps [the favorable perception] is that India is the world’s largest arms importer. [India imports 65 percent of its defence requirement. – Editor.] As it appears, it will remain so for the next 10 – 20 years in view of India’s proximity to two of the world’s major potential conflict zones.
[Speaking of India’s use of Russian defence technology] India has persisted with old technology platforms due to its historical ties with Russia.A recent case in point is the MiG -21 that flew into Pakistan recently –that’s a 40-plus-year old platform.
About its impact on Indian manufacturing, with Russian platforms we were mostly doing indigenisation through reverse engineering. Now with newer acquisitions, Indian government is well equipped to demand Transfer of Technology thereby giving access to critical technologies for Indian defence manufacturers.
Speaking of which, how do we still have fighter aircrafts in operation built on 40, 50-year old technology platforms? Is there something wrong with the defence procurement process?
See, the procurement process that we have is characterized by more than necessary involvement of the government, unlike what one has in many other countries. Here, the government is the buyer but the Air Force is the user. Consider the Dassault Rafale purchase. The Air Force projected the requirement [for replacement of MiG 21 and MiG-23 aircrafts] in 2002. The MMRCA (Medium Multi-Role Combat Aircraft) acquisition process began for the purpose in 2007. Overall, the process has been 17 years in the making [since the requisition] and we still don’t have the first aircraft. Meanwhile, we have been losing planes in non-combat situations.
It’s important for us to understand that all these technology platforms don’t last for life. No military aircraft has a lifespan of 25 years. The defence procurement process has to change and that can happen only when the end user [the Air Force] and the government are in sync.
That said, we have some of the best pilots in the world. That is why the MiG -21 Bison was able to take on Pakistan’s F-16 [during the 27 Feb dogfight]. In fact,when the Indian Air Force has held joint exercises with the US, the US pilots have reportedly remarked that Indian pilots are among the best in the world. One reason of that could be the fact that Indian Air Force pilots fly different platforms – both French and Russian platforms, for example.
How are things progressing at AIDAT (Aerospace Industry Development Association of Tamil Nadu)?
At AIDAT, we are looking at ways to help our member companies get better access to capital, since many companies are small from an aerospace industry perspective. We are finding a lot of success with business-to-business meetings, which bring opportunities to our member companies. The launch of Tamil Nadu defence corridor has been a blessing. We are working with OEMs like Dassault, GE and others for greater business opportunities. AIDAT is organizing an annual conference this May 3, 2019 in Chennai wherein we will see participation from domestic and global majors from space, commercial aviation, and defence sectors.
Executive Profile
- Shekar, President, AIDAT
Mr Shekar has more than thirty years of global experience with strong background in engineering design, software product development, sales and marketing of products and services in international markets. Since late 2014, he has been active as the President of AIDAT which is dedicated to support and enhance the aerospace and defence companies in Tamil Nadu. He is also charter member with TiE Chennai and advises Chennai based start-ups. Till recently, he was the Vice President of Corporate Strategy and the Managing Director for CDG India – A Boeing Company. In 2001, he co-founded a successful and first ever VC funded Software Product Company in India with investment from Softbank Venture Funds and exited in 2005. Mr Shekar holds a Masters degree in Mechanical Engineering from University of Texas at Arlington, and a MBA in Marketing from San Jose State University, California.
www.aidat.in