India’s Aerospace Problem and a Proposed Response Strategy
India’s aerospace, and more generally the military and defense sector, stands at a vital crossroad in time: There is no other nation which possesses such impressive science and technology capabilities to build satellites and launch vehicles, build IRBMs, contemporary fighter planes, nuclear weapons and be counted as a leading global power in Information technology – and yet remains dependent so deeply and extensively on imports for defence equipment.
The process of transformation of the D&A industry has begun and there are encouraging signs of the aerospace industry emerging as a major factor in our increasing self-reliance as well as the export-oriented elements of the sector, with the potential and capacity to provide world-class opportunities for established firms in the global market. At the same time, the domestic capability is being significantly enhanced, through extensive tie-ups, joint ventures and technology transfers. Fundamental strength in the Indian Industry already exists, in the form of a large number of Small and Medium sized Enterprises (SMEs), which in the past have been suppliers at the sub-component and component levels, for aerospace DPSUs, HAL, DRDO, ISRO.
There is actual potential to create an ecosystem in which these companies can continue their quest to gradually transform themselves into major players in this sector, modernizing with cutting edge technologies to become suppliers for global aerospace companies vying to outsource products and components from India. However, any such effort to lay down a roadmap for creating this aforementioned ecosystem for aerospace innovation must first try to understand the nuances and complexities of the aerospace sectors. It is also pertinent to mention, for the sake of clarity, that term ‘aerospace’ as used throughout this analysis is used to refer to civil and defence aviation sectors, and does not include the space sector.
The innovation process in the Aerospace industry involves high levels of risk, requiring extensive collaboration between industry and re¬searchers and costly investments that can span years, which act as instant roadblocks for any new entrants. This when seen in conjunction with the increasing competitive pressures and the extant technology and industrial trends for the aerospace sector means that the industry faces the challenge of retaining both the competitive advantage and the market share. In order to ensure that the aerospace industry can fulfil its strategic role for the government’s agenda, it would be prudent to use a mixture of broad-based and specific innovation policy tools.
Even as the aerospace industry in the country evolves, companies in the sector are increasingly finding themselves pitted against even bigger challenges – the challenge to survive before you can prosper, among others – which are reshaping the industry in contemporary times. For instance, there is a noticeable trend of consolidation of supply chains, which means suppliers having to take increased levels of risk, volume and cost in a bid to remain competitive and relevant amidst the changing dynamics. As technology spreads across the world we live in, slowly permeating through every fabric like a living, rapidly growing organism, this has also led to a growth in cross-sectoral opportunities for industries, which means that new markets offering immense growth opportunities are coming up, along with newer industries that are seeking to develop domestic aerospace capabilities. Within the civil aerospace market, there are remarkable shifts in product life-cycles regardless of the company, which means that for companies, investing strategically has become more crucial than ever before. In contrast, in the defence / military aerospace market, the defence budgets for several nations are experiencing cutbacks, along with a repeated and renewed focus on undertaking functions that increase lifespans, execute procurement strategies in a more cost-effective manner, and a vigorous re-evaluation of aftermarket strategies.
Preparing for Anticipated and Rising Trends
The reason that Indian aerospace industries find themselves at this crossroads, despite possessing a strong culture of innovation, is due to the fact that there has been (and still persists) a continued wave of consolidation across the American, European and other emerging aerospace markets which has resulted in large global players dominating and influencing the markets and the industrial landscape in the aerospace sector. This has put the Indian aerospace industries in a bit of a pickle by cornering them into a precarious position which threatens to further marginalize their standing. The appropriate response must be to develop and leverage more collaborations and partnerships intra and inter industry within the country, through the reinforcement of existing networks and clusters, and by providing the adequate environment for consortiums and joint-ventures to flourish as well. Further, keeping in mind the ever-increasing competitiveness within the industry, the rapid changes in technology, shifting demographics, and reshaping industrial dynamics, it becomes pivotal to have an adaptable and strategic plan of action moving forward.
The development of the industry, however, actually depends on four key trends, and how these trends act with other driving factors pushing the aerospace industry:
- The impending ‘digitization of manufacturing’ (“DOM”) will create profound changes in the process and the life-cycle of manufactured products – be it ideation, design, assembly process, shipping or repair . This DOM has the potential to allow for complete integration of all information and activities over the life-cycle of the products , and will, as a consequence, create the requirement for new services to manage or optimize this DOM-accentuated process. Regardless of the future outlook taken into consideration, Industry 4.0 will be one of the central concepts around which aerospace companies and start-ups must build their strategies for the future. Certain aspects of it can already be seen, as indicated by the advent of IOT, 3D Printing, Big Data rising up as important domains that are affecting the aerospace industry’s market dynamics. These will have a profound impact on how businesses function in the aerospace sector, and will help manufacturing evolve. Whilst the argument may be made that some aerospace companies have already started implementing Industry 4.0 across operations such as manufacturing and supply chains, adoption of broader transformational initiatives that span the entirety of the enterprise still remains poor. The implementation of these disruptive forces across the aerospace sector as a whole also remains low in proportionate terms, which can be a long-term impediment for the growth of the sector. To remain competitive on a global stage, Indian aerospace companies need to be provided a framework that accelerates their assimilation of Industry 4.0, enabling them to harness software and hardware expertise to develop platforms for the future.
- The other trend to remain cognizant of is the environmental necessity for having an imperative push towards sustainable development practices. From a historical perspective, innovation within the aerospace sector is interlinked with environmental considerations and factors at play , with innovation being driven increasingly by environmental concerns as awareness of the environmental impact of air travel shifts the consumer preferences and behaviours. Although a variety of technologies and solutions are seeking to increase efficiency and decrease greenhouse gas emissions, these can only be seen as incremental improvements, leaving a gaping hole for much needed transformational measures from companies, particularly airframe and engine OEMs, suppliers across the value chain in order to co-ordinate efforts to push the sustainability agenda across the sector. This is particularly relevant when one considers that emissions from aircraft are pegged to constitute 20% of all greenhouse gas emissions by 2050 if left unchecked , which underpins the necessity for ensuring that sustainable growth for the sector should be a major consideration in any strategy seeking to evolve the aerospace sector. There are already steps being taken in the right direction, specially with research and development of innovations such as blended wing bodies, hybrid or fully electric (fuel cell and battery based), hydrogen combustion mechanisms, advanced flight management, biofuel, advanced aerodynamics and auxiliary systems.
- Further, there is an ongoing trend of consolidation across global supply chains, and whilst this is not a new development and has long been used as a strategically imperative tactic by companies across industrial sectors to position themselves effectively, it is affecting opportunities and businesses in the aerospace sector massively in recent times . The effects of this trend can be seen in the way business opportunities are created, collaborative ventures are undertaken, and logistical planning is chalked out – all lending force, in one way or another, to the aerospace industry’s capability to compete on a global scale . As the DOM (outlined in the first point above) permeates deeper into the aerospace sector and environmental considerations become more imperative, the consolidation and assimilation across the sector will continue to rise. As with any consolidation / assimilation, this has resulted in a downward pressure on costs (with consolidating / acquiring companies seeking to drive them down in order to establish a foothold in the market), which translates into a need for process and organizational innovation for those who cannot consolidate as they seek to remain competitive. As a result of this downward pressure (passed from airplane manufacturers down to OEMs and supply chain entities owing to expectations of reduced cost over time), aerospace manufacturers are seeing a big rise in both the number and value of M&A as companies continually look to combine forces in the face of these budget cuts from OEMs. Consolidation like this is but a natural progression. In some ways, the aerospace industry’s efforts to reduce supply costs are analogous to the drastic changes to the automotive supply-chain in recent decades. For instance, a large midsize supplier has the ability to tap into newer markets for previously inaccessible revenue opportunities. This greater size also permits further streamlining and fine-tuning of internal operations, and provides greater stability to bear the brunt of this top-down pressure.
- As the country that feels a sense of pride in undertaking space exploration / missions with extreme precision at comparatively low budget outlays, it should not be lost on us that markets and technologies related to ‘outer space’ ventures are what will drive a large chunk of aerospace business in the coming years. As more companies seek to venture into this modern day promised land, the ‘El Dorado’ of our times, microsatellites, spacecrafts, adaptive aircrafts, and UAVs hold the key to tapping this currently nascent sector. The development of technologies in this sub-sector has been immense, which has opened up new avenues of application which can be used to fuel expansion into new public and private markets. India is particularly well positioned to exploit this opportunity and impact the development of the necessary expertise needed to gain a stronghold in the global markets.
The ‘S A F I R’ Problem and the Response Strategy
The correct methodology for creating a roadmap for spurring innovation in the aerospace sector in the country must first tackle the problem of actually identifying the current roadblocks impeding the implementation of a strategic approach towards creating an ecosystem conducive to innovation. For the purposes of analyzing and strategizing around the creation of an innovation strategy for the country, the impediments to aerospace innovation in India can be identified as 5 (five) key elements, which is the “S A F I R” problem – the aerospace industry is stifled due to its comparatively small Size, an Absence of Vision, a Fractured Framework, lack of Integrated policies, and systemic and evolving Restrictions on ‘Scaling Up’ that apply to industries looking to carve out a space in the Aerospace sector:
- S: First, India’s aerospace market is still relatively small in size, and acts as a limiting factor for R&D and capital investment. Further, the geographical and topological characteristics of India also act as inhibitors in terms of scientific capabilities being accessible, in addition to hindrances to the required optimal flow of goods, services and people from one part of India to another. These issues can be tackled by adopting a three pronged approach:
- Increasing access to aerospace assets and aerospace research expertise;
- By catalysing collaboration and allowing for cross-sectoral innovation; and
- Ensuring that the stakeholders in the aerospace research ecosystem have a common understanding in terms of priorities.
- A: Second, although the Indian aerospace sector continues to grow, there seems to be a stark absence of an integrated vision that could serve as a cohesive foundation towards undertaking a long-term planning exercise to stimulate growth and contribute towards goals that are strategic importance from a national interest POV. The intent behind solving this roadblock should be to strive for creating an innovation ecosystem that is properly funded, broad, interconnected, and serves as a model of best practices for the manufacturing & R&D sectors as some sort of a hallmark, with support and impetus for the development of emerging technologies.
- F: Third, in the current scenario, the country suffers from a Fractured Framework, i.e. programs and policies relating to aerospace are scattered across multiple departments, governmental agencies, and branches, which has caused the issue of suboptimal alignment and coordination to seep into how the framework has been executed and the synchronicity that comes with it. There is also an element of uncertainty and difficulty for the industry members whilst identifying which programs can support them in their efforts to tackle existing challenges and come up with innovative, disruptive solutions that have the capability of being applied. To tackle this challenge and really identify, execute and accentuate the aerospace industry’s position as a strategic contributor to innovation (both in cases of dual and military use), it is necessary to enable better alignment and coordination across all government-led / assisted organizations across several spectrums – be it funding, key thrust areas and innovation-related efforts.
- I: Fourth, In a similar vein to the second issue outlined above, it is clear that the aerospace industry’s ability to innovate, invest and achieve growth is severely lacking of integrated policies that can provide stability for the realization of a long-term vision; and additionally held to leverage assets in a cohesive and coherent manner over the entirety of the innovation life-cycle and the business growth process. The country would require the ideation and development of an innovation policy that is broad enough to cover space, defence, civil aerospace/aviation, and emerging technologies whilst being forward looking enough to adequately integrate the development of other broader-reach programs looking to spur innovation in the ecosystem.
- R: Fifth, when compared to large-cap / mega-cap firms, aerospace SMEs are, at least when deduced in proportionate terms, about half as R&D-intensive. This element coupled with the absence of external modes of funding support has handicapped SMEs when it comes to accessing global supply chains as it restricts them from successfully scaling up their production, integration capacities, and research & development activities. In order to enable the aerospace SMEs to be able to scale up, the thrust should be on providing an impetus through R&D programming, procurement levers and enabling enhanced access to capital for such companies.
In the aerospace sector, innovation is a multi-dimensional process, considering the fiercely competitive, highly R&D-focused, yet rewarding nature of the industry. In order for firms to operate effectively and remain relevant. Within the aerospace industry, companies can do that through effective investment planning / strategizing, operating with cost-efficiency through stricter controls on operations and R&D expenditures, accessing global supply chains, and positioning themselves in a manner that can help them attract mandates globally. Aerospace industries also need to tap into and exploit the right market opportunities, across commercial and civil markets, international and domestic defence contracting / supply chains, and through the creation of new market verticals for both manufacturing processes and service segments.
Generally, the success of the aerospace industries is dependent on how advanced three capabilities are with respect to each company operating in the sector – first, adequate technological capability for the business, which would require both a well-trained workforce supplemented by cutting edge-equipment that can be utilized; second, the capability to master the development, support, and industrial services processes; and third, the requisite capability to efficiently and economically manufacture or scale-up or deliver the product at the desired timelines whilst not compromising on safety, performance and cost.
It is also pertinent to note that, for the creation of a solid aerospace strategy, it is vital to also analyze the gaps and bottlenecks from an industry perspective, which makes it apparent that different kinds of ventures will face different challenges. For instance, for a start-up in the aerospace industry, the challenge will not be innovation (even though start-ups within the aerospace sector are an exception rather than the norm), but instead acquiring financing and the lack of demand-based policies. For SMEs (the ‘middle market’), the challenge would be to provide fuel for the product and process innovation mechanism, enabling and incentivizing consortium building, and the development of resolute supply-chains. For aerospace OEMs, the challenge is the promulgation of a stable, comprehensive, and compelling value proposition that encourages investments in India and underpins our image as an ideal place to invest and innovate.
With these parameters in mind, the growth of the aerospace sector requires a well-articulated Response Strategy that can remain cognizant of not just the challenges posed by India’s Aerospace Problem, but also of the key driving trends which will define the upcoming challenges for any companies operating in this sector.
- Creation of a ‘National Industrial Strategy’ for Aerospace: The Response Strategy must be focused on developing a clear, descriptive, and well-thought out national industrial strategy, which utilizes analytical capabilities and business intelligence in order to identify key priority areas and set investment priorities in order to provide tactical support to businesses in the aerospace sector. For the same, it is imperative that the Response Strategy must integrate various policies, and ensure that all concerned stakeholders within the aerospace sector are working towards a set of mutual objectives. The Response Strategy would also need to track investments in the aerospace sector, along with provision of business intelligence for future market drivers and science & technology drivers which are to be accounted for. As a yardstick for measurement, the analysis should hinge on and be driven through comparisons with other similarly placed nations with booming aerospace markets, focusing on the intersectionality between the resources invested and the policy instruments that are driving the ecosystem forward.
- Encouraging Risk-Sharing at a Policy Level: Owing to the high-risk plus high-cost nature of the later stages of the aerospace innovation development process, there seems to be a relatively low government-backed risk-sharing in the research & development of demonstration projects at a large scale. The cumbersome nature of the administrative process, and the nature of their operations’ terms and conditions acts as a hindrance to the efficacy of any such effort when compared to other forms of raising capital through the private market (be it in the form of loans, or equity etc.). Additionally, in the current scenario, the highly capital intensive efforts of aerospace R&D carry with them the uncertainty attached to the innovation – as the innovation can’t really disrupt the market and translate into economic value for the company unless the technological innovation is demonstrated and approved (with the sufficient certification requirements being met). The Response Strategy should lay emphasis on an enhanced risk distribution model which must be implemented through a risk-sharing mechanism at both the industrial research level (wherein the planned R&D is aimed at the discovery of new know-how that can be useful in the development of new products and processes) and the pre-competitive development level (where the industrial research can be translated into a plan or a blueprint or a design approach that may be utilized for the creation of a prototype).
- Formulating a ‘Network for Aerospace Research Collaboration’: As part of an appropriate Response Strategy, there is also the need to formulate a collaborative aerospace research network that can leverage India’s scientific research expertise and implement it with a two pronged approach – for driving the country’s aerospace research into ‘greener’ and more sustainable areas; and to incentivize domestic MSMEs to maximize innovations through partnerships and joint efforts. It is imperative to redirect efforts towards using this collaborative network as a means to accelerate green aviation technologies, which have the potential to act as the catalyst for providing a competitive edge whilst being in compliance with ever-increasingly stringent environmental regulations, both on a national and international level. Further, the domestic MSMEs may be incentivized through an inclusive R&D mechanism that can fill the funding gap for such industries with respect to undertaking high TRL R&D projects. Such a network would not only serve to integrate the innovation and the clean tech directives that are the need of the hour for the aerospace industry to flourish, while also delivering R&D innovation and strengthening the network to create synergy across multiple levels.
- Kick-starting a ‘Research and Innovation Program’: The appropriate way to unlock true innovation potential in the aerospace sector would be through the implementation of a research and innovation program that covers technological capabilities, process and product innovation through the allocation of funding that can drive commercialization and procurement of the innovations created by the industry. The Response Strategy should also focus on an appropriate way to drive this program forward, which would be through an added dimension of having a large / mega-cap company working with SMEs in order to integrate the innovations created by the SMEs into a larger system that the government procures. The benefits of this are two-fold: not only can this prove to be an effective mechanism for cost reduction (from the POV of the larger companies in the Indian aerospace market) in the future (which seems to be the need of the hour considering how the aerospace market is acquiring a price-sensitive characteristic as several governments look to reduce their defence budgets and cut costs) but it could also help by providing the SMEs and lower-tier suppliers to use the facilities of the larger companies for the purposes of testing and validation.
- Shift in the Procurement Strategy: For the last few decades, the driving consideration for procurement strategies for the government has been to focus on the products that are ‘economically low cost’ as opposed to favouring those that offer the best value and the highest long term potential. This approach itself is quite harmful for fostering an innovation culture in the country. It would benefit immensely if the procurement preferences saw a change and veered more towards undertaking projects that offer long-term potential, which would make undertaking projects with some associated development risk feasible. This will serve to provide a futuristic approach to developing aerospace expertise and technologies, and while it may not be feasible to undertake such an action for high-cost aerospace projects, it is an executable action point for projects that aren’t prime tier or very costly. For the same, it may be possible to create a threshold of an appropriate amount (say for instance projects under INR 100 crores) wherein any projects under the threshold amount may be selected based on long-term potential and value as opposed to bare economical costs.
- Creation of a ‘shared pool of resources’: In order to fuel innovation, it is imperative that the Response Strategy is focused on increasing access to infrastructure and equipment. It would be a viable move to explore certain possibilities with the different stakeholders in the aerospace sector that can push the aerospace infrastructure towards having a set number of open and shared laboratories and testing facilities, which will accentuate skill development and prototype testing if implemented accurately. To realize the maximum value for investment, such publicly funded assets must be utilized to bridge the gaps we currently experience in scientific expertise, business knowledge and commercialization.
- Assimilating Academia and Corporations into an ‘Aerospace Hub’: The creation of an aerospace hub that assimilates both universities and corporations into a singular framework can help fuel innovation and address the skills shortage (in practical, real-world application terms) by attracting the best talent in the country to the aerospace industry. In order to effectively realize this objective, such a hub must seek to enable the formation of research facilities that may be shared between the academic institutions and companies, through the co-location of certain aerospace R&D infrastructure and expertise that can enhance collaborative R&D projects and provide students / recent graduates with practical learning experiences. This would also help in attracting foreign investment into India as foreign-incorporated corporations or their Indian subsidiaries notice the rise and development of the talent pool in the nation. The creation of such a hub would also help drive massive amounts of foreign investment into the country and create substantial number of jobs.
Such strategic policies, if implemented and executed efficaciously, will help accentuate and augment our innovation framework in the aerospace sector, and help us to reduce the gap when compared to our more developed peers, since no longer can a fractured, fragmented framework help innovation take strides – the only way forward is to develop an integrated approach to solving this problem.