Eastern promise: talking India's aerospace potential with Mahindra24 April 2012
As the global aerospace market starts to recover, India has emerged as a growth market with huge untapped potential. Following a wave of recent investments, Liam Stoker talks to Gaurav Gupta, Mahindra Satyam's associate vice president of Strategic Partnerships, to discover just how high the Indian aerospace market could fly.
With orders left unconfirmed and airliners spiralling towards liquidation, the global recession hit the aerospace market hard. Recovery has been tentative, but signs of a more promising revival have been found in a perhaps unlikely location - India.
A wave of investment, in the form of Bombardier's new engineering facility in Bangalore and Emirates confessing its openness to invest in an India carrier in anticipation of the Foreign Direct Investment (FDI) cap's removal, has once again sparked a flurry of speculation that India could be about to mount a challenge to become the leading aerospace market of the east.
But without an iconic and indigenous aerospace manufacturer in the Boeing, Bombardier and Embraer mould, can India develop the required expertise to really attract the world's market? Mahindra Satyam's Gaurav Gupta, associate vice president of Strategic Partnerships, believes that India's ascendancy is just around the corner.
Liam Stoker: What state do you see the global aerospace industry as currently being in?
Gaurav Gupta: If you split it into civil and defence, I would say it's coming up. It's moving up now, rather than the downward spiral of the last two to four years, but coming to defence, for example, economies like India and China and Brazil [will be] spending billions over the next two to three years.
There's definitely an upswing in the mood and the kind of spending that you're seeing in the military defence aerospace market. India has just announced its shortlisted partner for the M-MRCA deal, which is roughly a $10bn deal, apart from that there's also the $3bn Mirage upgrade programme. Plus there have also been other relationships with the US in India and there's a lot of action on the defence side.
Coming onto the civil side and passenger aircraft, again the last two to three years have been pretty down in terms of both the industry not doing so well due to a lack of cash in the industry and the airlines not doing so well either. There are some airlines which are not doing so well, and not only in India; there are a few European and American carriers that are not doing great.
This translates into orders not being confirmed for manufacturers like Airbus and Boeing and Bombardier, but also a sluggish flight plan for the next two to three years because people haven't taken deliveries of what they have ordered.
Generally I would say people are now turning around and looking to spend, people are looking at emerging geographies and people are looking at localising a lot more, and again an example for India would be we used to be more focused on shipping products into India, whereas now it is more about creating technology and creating bases there, so this is [means] that there's a lot more technology there. This technology has to be packaged, which means a lot more expertise and know how has to be transitioned. This is good for the industry as it decentralises the technology.
LS: How has the Indian market in particular responded to the recession and subsequent recovery? Has it emerged stronger?
GG: I would say, if you talk about today, we are in a phase where people are trying to facilitate the changes in their internal operations because of the recession and improve their international operations.
But I'm sure with things like the Foreign Direct Investment (FDI) cap coming in with Indian airlines, this can allow people to put money into Indian carriers, and that should see a big surge in the next 12 to 18 months and boost the kinds of opportunities that Indian airlines and Indian carriers present to the globe.
I think this is an exciting time, particularly for the next three to six months, as soon as the floodgates open with the FDI allowance we'll see a lot more action on the ground.
LS: India doesn't currently have an iconic, home-grown aerospace manufacturer in the Embraer or Boeing mould. Is this likely to change?
GG: One of the key statements that our chairman has made is that India does not have a total aerospace manufacturer to nurture the talent or absorb the talent, and he wants an Embraer of India. We're doing everything possible to create a full component to house technology and increase competence in India. You're right that there isn't one, but this will change in the next five to ten years.
LS: Bombardier has recently opened a new engineering centre in Bangalore and Emirates has said it could possibly invest in an Indian carrier. Can this kind of foreign investment only be considered as good for the Indian aerospace market?
GG: These two are separate issues. The Emirates deal is coming on the back of FDI being allowed into Indian carriers, so I don't think that will in any shape or form inhibit the growth of an Indian aerospace and defence industry, as this is more around the airline side. We need to make sure we have the right airlines flying and we have the right infrastructure for an airline to operate.
The Bombardier centre is more all-out engineering, [which] is more about supporting and sustaining the product line. Today, Mahindra Satyam runs the largest Bombardier development centre outside of Bombardier, and we're working very closely with them in the new centre.
I don't see that as a threat, it will definitely help the growth and help build talent within India. Investments are definitely going to be big in the next two years.
Emirates have expressed an interest in possibly investing in an Indian airliner with the removal of the country's FDI cap.
LS: How can Mahindra Satyam help the Indian aerospace sector grow to its potential?
GG: Mahindra Satyam itself focuses on IT services and engineering for aerospace and defence. We work with EADS and Bombardier and other major aerospace and defence companies, and we are scaling up our operations. We're going global in terms of delivery capability.
We no longer say we are an offshore player; we are an engineering player that can deliver to Hamburg, Frankfurt, Toulouse, the UK, Canada and China. We are where our customers want us to be.
We are fully geared up to make large use of the growth we expect to happen over the next two years on major programmes like the A350. Then the Mahindra Group, which also includes the Art to Part facility which continues to make progress, we are also looking at design partnerships to get manufacturing and even go-to-market partnerships. We are very well positioned to leverage our footprint in India and provide a credible platform for technologies to come in.
LS: What services or qualities can the Indian aerospace market offer that others perhaps cannot?
GG: I would say that India offers the ability to provide a huge number of skilled engineers at a very cost effective price point, and we are sensitive to things like IT security so scaling up is not a problem, the workforce is not a problem and security is not a problem. These are the three biggest bottlenecks when it comes to giving out your crown jewels to the east.
With India being where it is geographically, we can provide a focal point to address your Asian market, be it in Korea or Japan or Singapore. More companies are now looking at India as a regional hub for a number of uses, which I don't think if you go further east is possible due to certain price points, and then transporting your market west becomes that much more difficult. I think we are in a strategic position from a capability, competence and positioning point of view.
LS: Are there any particular challenges or problems facing the future of the Indian aerospace market?
GG: Experience. We from a fairly low experience skill base because we don't have an indigenous market to grow our skills from, so everyone who wants to contribute or put value into airlines like Airbus, must invest in building those skills either themselves or through the customer. That is the biggest challenge.
LS: What are the future possibilities for the Indian aerospace sector?
GG: In terms of future possibilities, [we must] manage whatever we are buying or manage the technology in what we are buying, be it from the defence side or aerospace side.
There is going to be a huge amount of development, be it in smaller regional aircraft or military aircraft, there is going to be a huge amount of investment coming into indigenous programmes, apart from absorbing technologies from the west, which I say would keep us going for the next ten to 15 years.