Unlike global auto majors who have typically steered clear of the big aero dream, the Tata group and Mahindra & Mahindra are looking to ambitiously breach the road-air divide
In 2011, when the Tata-Sikorsky joint venture started making components at its Hyderabad facility, Tata veterans were confident the process could not be too dissimilar from that in their other plants. They were about to learn otherwise. Because what they saw threw them. Completely. Documentation papers for a 2 mm part often added up to 2-inch-thick dockets. Compliance certification could go back to the origin of the metal (aluminium)—which mine it had originated in, which mill it came from, which broker it was bought from.
This level of detailing can be attributed to the industry’s famously low tolerance for error: One of the ways in which this is enforced is through a detailed trail of every manufacturing activity. Each part has to be traceable and all processes must be certified.
More recently, in Bangalore, the folks at Mahindra & Mahindra (M&M), too, recognised that the aerostructures facility they were building was going to need considerably different planning. “We tweaked the plant layout,” says Arvind Mehra, CEO, Mahindra Aerospace. “We’ve built it so that there is more space to store our manuals than there is for our computers.”
Aerospace manufacturing, India’s two largest and most globalised carmakers were fast learning, was literally on another plane.
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They—and we—can be forgiven for assuming that the automotive and aircraft manufacturing industries have enough in common to suggest an ease of transition. The dynamics are similar enough: Both are cyclical businesses whose struggles with managing demand, production and workforce are regularly chronicled. Yet, in the hundred years that both the industries have existed globally, few carmakers have started making planes. Aerospace has remained a specialised industry with a handful of global players; it is rare for an auto group to have tried its hands at it.
Most aerospace products are highly engineered, far more than automobiles—they are also high- value-add and low-volume products. However, the biggest inhibitor is the huge capital investment needed to become a major player—either an OEM or Tier 1 manufacturer. An entrant would require a large appetite to invest billions of dollars, as also substantial patience to handle the long payback periods. It is no surprise that Airbus and Boeing, the two largest players, still rely heavily on their respective governments. The journey may be less expensive, but it is equally risky for small plane makers.
A famous exception, which was in the news recently for making the auto-to-aero journey, is Japanese car and motorcycle maker Honda Motor Company. After almost three decades of planning and research, HondaJet has started building a small, light but strikingly beautiful aircraft, with two over-the-wing engines. The plane is being built in the US and expects to get its certification this year. Honda reportedly has a hundred orders for it. Commercial success, though, is still far from proven.
Against this global backdrop, the story in India seems to be evolving along a different trajectory. Two of the country’s strongest auto-makers have ventured into the production of planes, aero structures and components. Starting almost from scratch about six years ago, about a dozen companies from the Tata group and the aerospace arm of M&M have been—separately—building their competence. Activity is now picking up and is straddling the gamut, from producing large parts such as the fuselage (chassis) and empennage (tail section) to design, technology and electronics. The vision is tinted with ambition as both have their eyes set on the whole shebang, right from the design to the manufacture of airplanes.
The build-up has involved acquiring foreign companies with expertise and forging JVs to contract-manufacture for big-name global partners. Both have used their auto-manufacturing expertise to launch them into civil and defence aerospace.
It is expected that 2014-15 could be the tipping point. Between Mahindra’s small aircraft sales and components business, the company is looking to touch revenues of $300 million in 3 to 4 years. The Tatas are more advanced, with at least three manufacturing facilities certified and producing components, and more on the anvil. Most of these firms are unlisted, and financial details are unavailable.
Success is a function of capability and scale and, by international measure, both are still at Tier 2 or 3 levels. But (if plans are not disrupted, and they are supported by decisive changes in regulations) they could well be on the cusp of bigger things.
From Jeeps to Gipps
Mehra says the plan is to start with sub-contracts for Aernnova and slowly build competence to be able to supply directly to the big OEMs. Reason: Large OEMs are sticklers for quality and are unwilling to trust rookie part-makers unless they are backed by more proven players. The progression is likely to be from components to sub-assemblies and finally to structures and the whole aircraft.
There is another big constraint: The Indian government’s policy on foreign direct investment (FDI). Dr Vivek Saxena is a senior consultant at ICF International, a US-based consultancy that specialises in advising companies on manufacturing. He says, “OEMs are allowed to take only upto a 26 percent stake, and this obviously limits the IP (intellectual property) they are willing to share. Indian companies can truly benefit from foreign majors only if the government allows them to pick up larger stakes. OEMs are reluctant to partner Indian companies for really high-tech work. The sector could really get going if higher FDI is allowed.”
(This story appears in the 07 February, 2014 issue of Forbes India. To visit our Archives, click here.)