Auto Component Manufacturers-Flying into the aviation...

Every second day of my SIP goes into either making a new article or correcting the same. In this time of recession we see the automobile sector on a very low ebb.We are seeing low demand for the auto components from Europe and America. Therefore the auto components sector in india are spreading their wings into the defence and aviation sector. Some companies call it reducing risk by diversifying business and some others call it innovation. whatever it is it the component sector which is benefitted.

Introduction

A number of auto component manufacturers are foraying into the aviation sector. The main reason we see companies into the aviation sector is because of the uncertain nature of the automobile sector at present. They are diversifying their business to reduce the risk from being in just one sector. Why the uncertainty? We will see as we go further into sector. The shift to the other sectors according to ACMA (Automotive Component Manufacturers Association) is to utilize the idle facilities and increase its supply channels. Entry into the aviation sector seems to be a good idea because it a synergy exist between the aviation and the automobile sectors. There is a good mix of engineering and manufacturing expertise available with auto component makers and they have taken advantage of their existing capacity to cater to the needs of the aviation industry.


Factor for entry into Aviation

For Indian auto ancillary makers, getting into the aviation and defence space has many advantages as gross profit is much higher than the typical 10 to 12 per cent in the component business. ACMA also stated that manufacturers were facing the risk of rising input prices and idle facilities due to slowdown in the auto sector. Catering to aviation sector can double the profit margins on components that are supplied to the auto sector and there could be a jump of 5-7 per cent as the auto component manufacturers are catering to customized products with specialized usage. Component companies are trying to insulate themselves from the cyclical nature of the automobile industry and are tapping the high value aviation business.


Companies making entry into the Auto Sector

"We are looking at partnerships with various Indian companies for different aircraft components. So watch this space," --- Ian Thomas, president, Boeing India.

Companies that have made headway or are planning to enter the fray include JB Auto, Lumax Industries, Caparo Fasteners, Lakshmi Precision Tools, Bharat Forge, Lucas TVS, India Pistons, Helical Springs, Caparo Engineering and Shriram Pistons
Auto component manufacturers and tyre makers are making the first quiet moves into an uncharted area — components for aircraft manufacturers. Cashing in on the low cost of skilled labour, a clutch of companies like Maini Precision Products, MRF Tyres, Pune-based Minda NTS, and Sundram Fasteners are taking the first tentative steps to supply to the big world of aviation. Meanwhile, MRF, India's largest tyre manufacturer, has taken the first step by making tyres for helicopters used by the defence services. Pune-based auto component manufacturer Ashok Minda Group’s has tied up with Australia’s NTS Tooling to set up a venture. The company is unwilling to share details of the tie-up. But a spokesperson said, “The new facility, apart from providing services in design and manufacture of high-quality precision tooling for the automotive industry, will cater to the aerospace and defence sectors.” NTS has two decades of experience in these sectors.

JBM Group, one of the leading supplier to auto giants like Maruti Suzuki, Honda and Tata Motors, is gearing up to be a supplier for the aviation sector. It has been learnt that the company has already started building passenger trolleys for airports. Lumax Industries, an automotive lighting solutions company, is conducting a study on the high-precision aircraft lighting market. Tata Automobile Limited (TAL), a 100 per cent subsidiary of Tata Motors, has firmed up plans to build structural components for Boeing's 787 Dreamliner aircraft. One of the country's largest engine pistons manufacturers, Helical Springs, has received bagged orders to supply compression springs to the Indian defence forces.
Indian Machine Tools Manufacturers' Association has stated that it is developing and assembling machines for Hindustan Aeronautics and have huge orders from the aerospace industry to make customized machinery applications for making structural components
JBM Group, which is a major supplier to Maruti Suzuki, Honda and Tata Motors, is gradually moving to aviation and has also begun supplies to the white goods sector to keep its bottomline intact. This has been a depressing time in the automobile sector with some segments posting negative sales. Component makers are directly dependent on automobile companies as from its total Rs 65,000 crore market, around Rs 43,000 crore worth of procurement are directly done by OEMs (original equipment manufacturers). But the slowing economy has slammed the brakes on the industry’s growth, forcing component suppliers to rethink future plans.
This estimate excludes the nearly $2.4 billion in offsets that come to Indian firms from Boeing Co. and Airbus SAS for the passenger planes they sold to state-run National Aviation Co. of India Ltd, or NACIL, which runs Air India. Boeing has committed to sourcing $1 billion worth of goods in 10 years from HAL, besides planning a repair facility for Air India in Nagpur. Airbus has awarded HAL a Rs340 crore deal to buy around 1,000 doors for its A340 planes, besides committing to source more doors from the Indian plane manufacturer.


Reasons for global Slowdown

The big fall in sales of automobiles in the US and Europe has impacted Indian component suppliers. The economic slowdown there is compelling vehicle manufacturers to cut production and cut back on parts sourced from India. The Indian suppliers are experiencing a 20-30% drop in orders. The company has been experiencing the slowdown at its plants in Germany since August, says a top official from Sona Okegawa, part of the Sona Group. The company acquired German conglomerate Thyssenkrupp’s business unit in January this year to become the world’s largest precision forgings supplier. The Rs11 billion company Wheels India, which supplies to companies such as Volvo, Komatsu and Caterpillar, say that that decline in truck sales have lowered its overseas schedules by 20-30%. The decision of European and Asian carmakers such as General Motors, Ford, Daimler, Nissan, Toyota and others to cut down production in view of the global meltdown, is likely to affect the Indian auto component industry.

The auto component industry fears a winter of despair as ACMA, or Auto Component Manufacturers Association, has made recommendations to the government and wants a two-three year bridge policy to help them survive the global economic crisis. The body recommended that the customs duty on key raw materials should be reduced to zero. It also said there should be no disruption in ongoing and approved funding by banks for capex requirements. The government should take immediate steps to shore up liquidity and should evolve special loan schemes at concessional rates of interest.


Threat from China

Auto component manufacturers in India bet that they have an edge over others in manpower skill, but we see that passenger carmakers appear to be keen on investing in China. The US-based Delphi Corporation, for instance, has shifted more than half of its operations to China, despite sourcing some critical automotive components from India. Domestic auto component manufacturers contend that India would emerge a winner in the long run. But where exactly is the country lagging at this juncture? Is China a threat in this space? The strong rupee has made imports cheaper and a trend where imports are growing ten times faster”\ than exports is evident. But the industry is most fearful of China, from where most imports have been coming. The last two years have seen a growth of 87 per cent from China, which has crossed Rs 1,200 crore.
A cross-section of foundry industry sources concedes that China has an edge over India both infrastructure-wise and raw material-wise. "They can produce castings at 75 per cent of our cost. But, then, the industry enjoys Government subsidy. According to foundry industry sources, the Chinese bank on American and British technology, while the Indian advantage is skilled manpower, particularly on the castings side. Though they have no idea of the prevailing cost of power in China, they maintain that the electricity charges account for one-fifth of the production cost in the foundry segment.


A view from Bharat Forge-World largest forging company

With India buying large number of aircrafts, which includes wide-bodied aircrafts like the A380, Bharat Forge is very bullish on the new venture, which would include high-value, technology intensive products. This would be further boosted with many global manufacturers looking at off-site programmes from countries like India and China to source components. Though the off-site trend in the civil aviation industry has yet to catch up, they see it gain pace by the end of the current calendar year. While Boeing has already initiated it, others are likely to follow suit. The sector offers huge untapped potential, as there are very few players globally supplying forged and machined components.
Known as the auto-component hub of India, Pune has upped the ante and staked claim as the new backroom for aerospace engineering. The city-based Bharat Forge Ltd (BFL), already a global player in the auto-components sector, is setting up a Rs 350 crore Centre for Advanced Manufacturing at Baramati in Pune district. The plant will have forging capacity of 30,000 tonnes a year, manufactures 1 lakh machined crankshafts and engage 1,200 workers. With global aviation majors Boeing and Airbus looking to source components from India, Bharat Forge is all ready to board their vendor list. The plant, scheduled to start commercial production in April 2008, is targeting a turnover of Rs 350 crore in the first 18 months.
This is how China built its own civil aviation industry — BFL chairman Baba Kalyani. By using the offset programme and technology flows that come with it over 15 to 20 years. Bharat Forge will start with structured parts and landing gear while aerospace engine parts will come next.
The Baramati plant will have one of the world’s largest closed die manufacturing capacities with an 80-tonne hammer, which can produce pieces that weigh 2.5 tonnes each and are 4.5 meters long. “The best we make currently is 350 kg. So the new plant will make eight times bigger products.


Airbus on Growth prospects in India

Airbus also sees an opportunity to sell A380 and A350xwb aircraft in India. The feeling is that Indian carriers will also increase their share of international traffic to and from India from 35 per cent to at least 50 per cent. The fact is when you look at the global aviation market we see that India and China are going to play an increasingly important role. In fact, if Airbus is ramping up its production capacity, it's largely to meet anticipated demand from India and China. The A320 family, which is the aircraft of choice for many Indian carriers, has seen production boosted from 32 aircraft a month to 36 aircraft a month and Airbus are thinking of increasing capacity on the A330/340 line as well to meet demand. Aviation giants, especially Airbus from Europe and some big companies from the US are looking at sourcing components from India due to the low cost offered by component manufacturers in India.


EADS-in India

European aeronautics giant, EADS, had to obtain clearance from the Foreign Investment Promotion Board (FIPB) to source goods and components from India. The multinational has been allowed to source components for its subsidiaries as well as other companies across the world. EADS India required FIPB approval as it would source components from small scale sector. These components, including those sourced from small scale units, are intended to be supplied in the international market as well as India. However EADS required specific clearances for investment in subsidiaries. The FIPB has also stipulated that the company should not undertake the manufacturing of arms and ammunition or any other defence sector activity. For any activity related to defence, space or civil aviation, the company should obtain sectoral approval.
France-based EADS has a major presence in the Indian market through Airbus and Eurocopter. Its subsidiary, EADS India, will be providing after-sales, maintenance and Upgradation services to Indian customers. In India companies like ISRO, Hindustan Aeronautics Ltd (HAL), Air-India, Indian and private airlines like Kingfisher and IndiGo, are its customers. The company's capabilities in India include Airbus; ATR, EADS EFW, EADS Socata; EADS Astrium; Eurocopter; Military Transport Aircraft; EADS Defence & Security Systems. EADS has offices in New Delhi and Bangalore.


Conclusion

The growth of automobile component sector manufacturing automobile components is in its nascent stage, there is a lot of scope for improvement. The automotive component manufacturing companies have taken a few small steps in the right direction. This takes, for instance, between two and three years of investment and certification of equipment and personnel before orders trickle in. You need to invest long term. Though currently we see a slump in various economies the world over, this is just a passing phase with growing population the demand is set to increase. The aircraft manufacturers like Boeing, Airbus are set to increase their production and planning big time into sourcing components from India. With better quality of products than China, India only have a big advantage.


References

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