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The Future of Aerospace

July 2, 2008
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Aerospace has a truly global future, with India, Mexico and China playing major roles.



The industry will see changes in existing and new aerospace businesses. Source: Performance Review Institute

India, Mexico and China are three of the newest players in the aerospace industry-what is it that makes them such attractive locations, and how will they impact the existing industry?



India

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 about 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 U.S. 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. What is the attraction?

After signing a memorandum of understanding with Cades in 2006, Fokker (Hoogerheide, the Netherlands) 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 (Derby, England) celebrated 50 years of partnership with Hindustan Aeronautics Ltd. (HAL) in Bangalore, the largest defense manufacturer in India. Martin Fausset, managing director of Rolls-Royce Defense 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 U.S.News &World Report 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 its first trade mission to India in December 2007, learned that there are strict policies on accepting foreign defense contracts. These make business contracts with domestic Indian companies essential for success. This involves ensuring that the Indian company receives a share of any major aerospace contract. In addition, India’s offset policy requires 30% of the value of the foreign defense 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 10 countries in terms of defense expenditure and the third largest importer of defense hardware in the world. Moving forward, it is anticipated that India will continue to establish itself as an aerospace engineering center of excellence.

Mexico

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 $77.1 million in 1997 to $683.2 million in exports in 2007, with José Javier Roch, head of aviation for the General Directorate of Civil Aeronautics, quoted as saying, “Every day, we are seeing more and more activity of this kind in Mexico.” In that time, Mexico rose from the United States’ 17th biggest aerospace supplier to its ninth.

Aerospace organizations that 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 labor in Mexico-around one-third less than engineers in the United States earn. A newly qualified engineer can earn $15,000 per year, while more experienced engineers take home $25,000 to $35,000. These labor 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 also is 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 also is 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 United States for safety checks.

The international industry also has been impressed with Mexico’s commitment to personnel education: During the past 10 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 United States.

In March of 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.



China

China has an interesting relationship with the aerospace industry, being both a manufacturing exporter-aerospace exports to the United States have grown from $4.52 million in 1990 to $368.39 in 2007, according to the U.S. Department of Commerce-and a potentially massive customer, with Lin Zuo Ming, president of AVIC I, quoted as saying that the Chinese market alone would require 3,100 new planes in the next 10 years.

John W. Bruns, the senior executive based in China for Boeing Commercial Airplanes, explained in 2007, “Our cooperation with China goes back to the 1970s and we’ve been buying parts from China since 1979. Today, Boeing is actually the largest foreign customer of their aerospace industry. We’ve purchased about a billion dollars worth of hardware, and we have active contracts in place for about $2.5 billion. China is a huge market for us, and we forecast there’s about $280 billion of airplanes they’re going to need in the next 20 years. We’re going to get some share of that market. We’d like to hope it’ll be around 60%.”

Between 2001 and 2006, China signed 16 international space cooperation agreements and memorandums with 13 countries, space agencies and international organizations. GE, Honeywell, Rolls-Royce, Pratt & Whitney, and Airbus are among the organizations already working with China.

Moving forward, the 2008 Olympic Games and Expo 2010 are expected to pave the way for more rapid progress. Supporting this, the Chinese aerospace industry looks set to expand further, as China announced in January 2008 the creation of AVIC III, a new company which will focus on larger civilian aircraft.

In March 2007, China announced plans to manufacture large aircraft on a scale that would compete with industry leaders such as Boeing and Airbus. Although industry experts predict that this is at least 10 to 20 years ahead, there is no doubting the ambition of China in the aerospace industry.

What impact will China, India and Mexico have on the industry and on traditional aerospace countries? The cost savings, growing expertise and potential business in these countries cannot be underestimated, but only time will tell how the industry will support all the existing and new aerospace businesses. One thing seems self-evident-the aerospace industry is changing, and cooperation and competition will need to exist side by side.

The aerospace industry is changing, and cooperation and competition will need to exist side by side. Source: Performance Review Institute

Tech Tips

- India is among the top 10 countries in terms of defense expenditure and the third largest importer of defense hardware in the world.

- The aerospace industry in Mexico has gained momentum, growing from $77.1 million in 1997 to $683.2 million in exports in 2007.

- China’s aerospace exports to the United States have grown from $4.52 million in 1990 to $368.39 million in 2007.

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