Aerospace new sunshine sector with $50b prospect

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Rs 25,000 cr deals signed since first offsets in '07

Aerospace might just replace information technology (IT) as the country’s sunshine sector. Offset obligations from India’s skyrocketing aerospace defence needs, estimated at $50 billion over the next five years, could result in a jobs boom and spell massive opportunity for the nascent local design and manufacturing industry.

“Aerospace is the new IT,” asserts Sanjay Kumar, managing director of Altran India, a fully-owned subsidiary of French research and development outsourcing consultancy Altran with $2 billion revenues. Kumar justified the parallels not only in the size of the opportunity, but also the lack of technical manpower and facilities.

Defence ministry offset guidelines stipulate that 30 per cent of any contract above Rs 300 crore be ploughed back into the local industry. The $50 billion of spends arise from large defence deals that have been signed or are in advanced stages of negotiation.

Ever since the first offsets became operative in 2007, about Rs 25,000 crore worth offset contracts have been signed. In the $10.4 billion medium multi-role combat aircraft (MMRCA) deal awarded to Dassault Rafale, offset requirements are as high as 50 per cent of the total spend.

Revised in August, the latest norms provide incentives against investment in micro, small and medium enterprises (MSMEs) and technology acquisition by defence research and development organisation (DRDO).

Incentives are offered against the setting up of a new wing, the defence offset monitoring wing (DOMW) within the defence ministry to monitor the discharge of offset obligations by foreign vendors.

“Countries want their industry to fillip to a higher level on account of these acquisitions,” said Ajay Verma, vice-president of value solutions at Dassault Systems. He said that offsets were necessary to develop a sustainable ecosystem that would aid adoption of technology being imported.

Critical shortage of manpower and other capabilities, however, threaten to turn this opportunity into a distant dream.

An industry with spending plans of close to $50 billion over the next five years would need talent and skilled manpower of a level that is not available today. “If you are a stress engineer, you decide the company, salary and city you wish to work in,” said Kumar. He said attrition figures within Altran India stood at 26 per cent, while it was closer to 45 per cent within the 100-man strong stress and design team.

It is estimated that this sector will support thousands of jobs in design services and manufacturing within the next decade. To bridge the gap, Altran India has resorted to hiring post-graduate engineers and training them. “The amount of effort it takes to get an engineer up to speed and benchmark him alongside a global pool of engineers is phenomenal. The scaling up process is quite long,” said Kumar.

Companies in the IT sector found themselves in a similar space and eventually resorted to turning freshers and engineers from other disciplines into computer engineers at sprawling campuses.

According to Kumar, that model would not work in the aerospace sector. “The issues we work with require much more complexity. We need familiarity with tools and analysis capabilities. Analysis is weak because we don’t do much of that work and there have been no manufacturing facilities for people to learn from,” he said.

Comptroller and auditor general’s (CAG) scathing criticism of the government has dampened the industry spirits to a certain extent. In a report earlier this month, the CAG censured the government for granting offset waivers to defence multinational companies like Lockheed Martin, that apparently caused a loss of $376 million in investments in Indian defence industries.

“The offset guidelines have no specific goals in mind. The strategy has to be clearly defined if the industry has to be nurtured,” said Laxman Behera, research fellow at the New Delhi-based Institute for Defence Studies and Analyses. He added that the government should identify key gaps in capabilities and channel offsets there.

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