UKTI Aerospace Sector Short Term Business Attachment - India

1. Monthly Report

2. UKTI Aerospace SectorShort Term Business Attachment - India 3rd Monthly Report By Jaimie Rogers Monthly Report

3. Achievements Attend Paris Airshow. I initiated contacts for 12 UK Companies to have 1 to 1s with Indian Companies I had meetings with 6 UK Companies where I provided advice on the India market Met 9 India co.s. Some were initial meetings. Some were second meetings to discuss in more detail working with UK SMEs Supported the Advanced Engineering Sector Team’s visit of the UK Aerospace Associations Set up and led a meeting with SBAC & CII to agree how they could work more closely and a potential mission to India Had 14 guests at the UKTI Dinner and 3 guests at the Ambassadors Reception This was a very good opportunity to discuss the plans for the rest of my secondment with the UKTI Aerospace Team Successes: Following the Paris Air Show Denroy Plastics commissioned an OMIS Aerologisitcs move closer to agreeing a JV in India, based in Bangalore 23 visits undertaken in Delhi, Mumbai, Pune and Bangalore Main focus for these visits has been the metallic manufacturing sector. Please see the Opportunities section for a report on this sector. A number of visits looking at civil aviation sector. This sector and its opportunities will be covered my next report These city visits have given me a good opportunity to give the UKTI sector teams a more technical appreciation of the aerospace sector A good opportunity for a UK company to JV with Samtel Displays - Information circulated to UK Aerospace Associations Attended the Open Sky Forum in Delhi - This was a one day conference focussed on the Indian Civil Aviation Industry The conference was well attended by the Indian Aviation Industry, the opening address by the Indian Minister of Aviation. There were some useful speeches covering airport infrastructure; how to increase airport capacity, aircraft turnaround times. This information will be covered in my next report Preparation for The Engineering Design.In Conference & Expo to be held in Bangalore 9-11 August Feedback being given on the drafts of the Genser Aerospace Report. The final version is now expected at the end of August 07 Monthly Report

4. Achievements Companies and Organisations met in the last month: (These are only companies where I have had an extended meeting with the representatives) Paris Airshow: UK Co.s: NIS - Robert Crampton, Sales Manager Ultra Electronics - Graham Leighton, Head of Marketing South Dorset Engineering - Chris Bell - Managing Director Sitec Group - Guy Hobday, Business Development Manager Hampson - Mark Abbey, Group Global Aerospace Marketing & Business Development Director Denroy Plastics - Jim Knowles, Technical Sales Manager UKTI: Margaret Porteous, Head of Advance Engineering Sector Mike Lee - UKTI ITA Chris Beck, Global R&D Specialist & Richard Higgins, Inward Investment UK Assoc.s: SBAC, WEAF, NWAA, MAA, FAC Indian Co.s: Infotech - Ajay Desai, VP Marketing Maini - Chaitanya Koranne, VP Marketing Cades - Dataram Mishra - Managing Director & CEO CIM Tools - Srikanth, Director HAL - M K Mishra - Chief Manager - Marketing Incat - Lloyd Hares, UK Account Director Conf Of India Industries - Gurpal Singh, Deputy Dir. Gen. Quest - Aravind Melligeri, Founder & President TCS - Suresh Babu, Director Aerospace Pracitice & Ian Todd, Business Development Manager Satyam - Pinaki Dasgupta, VP Global Head of Aerospace & Defence Practice Delhi Visits: BAE Systems - Mike Armstrong Centre of Asia Pacific Aviation - Kapil Kaul, CEO Thales - Brig. Manjeet Singh Rana, VP Sales & Marketing FICCI - Pooja Malhotra, Aerospace Advisor Samtel Displays - Rajesh Kakkar, VP Business Development Paul Grey - 1st Secretary UKTI & Deputy Director EADS India - Yves Guillaume, CEO Open Sky Magazine - Bijoy Kumar - Editor Col. Jeffery Paulk - Air Attache to US Embassy Capt R Singh - Spice Jet Tech. & Develop. Pilot Bird Group - Charles Carneiro, Head of Corp Marketing & Comms Monthly Report

5. Achievements Companies and Organisations met in the last month: (These are only companies where I have had an extended meeting with the representatives) Bangalore Visits: Satyam - Kapil Bakshi, Snr Manager Business Development RBU Eurpoe Indian Institute of Science - Aerospace Engineering Department - Prof. Murthy, Acting Head of Department CIM Tools - Srikanth, Director Dynamantics - Udayant Malhoutra, CEO & MD Kumaran - M Parthasarathy, Technical Director JS Precision- DP Engineer, Managing Director Unique Instruments - Devang Shah, Managing Director Hampson - Ramesh Haridas, Facility Manager Mumbai & Pune Visits: Godrej& Boyce Mfg. Co. - S M Vaidya - VP & Bus. Head Precision Components & System Division Jet Airways - Shirish Keskar - Gen Man. Tech. Services Delcam Software India - Vineet Seth, Managing Director Bharat Forge- N C Sharma, VP R&D Product Design & Manuf. Eng. Services Incat - Mr R Kumar, Project Manager Manuf. Systems Eng. Automation Mahindra Systems & Technologies Ltd Aerospace Division - Ashwani Keswani - VP Business Development Systems & Tech. Airworks India Engineering - Ravi Menon, Director Max Aerospace and Aviation - Bharat Malkani, Chairman Monthly Report

6. Actions in next month 2 day Visit to Hyderabad The focus of the visits will be on metallic manufacture and avionics. Also hope to visit Hamco who plan to do MRO and Pet Aviation who provide training for Air Traffic Controllers Engineering Design.In Conference and Expo Key Note Speaker in opening session - Main aims: To promote UKAI Encourage Indian Co.s that there is a need for them to open European integration centres & that these should be based in the UK Provide comments and recommendations on Indian Aerospace Engineering Services Sector Lead the UKTI stand for the 3 days of the Expo Two weeks of company visits in Bangalore One of the main focuses will be visits to HAL The other main focus will be visits on civil aviation sector Completion of the Genser Report Monthly Report

7. Opportunities Metallic Parts Manufacturing in India History of the Sector The vast majority of aerospace manufacture in India was started to support HAL, Hindustan Aeronautics Limited in Bangalore. HAL was formed in Bangalore following the First World War when there were a large number of aerospace engineers, who had provided maintenance and servicing to the military aircraft during the war. Bangalore has quite a heritage with the military. The British Army would come to Bangalore in the hotter months to their hill camps because of its milder climate. The climate is also why the Texas Instruments set up in Bangalore and lead to the booming ICT sector in Bangalore. Hyderabad is another, smaller cluster for metallic parts manufacture. This has developed for the manufacture for space applications for ISRO, Indian Space Research Organisation, even although ISRO does not have a large manufacturing or assembly facility in Hyderabad. Other companies such as Godrej in Mumbai and Bharat Forge in Pune are located where the original non-aerospace related business was founded. Background It has only been in the last three years that orders form international companies have been placed directly with private Indian Companies. Before this Indian companies supported the Nationalised/ domestic aerospace customers: HAL, Hindustan Aeronautics Limited NAL, National Aerospace Laboratories ISRO, Indian Space Research Organisation IAF, Indian Airforce DRDO, Defence Research Development Organisation and their aerospace arm ADA, Aerospace Development Agency GTRE, Gas Turbine Research Establishment When visiting companies today the domestic projects there are involved with are: (The products in bold are the main work that is being subcontracted to the Indian Companies) Monthly Report

8. Opportunities LCA, Light Combat Aircraft (Tejas) being developed by DRDO & NAL and is in limited production with HAL Kaveri Engine, the engine developed for the LCA developed by GTRE IJT, Intermediate Jet Trainer still in development LTA, Light Transport Aircraft (Saras) a 14 seater commercial regional aircraft in development with NAL & HAL Hansa, 2 seater civil A/C being developed by NAL ALH, Advanced Light helicopter (Dhruv) in production with HAL Lancer - Light Attack Helicopter in production with HAL Components for Space launch vehicles for ISRO Lakshya – pilotless drone produced by HAL Components for the A/C HAL is manufacturing under license: Jaguar Deep Penetration Strike Aircraft for BAE Systems Aour Mk-811 Engine (Jaguar Engine) for Roll Royce Hawk – new work for BAE Systems Adour Mk 871-07 Engine (Hawk Engine) for Rolls Royce Dornier DO 228, a light transport A/C for Dornier Luftfahrt, Germany Garrett TPE 331-5 Engine (DO 228 Engine) for Garrett Engine Division (Honeywell) Sukhoi - 30 Mk 1 for Russian Government AL-31 FP Engine (SU-30 Mk 1 Engine) for Russian Government Chetak helicopter for Aerospatiale Cheetah helicopter for Aerospatiale Artouste 111 B Engine (Chetak, Cheetah Engine) for Turbomeca, France Today most companies still have some domestic work on their books, in some cases it is still the main stay of their operation. In the case of most of the Indian nationalised Aerospace Companies, HAL being a very good example, their aim was to do all the manufacture themselves from the level 1 final aircraft assemblies to the level 4 component manufacture. It was only when capacity forced them did they offload work to the small base of suppliers. In general this has been the small component manufacture. This has meant these suppliers have been unable to expand due to the lack of large, regular, long-term orders. Monthly Report

9. Opportunities Experience Because of the industry history most companies experience in small precision and structural components. It has only been in the last 3 years that international orders have been placed directly with these private companies. HAL is also slowly changing and putting larger work out to its supply chain as it tries to cope with the very large volume of work it has. The exception to this is companies who have undertaken work for ISRO. Companies such as Godrej, MTAR and SKM technologies have good experience in medium sized precision components and assemblies from ISRO’s space products. See the table below, which gives an idea of what areas companies have capability. Interesting to note that the companies with the international orders are the more advanced thinking companies, know they have work to do to develop and are not just waiting for the orders to arrive. Monthly Report

10. Opportunities HAL Other than in passing HAL is not being mentioned in this report. The reasons being that regardless of how much work they have they will not put work this kind of manufacturing to an overseas company. I also strongly recommend that UK SMEs do not to try and put work into HAL – of any kind. Quality Approvals – 7 companies have AS9100, most the top 15 are ISO9001 approved. Quality and inspection, all with the exception of Kumaran and JS Precision have good inspection facilities. Most have inspection rooms and a CMM. They seem to demonstrate good quality and show good feed back from customers. NB: This is where UK companies will need to put the effort in to ensure they are getting the standard of product delivered they are looking for. Company size Most of the aerospace facilities are still fairly small by overseas standards. They have a small number of CNC machines, (1 to 8machines) and a number of supporting conventional machines that are used for aerospace. In some cases such as Maini, Dynamatics or Godrej they will have a much larger machine shop for other sectors such as automotive. The number of employees in these facilities tends to be much higher than would be seen in an onshore plant. There tend to be a number of ‘helpers’ which may boost numbers by 1.5 or 2 times what we might expect to see. Annual turnover is greatly affected by whether a company buys in its own material or has it supplied by their customer. All work done for the Indian nationalised companies, the customer will supply the material, even where the final customer maybe an international customer, eg HAL, who have the contract with Airbus for the A320 doors provide suppliers with material. The companies can be split into four general categories: Monthly Report

11. Opportunities Very Small Companies e.g. Kumaran, JS Precision, Amado Tools These are very small machine shops. They are all currently only undertaking domestic work, although some of it may be licensed work for HAL. Therefore they have little experience of working with overseas companies. Some are looking to grow. It maybe 3 to 5 years before this happens. I would not recommend using such companies. This is a high risk. Small Companies: Cim Tools, Traveni, Unique instruments By UK standards their aerospace machine shops are still currently classed as pretty small. They do have good experience and a number of overseas customers but only in the last 3 years. They will understand UK companies issues. Most attend airshows. CIM were at the Paris Airshow 2007. All are on the verge of major expansion, looking to expand 5 to 10 times their current size. Most do not have serious financial backing so it may take time for them to realise their goals. Medium sized Companies: Dynamatics, Godrej, Titan, Maini, MTAR, SKM Technologies Most of the comments for the Small Companies are still relevant. The big difference is the financial backing these companies have. All have a link to a much larger organisation. This will accelerate their ability to grow. E.g. Dynamatics: is one of the Worlds largest manufacturers of hydraulic gear pumps and a major manufacture of automotive components Titan: Is 6th largest manufacturer of watches in the World. This is a division of the Tata group Godrej: Very large Indian Engineering Company who has been manufacturing a large range of products for many years: material handling equipment, tooling, domestic appliances, office and domestic furniture. These companies see aerospace as a attractive sector to enter: a growth sector, good profits and good prestige. Although they aerospace operations are currently small they have the backing to grow quickly if required. Sleeping Giants: Tata, Mahindra, Bharat Forge, Larsen & Toubro – These are the very large engineering manufacturing companies in India. Their experience may cover automotive, power, transportation or marine. These very large companies whose annual turnovers are measured in terms of $ billions. Currently they have very little or no presence in the aerospace manufacturing sector. They do have good base of manufacturing experience, huge financial backing and experience working with international companies. Aerospace is seen as a very attractive sector to enter as with the medium sized companies. There is the potential for some of these players to enter the sector and very quickly jump up the experience, capability curve. This may well be stimulated by a major international OEM who does not want to work with HAL and wants a large capable supplier/ partner in India. Tata have bought land in an SEZ in Nagpur for aerospace manufacturing. L&T have signed a MoU with EADS & Boeing to do component manufacture. Monthly Report

12. Opportunities Company Growth It has been very clear when I have visited companies that a number are still be classed as small machine shops. They are looking to expand. This is certainly not all talk. I have seen their new buildings and facilities which, in most cases, still waiting for equipment to arrive. They have fairly aggressive timescales for expansion, 6 to 12 months. I think they are being over optimistic but expansion will come. Most are looking to take a step change in their size by 5 to 10 times their current capacity. This rate of expansion is certainly something that needs to be confirmed via further visits. Although they all make reassurances this level of growth will inevitably affect quality of deliverables something UK companies need to be aware of Why do they want to grow so quickly? Aerospace is a new sector in India. These compnaies are watching it grow. Very simply, they want to grab as large a slice of the aerospace cake as possible. They do not want to turn work away. This is true for the whole aerospace sector. What they have not realised is that if quality drops off they will not get repeat or new orders to fill their new facilities. Why do they expect this level of growth? There is now a great deal of interest from overseas companies. Many have a number of large, international customers. They believe that as their customers’ confidence in their abilities grows they will get more orders. They are expecting these to be for new sub a assembly work as well as the existing component manufacture. This is where all these companies are trying to head, moving up the value chain to take on more sub assembly and assembly work. HAL is now looking to become more of an integrator company and are slowly offloading more level 4 and some level 3 work i.e. component manufacture and sub assembly work to their supply chain. Most are focusing on export. Many of the new facilities being built will be for export only. They are setting up bonded stores for material to be used in exported parts to prevent paying import duty. A number have also bought additional land in SEZs, Special Enterprise Zones, which provide a range of very good tax incentives. There is an SEZ very close to the new Bangalore Airport where a number of these companies have bought land. On the following page I have included my view on the growth capability of these companies. This is based on information gained from my visits. Financial Status All companies are in a good financial position. All seem to have no large outstanding debts or overdrafts. (A few of the smaller companies have mentioned that they will required backing to support the level of growth they are trying to achieve). Why is this the case? As in the engineering design sector these companies are making very good profits on the work they do even with the rates they offer. They have very low overheads: Labour is very cheap in India. Most already own their land, so even as land and property prices increase in Bangalore they are protected. Many have also purchased other further land for future development conscious of the increase in land prices. Equipment, this is probably their biggest overhead, especially if they are looking to expand. Currently most have only a few machines, which they try to buy second hand. Monthly Report

13. Opportunities Monthly Report

14. Opportunities Rates A very general view of hourly rates – Machining rates range from $10 to $50/hr. The high end will be for 5 axis CNC work. 3 axis CNC work around $20 - $25/hr. Treatments Most companies are looking to move into sub-assembly and assembly work. One major capability that has prevented this from happening, especially around system component assembly is the lack of metal treatments. Currently suppliers are manufacturing components and where treatments are required they send them back to their customer, limiting the potential to do any assembly work. Currently there are very few aerospace metal treatment companies in India and none with NADCAP approvals: - HAL have their own heat and chemical treatment facilities. - Dynamatics do limited chemical and heat treatments based around their automotive work. They are looking to get NADCAP approval for some of their heat treatments shortly. - Vijaya are the only independent chemical treatment house. They are a very small operation, focussing on small components such as hydraulic end fittings. Are looking to get NADCAP approval but this will take some time. - Godrej do some chemical and heat treatments and are working toward NADCAP approval. Do provide their services to other companies. - Quest with Magellan are looking to enter into this field. - Aerologistics from the UK are now looking to agree a JV very shortly to offer chemical treatments, based in Bangalore. They have NADCAP approvals in their other plants in the UK and Poland and are looking to get it for their Indian operation. - Hightemp Furnaces - do heat treatments for aerospace - Matcon UK Ltd - Have a rep in India offering metallic powder coatings. - Bharat Forge - As part of their plan to expand into aerospace they will do surface treatments. Material Suppliers For domestic orders all material is still supplied by the customer. For international orders some customers will provide material some will not. Orders for aerospace components are still small. Although some aerospace grade materials are available in India it is still cheaper to source small quantities directly from overseas, which is why we see a number of customers providing materials to their supply chain, it is the most economic route. Indian material suppliers will only start to become viable when larger orders are placed. The major international material suppliers that supply to India are: Monthly Report

15. Opportunities TW Metals – have a distribution centre in Bangalore Apollo Metals – have a distribution centre in Mumbai AM Castle Diamond Carpenter Aviation All Metal Services Marine & Corrosion Opportunities for UK Companies Providing all types of production machinery and equipment, from CNC centres to inspection equipment to these companies. With very aggressive growth plans all will need machinery and equipment. This will be second hand as well as new equipment. These India companies should be approached directly. Apart from HAL no Indian companies offer casing capabilities. Very few forging and only a handful of sheet metal pressing. Providing chemical and heat treatments to these companies. The facility will have to be located in India, probably Bangalore and/or Hyderabad. Bharat Forge are looking to set up a complete composite manufacturing facility. They are currently looking for advice on the facility. The main opportunity for UK Companies is to offshore work. The two main drives being OEM offset commitments and cost benefit/ saving to UK companies. It also provides an opportunity for companies to increase capacity without investing in additional machinery or free up key machinery that is tied up with repeat orders that could be used on new orders. India is placing large orders for military and civil aircraft. Both now have offset commitments attached. OEMs are looking to fulfill their offset obligations both directly and indirectly through their supply chains into India. They would probably prefer to put as much of the work indirectly through their supply chains because it reduces the effort they require to invest. UK SMEs who have an offshore element in their supply chain will have an advantage over their competitors. There are savings offshoring work to India. The rates offered by Indian companies are very attractive, up to half that of European rates. Companies need to consider the hidden costs that will be in addition to this: transportation; additional time and effort to embed procedures and processes into their suppliers; integration of the packages of work; quality and the cost of rework. Monthly Report

16. Opportunities A Guide - How to put metallic parts manufacture work into India Identify very carefully what work to offshore. It maybe done for one of the following reasons: OEM/ customer wants work done off shore Moving work will free up key machinery that can be used for new orders It frees up key staff whose experience can be better used The work is very labour intensive and offshoring will give good cost benefit Looking to increase production capacity The most important guideline is to keep the work simple. Currently I would only recommending working with the small and medium sized Indian companies. Identify a number companies that you think might have the potential to work with. Use all sources of information: Look at company websites Meet companies at airshows This report Talk to other UK companies, your customers Commission an OMIS from UKTI Commission a report on the sector by a consultant Visit India - Set up a programme of company visits and meet companies, see their facilities, check their experience and capabilities. Indian companies tend to claim that they can do more than their experience can demonstrate. It is very important to visit these companies and test their claims of experience and capability. Take detail information of the work you are looking to off-shore. A UK Company may need to visit India a number of times. Narrow down to a field of potential suppliers and put out a RFP. Start with small components, low volumes – look to minimise risk. A great deal of the work being done for export is parts like small engine components, brackets, electrical end fitting and bushes. Monthly Report

17. Opportunities Indian companies will do prototypes for their customer before moving into production Select only one or two companies to work with and develop a long-term relationship with them. Offshoring work should be seen as a long-term strategy for a UK company. The pain of getting quality and standards in place will mean that the benefit from the first few orders will be absorbed in the additional integration costs. This overhead will reduce as production runs extend or more orders are placed. Finally - Be prepared that someone will have to manage the supplier closely, especially to start with. This will mean that regular visits to India, phone conferences and regular communication will become part of their day job. Monthly Report