An
Entrepreneurial Opportunity in Civil Aviation & Defence Aerospace Sector in
India
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Aviation
and Aerospace sector is coming up as a great opportunity in coming years
despite Covid 19 issue. One can very well ignore the failure of Jet Airways and
Kingfisher Airlines in India as opportunity of growth is tremendous in India. The
country is set to become 3rd largest aviation market by the end of 2020.
With big ticket Aircrafts orders from Indian carriers such as Indigo, SpiceJet
and current emphasis on Powered by Hour contracts (PBH), many of the aerospace
services and manufacturing activities are expected to be performed within
India. This creates an opportunity in this sector for new entrepreneurs as well
as existing aerospace service providers. Civil aerospace sector expected continuously
to grow by10-15% in India which already evident from past 15 years’ growth
records of this sector.
Similarly,
in Defence Aerospace also many opportunities exist as India’s Defense spends
are continuously rising. There are from Design solution to actual modification
of defence aircraft in order to meet modern Data acquisition and combat
requirement. Many of the components can be manufactured in India subjected to
developing R&D with the help of Original Equipment Manufacturer (OEM) or on
Own. Here government ensured that the OEM will be supporting the Indian Company
due to offset obligation.
This
sector has already given many opportunities to entrepreneurs. These opportunities range from small
component manufacturing in India to big Airframe parts. Also in service sector
starting from providing ground services to provide critical design services for
aircraft manufacturing companies. Such opportunities need to be taken up in
India at current time as many of these areas are untapped so far and hence Entrepreneurs
can be used the same for their growth as
well as create job opportunities.
The
research paper mainly emphasizes on what and which kind of business opportunities
exist in the present aerospace market? It also discusses about whether Civil and
Defence Aerospace/ Maintenance, Repair & Overhaul (MRO) industry should be
considered as a big investment opportunity in India? Does the current, ‘Make in
India’ initiative by government of India is also expected to provide further
boost to aerospace products manufacturing?
Primary
research in the form of interviews was taken from the people associated with civil
and defence aerospace Industry. These views along with specific opportunities
discuss in this research article will be helpful for existing as well as future
entrepreneurs for considering this sector for investment as well as potential growth.
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Key Words: Original
Equipment Manufacturer (OEM), Maintenance, Repair & Overhaul (MRO), Directorate
General of Civil Aviation (DGCA), Federal Aviation Administration (FAA),
European Aviation Safety Agency(EASA), Finite Element Method (FEM),
Computational Fluid Dynamics (CFD), Turn Around Time (TAT), Center for Military
Airworthiness & Certification (CEMILAC) &The Director General of Aeronautical
Quality Assurance (DGAQA),Research
& Development (R&D), Small & Medium Enterprises (SME), Defence Procurement Procedure (DPP)
Civil
Aviation expected to give many opportunities in India. Currently as a country
we are having 630commercial aircrafts (Subtracting Jet Airways 100 Aircrafts) as
compared to 3500 aircraft in China and more than 7000 aircraft in USA. By 2023
aircrafts in India expected to grow in substantial numbers and India may become
third largest aviation market in the world. With current increasing trend in number
of civil aircrafts and requirement of maintaining turnaround time (TAT) pushes
lot of aerospace activities needed to be carried out within the country. Further
many of aircraft parts are fall under Dangerous Goods (DG) category especially
safety related equipments; hence maintenance of such component outside India
will be costly affair due to very high logistic cost. In such cases airlines
prefer to keep such product maintenance within India as it is cost effective. Tremendous
rise in aircrafts numbers warrants, significant aerospace service provider’s
requirement. Further COVID 19 Pandemic there will be a great demand of local
services including Major Maintenance & Component Maintenance within
country. This gives great opportunity to Indian SME’s to make fortune in
aerospace sector. Aerospace products manufacturing was never a lucrative business
to Indian entrepreneurs but with expected number of aircrafts forced us to
consider this sector as an opportunity. However, ‘Directorate General of Civil
Aviation’ (DGCA) hardly allowed aerospace component manufacturing in India.
Presently aerospace maintenance service providers are not allowed to use local
manufactured parts in place of OEM parts. In fact, tools and test benches were also
not allowed to be copied in India. So, this sector always remained subdued. However,
Air India as a national carrier got some relaxation to this in the process of
indigenization of tools and test equipment for the nation to save rare foreign
currency since last few decades. ‘Directorate General of Civil Aviation’ (DGCA)
supported for this move of Air India. Apart from Air India, DGCA always
remained reluctant to allow indigenization of aerospace parts manufacturing in
India.
Probable
reason of lacking in Manufacturing of aerospace component business India are following:
·
Limited technical know-how with Indian
Manufacturers.
·
Original equipment manufacturers (OEM)
of aerospace parts were never sharing the information for product processes and
equipment in order to maintain their monopoly.
·
Reluctance of Indian manufacturer to
adapt high quality standards due to cost issues and limited quantity of
requirement of Aerospace industry
·
Limited knowledge of Indian R&D and
Design Agencies for Finite Element Method (FEM) & Computational Fluid
Dynamics (CFD) which are part of design and analysis requirement of aerospace
sector.
·
International Certification such as EASA
and FAA are very expensive and they are very expensive to maintain also. These certifications
are mandatory as parts released after servicing and repair under these
certifications are only accepted and used globally by other airlines.
If
we as a country overcome above issues, then we may also become manufacturing hub
for aerospace parts. Further India can also become Maintenance, Repair &
Overhaul (MRO) hub for A320 as well B737 Aircrafts which are the largest used
Aircraft models in India.
China
made a big stride in Aerospace sector mainly due to its policies to protect its
own industry and extracting benefits from foreign orders. In China, Aircrafts
order for national as well as private carriers placed by state altogether. Due
to this, state directly negotiates with Aircraft Manufacturers and gets great
value deals with offsets benefits. This results in Indigenization of aircraft
parts. State ensures local industry development while placing order. In fact,
aircraft manufacturers like Airbus and Boeing are forced for local
manufacturing in China.
However,
Post Covid19 issue, lot of precision manufacturing may be transferred to India.
Indian authorities already started working on Industry friendly policies which
will definitely give scope to new entrepreneurial ventures.
In
recent past India could able to stuck only one big deal in civil aviation
space. Where in India asked to Boeing to develop MRO facility for B777 Aircraft
at Nagpur. On similar line, we may expect indigenization through transfer of
technology for manufacturing of aerospace products in India.
Defence
Aerospace sector in India always remained distant dream for private players. This
sector requires huge investment against assured return. Mainly because of
transfer of Technology, bureaucracy & decision delay issue. Further weapons
and its system are also not allowed to be manufactured in India.
In
India, we have limited level technology knowhow. With the current technology
and manufacturing ability we may not able to compete with foreign firms in
Defence procurement. But with current make in India drive and ‘Center for
Military Airworthiness & Certification’s (CEMILAC) openness for acceptance
of Indian manufactured parts may result in much awaited growth in defence
aerospace sector. Moreover, as mentioned above the offset provision will be
giving good business opportunities to Indian component manufacturers. Offset
policy brings mandatory business for Indian Vendors from foreign suppliers.
Further
the deal between India and France for Rs. 58,000
crore or 7.8 billion Euros for 36 off-the-shelf Dassault Rafale twin-engine
fighters has made sensation in defence aerospace sector. This deal has an offset
clause through which France has to invest 30 per cent of the 7.8 billion Euros
in India's military aeronautics-related research programs and 20 percent into
local production of Rafale components. This has rejuvenated the offset
opportunities in Defence aerospace sector for Indian entrepreneurs.
For
better understanding, in Defence aerospace business Aircraft parts can be divided
in to critical and non-critical spares. Non-critical spares can be manufactured
in India without much technology transfer issues. However, for setting up this
facility complete R&D capability requires. This fact is well received by Center
for Military Airworthiness & Certification (CEMILAC) and The Director
General of Aeronautical Quality Assurance (DGAQA) which gives acceptance to this
manufacturing on certain Terms & Conditions.
Many
investors are ready to invest in these manufacturing only if they have clear visibility
on acceptance of manufactured parts by government agencies and also has guaranteed
business. Practically in government tenders no guaranteed business is assured
as the contracts are normally awarded to “L1” (Lowest Bidder) contractors. This
has created reluctance among entrepreneurs for investment. However, being the limited
competition this business opportunity cannot be ignored.
For
manufacturing, critical components of aerospace industry, India require greater
investments in R&D. This requires skilled engineers and scientist. Lot of
technological support is required for this. More over getting regulatory
approval for such product is very difficult as Regulators themselves are not
confident on Indian products quality and technology prowess. However, the
global demand for these is high and as an opportunity may be considered.
The
Defence Procurement Procedure (DPP) 2013& 2016 says the objective of the Defence
Offset Policy is “to leverage capital acquisitions to develop Indian defence
industry by fostering development of internationally competitive enterprises,
augmenting capacity for research, design and development related to defence
products and services, and encouraging development of synergistic sectors like
civil aerospace and internal security”. Using these DPP guidelines this sector
may try for indigenization of Aircraft parts as government has created echo
system for defence aerospace manufacturing by provisioning for offsets.
Point
to be noted that Services like research and
development (R&D), maintenance, repair and overhaul (MRO) and technology
transfers are not the part of offset requirements. This provision was removed
in 2013 due to absence of regulatory
oversight mechanism for these services. Whereas these should be the key for
development in manufacturing.
SME has to obtained Indian Offset partner (IOP) status for
getting advantage of offset. Whenever global tenders are floated and foreign
vendors compete for the same, then they have to offload 30% of this contract
value to Indian IOP after award of the contract. Thus IOP status enable them
for getting the subcontract from foreign equipment supplier. Once the IOP is
awarded the contract through foreign OEM, Defence offset Management Wing (DOMW)
will be in touch with foreign vendor as well as IOP for monitoring obligation
clause and its fulfillment.
In all Defence aerospace seems to be a great opportunity for
the SME’s of India.
The
present paper mainly focuses on the following major objective:
a. To
identify the Entrepreneurial opportunities in Civil Aviation and Defence Aerospace
which are underserved.
b. To
understand why the identified sectors are attractive for investment.
Tools for data collections: Primary and
secondary data
Primary Data: Interviews of corporate
leaders in Civil (Commercial/ General) Aviation and Defence Aerospace sector.
It’s a Qualitative research where interviews
were taken from professionals of Defence Aerospace Industry.
Here Stratified sampling carried out. Strata
was taken from the sector only as the sector personal has the knowledge.
a. Study
is subject to getting approval of Small & Medium Enterprise (SME) in civil
aerospace sector from Indian Civil Aerospace Regulator such as Director General
of Civil Aviation (DGCA), European Aviation Safety Agency (EASA) and Federal
Aviation Administration (FAA). As without approval parts cannot be used in
Civil Aircrafts.
b. Study
is limited to offsets benefits for SME’s in Defence Aerospace sector.
c. Assumption
made that Center for Military Airworthiness & Certification (CEMILAC)&The
Director General of Aeronautical Quality Assurance (DGAQA) approval is
good for defence manufacturing. However, starting an Industry requires clearance
from other authorities such as registration as per company law, Chief
controller of Explosive (CCOE) license, Ministry of Environment and Forest
(MOEF), Pollution Control Board (PCB) if required and others.
Aerospace
Industry professionals were very confident and optimistic about Indian Scenario
for aerospace Industry. This sector has limited competition with very high
growth expectations. Initial investment for this Industry is high and hence it
is always advisable to do investment in stages. Experience professionals with
great engineering aptitude are must to get desired performance in this sector.
Various
questions discussed with Aerospace community. Their views were noted and the
results are discussed and elaborated in the following data.
In
Civil / Commercial aerospace sector, there are few opportunities which are
listed below:
1. Maintenance,
Repair & Overhaul (MRO) facility for Base Maintenance & Component
maintenance: In India capability of this MRO is
mainly available with Air India and partly with Jet Airways (which has already shuts
the operation 2019). However, rest of the airlines i.e., eighty per cent of
civil aviation space doesn’t have MRO capability. These airlines send their
aircraft to neighboring countries such as Sri Lanka, Singapore, and Dubai. This
is nothing but direct transfer of Indian requirement to foreign countries
resulting in loss of job opportunities for Indian people. The Indian carrier
gives excuse stating MRO facilities are dearer in India as compared to our
neighboring countries. However, this issue sorted out by government post
implementation of GST and reduction in import duty for MRO’s. Further if
infrastructure status given to this Industry it will give great boost to this
sector because of tax breaks and long term financing options.
2. Support
services like Performance Base Contract (PBC) or Pay by Hour (PBH) Contracts: Indigo
Airlines started an innovative trend in India by off-loading regular
maintenance to PBC / PBH contractors. Wherein, component maintenance contractor
is paid on the basis of aircraft availability for flying. Presently, all the other
private airlines are following Indigo airline. This ensures that aircraft
availability for flying throughout the year. For example, Indigo offered PBC
contracts to Air France Industries and Jet Airways offered it PBC contracts to Lufthansa
Technik prior to closing down. Further these PBC contractors may prefer to off
load many of the component maintenance to Indian service provider due to
logistic and other commercial consideration. This area is again leading to an
opportunity for entrepreneur.
3. Component or
parts manufacturing: In Civil Aviation India never manufactured
aircraft components. Even though many good manufacturing companies exporting
their products to Airbus and Boeing. However, with the current emphasis by the
Government on “Make in India” will bring immense opportunities in this sector.
In USA, aircraft components are manufactured by many SMEs. These SMEs can
manufacture aerospace parts after obtaining Parts Manufacturers Approval (PMA)
from Federal Aviation Agency (FAA). FAA is an aviation regulator in USA which
allows aircraft component manufacturing under its supervision and regulation.
Because of this many of the SME’s are giving the world class products and many
a times these products are outsourced by Original Equipment Manufacturer (OEM) from
these SME’s. However, in India DGCA doesn’t allow aircraft parts and equipment’s
to be manufacture. This is mainly because of following limitations:
a. Limited
product information shared by OEMs which doesn’t qualify for indigenization.
b. Shortage
of regulatory staff as this requires deep involvement of DGCA officials in
product development.
c. No
strict quality control followed by Indian manufacturers because of huge
involvement of cost. Very few Indian companies use 6 sigma concepts for
quality.
d. Lack
of flow of funds for research and development.
e. Long
gestation period in aerospace sector for product realization due to mainly
regulatory approval.
4. Aircraft
special tools and test benches manufacturing:
There are many special tools are required for testing of aircraft component.
OEM purchased tools are very expensive. OEM keeps price of these special tools
high to discourage Indian manufacturer for developing aircraft component
testing capability. However, this tools and test benches can be manufactured in
India at fraction of the OEM prices. The only problem is customer for these
test benches and special tools will always going to be limited. This business
is yet to be explored by the Indian manufacturer.
5. Training
Services AI & AR/VR based: This is a good
opportunity as training is one among the cost diver for airline Industry. This
training can be made more effective by way of training & certification of
Airline or MRO staff through the training center which has capability based on
Augmented Reality/virtual reality or Artificial Intelligence. Again this
training center need to obtain DGCA 147 approval.
Based
on the interview and discussion with Industry professional some of the areas in
Defence Aerospace sector were always
remained underserved. The interview results point out following opportunities:
1.
Design Engineering and FEM /CFD
analysis services for Aircraft upgrade& New Design:
The services of this nature can be set up with relatively low investment as it
involves cost of software acquisition or developing new software. But it
requires personnel with good amount of software and design knowledge. Experienced
professionals always preferred here as they understand the Aerospace design
intricacies and specific requirement. People with good academic background and
from premium institutes are always preferred because of their technical depth
and authoritative decision over design aspect. The professionals of above
organization need to have knowledge about the “Procedure
for Design, Development and Production of Military Aircraft and Airborne
Stores’ (DDPMAS)” which is a document released by Ministry of Defence. The
document defines the procedure to be followed by various agencies involved in
the design, development and production of military aircraft. Application of
design knowledge meeting the framework defined by DDPMAS will give a workable
solution to industry. Hardly any agency available in India which can provide
services of this nature. Hence intellectuals
in this domain should enter into this segment.
2.
Aerospace Structures Manufacturing: This requires a big
amount of investment along with technology collaboration. Aerospace structures
manufacturing requires high amount of technical knowledge, equipment’s. With
the introduction of composites in Aerospace structures the Aircraft structures
have become more light weight but it increased the complexities of
manufacturing and design processes. This manufacturing process requires good
facility with sophisticated (robotics) machineries and hence it is capital
intensive. The set up cost of facility and cost of production from such
facilities are too high in foreign countries as labor is costly in those
countries. But this gives good opportunity for Indian businesses as cost of
labor is low in India.
3.
Components & Parts manufacturing: This requires very
high level of precision manufacturing & technical competency. This can be easily
achieved through Original Equipment Manufacturers (OEM) willingness to transfer
the technology. Otherwise it requires lot of R&D spends. With the defence
offset clause we can expect OEM will be transferring part of the technology.
This will create good business case for Indian manufacturer. Further many of
the Aircraft parts are manufactured in Bangalore today and Bangalore has become
really an aerospace hub.
4.
Defence Aircraft MRO: There are as many as
2300 defence Aircrafts which needs regular interval base maintenance. This is a
good business opportunity for private sector, which requires good amount of
technical expertise, approvals and skilled manpower. Defence itself and Hindustan
Aeronautics Ltd (HAL) has inbuilt capabilities for the same. However, both have
limited capacity and longer Turn Around Time (TAT) of aircraft delivery for
service or combat. Defence requires very short TAT for aircraft maintenance and
repair. This can be only achieved through private sector participation. Given
the huge number of defence aircraft an entrepreneur may explore this as an opportunity.
Again, to begin with component MRO capability can also be developed by Indian
entrepreneurs which can be enhanced to larger number of aircraft components.
5.
Aircraft Modification Services: Indian defence
aircraft fleet is ageing and requires regular up gradation. This up-gradation
is a huge requirement of defence which is still not fulfilled as we have lack
of competent agencies to provide this type of service. Hence this is a good
opportunity where only few competitors are present.
6.
Aerospace consumables & Specialty
chemicals manufacturing: In Aerospace industry, a very special kind of consumables are
required which are currently not manufactured in India. This involves
manufacturing of various sealant, chemicals, solvents, wires, connectors and
hardware etc. However, these need to be manufactured as per US Military
standards requirements or approved by The Director
General of Aeronautical Quality Assurance (DGAQA). Meeting these requirements of standards will take
Indian manufacturer to global arena of suppliers. It is also underserved
category of business vertical. Indian chemical manufacturer and special grade
hardware or material manufacturer can enter in to this segment also. Further
Indian manufacturer may get benefit as many consumables are in Dangerous Goods
category and hence transportation cost though overseas country is high and
hence Indian manufacturing makes a good sense as far as usage point of view.
The companies like Aarti Industries, Atul Chemicals are already started their
presence in this Industry which can be further enhanced.
7.
Aerospace support equipment
manufacturing: There are many equipment’s like pneumatic pressure equipment
at remote locations, oxygen filling equipment’s, hydraulic system equipment,
transport vehicles and aircraft docking systems are required for defence. These
equipment providers are rare. Hence it is a good opportunity for Indian
investors for developing this support equipment’s.
Further
to this starting defence aerospace related business has its own limitations:
·
Long gestation period to fructify the
order from the initial tendering process.
·
Approval for authorities takes its own
time.
·
Many a time’s initial investment needed
for the order is very high and actual returns generation could take half a
decade or more.
·
Getting typical aircraft parts are
difficult especially for Russian aircrafts.
However,
these should not deter investors as India may become the future global
aerospace manufacturing hub. This will give many opportunities to Indian
companies and they can supply to aerospace industry globally.
Civil
Aerospace sector is in growth stage in India. This gives major opportunity for
Indian Entrepreneur’s. Aircraft
component manufacturing, Aircraft Maintenance, Repair Overhaul (MRO) facility, Aircraft
special tools and test benches manufacturing, Support services to Performance
Base Contract (PBC) are some of the areas where opportunities exist for new entrepreneurs
as well as corporate group. However here approval like EASA/FAA are required to
get global acceptance to the parts supplied by MRO organization. Further post
COVID 19 issue, India can get many of the Precision manufacturing
opportunities.
Opinion
shows Defence has many verticals as an opportunity.
The
Defence Aerospace requirement like Design Engineering, Finite Element Method
(FEM) / Computational Fluid Dynamics (CFD) analysis of Aircraft structures or
contours, Aerospace Structures Manufacturing, Aircraft component manufacturing,
Defence Aircraft Maintenance, Repair & Overhaul (MRO) and Aerospace
consumables manufacturing are the underserved sectors and gives opportunity for
emerging entrepreneurs as well as corporate. However, CEMILAC approval is must
to make strides in these businesses.
Offset
policy has become a boon for new entrants in aerospace sector. Because it gives
them assured business as well as technological knowhow. However, with this
these local manufacturers may become complacent and avoid innovation for future
growth. It is advisable to use offset as initial trigger for starting the
business but later these businesses need to stand on its own for R&D and
become self-reliant on technology. Further businesses hould
develop completive edge over its international counterpart in order to grab the
global opportunity for supplies.
Industry
expert also suggest that offset obligation has some limitations too. Like
execution from government for placing the order can take years. Opinion also
points out the fact that this sector is very sensitive to political risk.
Arvind Melligiri (2017), “5 Big Opportunities in
Indian Aerospace Industry”, https://www.entrepreneur.com/article/298910
Business Line Article, “India attracting big
Aerospace Manufacturers” Feb 9, 2018
Pranav Kulkarni (2016), “Simply put: Raised
offset threshold, other features of new defence procurement norms”, The Indian
express, Jan 14, 2016
Laxman Kumar Behera (2015), “Indian
Defence Offset Policy: An Impact Analysis” Journal of Defence Studies, Vol.9,
No. October-December 2015.
Ministry of Defence, Government of India (2016) “Defence
Procurement Procedure-2016”
Manmohan S Sodhi, Rajiv
Bhargava, “Perspective of India’s Defence Offset Policy”
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Cheriyan(2014), Article Published in The Aviationspace “Aviation MRO in India-
the Opportunities and Challenges!”
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