With more demand and competition, India can soon transform into an aerospace manufacturing hub. “The key challenges facing the industry are strengthening the supply chain, workforce productivity, and timely adoption of new technologies,” Rajeev Kaul, chief financial officer and managing director at Aequs Aerospace, tells Huma Siddiqui in an interview. Edited excerpts:
What is the outlook for the aerospace manufacturing industry, globally and in India?
Globally, the demand for new aircraft has increased phenomenally. Commercial aircraft sector is expected to see a growth rate of 4.8% in FY2018-19. The annual passenger traffic has increased from 2.5 billion in 2008 to 4 billion in 2017. This increased demand in the market, coupled with pricing pressure, has led to industry OEMs (original equipment manufacturers) expanding their supply chain in countries such as India owing to labour arbitrage and easy access to skilled engineers and workers. India’s aerospace manufacturing industry is still in its nascent stage as it is traditionally dominated by defence-related manufacturing which includes HAL and its supply chain. Tier II and tier III suppliers have started making components for the global commercial aerospace market in India only recently.
What are the factors which drive demand in this industry?
There are multiple factors driving demand. Regions such as Asia Pacific and West Asia are witnessing steep rise in passenger traffic resulting in robust demand for new aircraft. Simultaneously, older fleets are being retired and replaced in mature markets like Europe. There is a substantial aircraft backlog with the OEM’s today. Airlines, too, are trying to optimise revenues at all levels — seats, bookings, routes, etc. — and augmenting their fleets by bringing newer aircraft and adding more capacity at the same or lower operating costs.
The big picture is that the industry growth is two times or more the GDP. Aerospace industry grew by 20% as compared to India’s GDP growth of 7%-8%. We are predominantly a supplier on the commercial side. We are comfortable as long as the industry has a positive trend, which is going to continue for some time.
How do you see India responding to this demand? Is India taking steps to promote commercial aircraft manufacturing in India?
Unlike automotive manufacturing, Aerospace manufacturing involves different operational mindset and cost structures. Challenges in supply chain are entirely different too. For instance, the raw material for aerospace manufacturing is imported, for which processing is rare in India. Hence, we have taken the joint venture route. Like most private players in India, our intent is always to finish the part in India and increase the in-country value adds. Today, we have been able to increase the in-country value add for some of the parts which is close to 80%-90%. At Aequs, our single-minded focus is on value addition. Aequs Aerospace has defined its core business as precision machining which is a $20-bn industry globally.
Do government schemes such as UDAN affect the aerospace manufacturing industry?
National schemes like ‘UDAN’, aimed at improving the regional connectivity in India, have encouraged people to opt for air travel. This has facilitated infrastructure development including new airports in rural parts of the country to improve connectivity between tier II cities and lesser developed towns.
What are Aequs Aerospace’s revenues and growth like?
Aequs Aerospace has investments deployed since 2009 to establish a platform which can absorb a high level of work packages globally. OEMs and customers have been consistently looking at large transitions and big growth. Global revenue of Aequs Aerospace is close to $100 million. In India, the growth has been over 50% year-on-year for the past five years. Last year, our investments in the manufacturing front amounted to approximately $ 25 million and $ 5 million for infrastructure development. The goal has always been to become a larger player in the market.
What are Aequs Aerospace’s future plans?
The first five years were focused on building a sustainable, profitable and globally competitive platform. We have built a legacy for the next level. Presently, Aequs generates about $100 million in sales with over 2,500 employees worldwide and aims at becoming a $300 million company by 2022.