VOL. 9 July ISSUE YEAR 2008

Nadcap Column

in Vol. 9 - July Issue - Year 2008
Aerospace - A Truly Global Future

India and Mexico are two of the newest players in the aerospace industry – what is it that makes them such attractive locations?

Ever since JRD Tata received the first pilot license issued in India in 1929, and the launch of Tata Airlines three years later, the country has continued its dedication to the field. India even has its own air show – Aero India Show – which began in 1996 and now attracts around 380 exhibitors from more than 20 countries.

Established aerospace organizations, both large and small, are now queuing up to forge bonds with Indian enterprise. Last year, the Aerospace Industries Association reported that more than 86% of US civil and military aerospace contractors were planning to enter into joint ventures with Indian aerospace companies in 2008.

Many European organizations have already established relationships with Indian aerospace companies. So what’s the attraction? After signing a memorandum of understanding with Cades in 2006, Fokker indicated that, following a stringent selection process, India was chosen as the most realistic location for co-operation for several reasons: English is widely spoken; the country has an excellent infrastructure; there are many highly educated people there; and the country has a strong reputation for aeronautics.

In 2006, Rolls-Royce plc celebrated 50 years of partnership with Hindustan Aeronautics Ltd (HAL) in Bangalore, the largest defence manufacturer in India. Martin Fausset, Managing Director of Rolls-Royce Defence Aerospace commented in 2007: “We are rightly proud of our rich history of collaboration with the Indian aerospace industry but we are also working closely with our customers and HAL to ensure we continue to make history.”

As far back as 1942, the Indian Institute of Science offered a two-year post-graduate course in Aeronautical Engineering. And more recently, India and France signed four agreements in the fields of aerospace and education, a move driven by HAL and the then Snecma Moteurs to develop these areas for the benefit of the Indian aerospace industry, which, it was intended, would benefit the global industry as well. India now has an Institute of Aeronautical Engineering and Technology, based in Nasik. It was recognized by the US News and World Report University as one of the top program providers for aerospace engineering.

Doing business in India can be tricky for foreign organizations. The Aerospace Industries Association, which completed their first trade mission to India in December 2007, learned that there are strict policies on accepting foreign defence contracts. These make business contracts with domestic Indian companies essential for success. This involves ensuring that the Indian company must receive a share of any major aerospace contracts. In addition, India’s offset policy requires 30% of the value of the foreign defence contract to be offset by direct purchases, investments or transfer of technology to India.

The aerospace sector has grown significantly in India in recent years, and looks set to continue to expand. India is actually among the top ten countries in terms of defence expenditure and the third largest importer of defence hardware in the world. Moving forward, it is anticipated that India will continue to establish itself as an aerospace engineering centre of excellence.

The aerospace industry has noted several advantages to doing business in Mexico. As a result, the aerospace industry in Mexico has gained momentum, growing from $77.1m in 1997 to $683.2m in exports in 2007, according to the government. In that time, Mexico rose from the US 17th biggest aerospace supplier to its ninth.

Aerospace organizations who have or are planning to invest in Mexico include Bombardier, Cessna, Hawker Beechcraft, Goodrich, Honeywell, Aernova, GE and SAFRAN.

The main draw for aerospace organizations is the low cost of labour in Mexico – around one-third less than engineers in the US earn. A newly qualified engineer can earn $15,000 per year, while more experienced engineers take home $25 – 35,000. These labour cost savings reduce the cost of parts by approximately 30%, even after the added transportation costs.

The proximity of Mexico to the North American aerospace industry is also a distinct advantage over other countries, as is the fact that in 2006, Mexico dropped all import duties on aeronautic components.

The country’s determination to become a major aerospace player is also shown by its dedication to establishing a bilateral aviation safety agreement with the FAA – which was concluded in 2007. This allows manufacturers to inspect and certify components in Mexico rather than shipping them to the US for safety checks.

The international industry has also been impressed with Mexico’s commitment to personnel education: Over the past ten years, recognizing that they needed to improve their qualifications to stay in the global race, the country’s policymakers have been increasing enrollment in four-year engineering degree programs and other measures. As a result, in 2006, there were 451,000 Mexican students enrolled in undergraduate engineering programs, compared to 370,000 in the US. In March this year, however, Bombardier complained that training their Mexican workers took longer than expected because there were no veterans on the factory floor to support them. In response, the Mexican government plans to start construction of a national aeronautical university in August.

So what impact will India and Mexico have on the industry and on traditional aerospace countries? The cost savings and growing expertise in these countries cannot be underestimated but only time will tell whether the industry will be able to support all the existing and new aerospace businesses.

Director of Global Business Operations at the Performance
Review Institute www.pri-network.org