Quest for Atmanirbharta in Commercial Aviation

While laying the foundation stone of Tata-Airbus C295 transport aircraft manufacturing facility - the country’s first in the private sector - in Vadodara, Gujarat on October 30, 2022, Prime Minister Narendra Modi said that India will soon manufacture large passenger aircraft, and they would also be marketed across the globe. The country’s aerospace industry is set for a paradigm shift, he added.

The approach could be two fold. Firstly, to convince major foreign civilian aircraft makers like Boeing and Airbus to set up a final assembly line in India. Secondly, to begin the process of designing an Indian airliner from drawing board stage. The two routes should move concurrently. It makes sense considering the huge demand.

GLOBAL CIVIL AVIATION PREDICTIONS

In its 2023 report, Airbus’ Global Market Forecast (GMF) for the 2023-2042, predicts demand for passenger traffic will grow annually by 3.6 per cent CAGR (Compound Annual Growth Rate) over the next 20 years. As of June 2022, the total worldwide commercial aircraft fleet size was 28,674 aircraft (23,513 active and 5,161 grounded). Airbus has forecast a demand for 40,850 new passenger and freighter aircraft deliveries over the next 20 years, of which 32,630 will be typically single-aisle and 8,220 wide-body. A June 2023 Boeing forecast expects airlines will need to buy 42,595 jets from now until 2042, with 32,420 being single-aisle jets, 7,440 widebody planes, 1,810 regional jets and 925 freighters.

A Bain and Company report forecasts that by 2030, Europe–North America travel could increase about 17 per cent from its 2019 demand, while Asia intra-regional travel could jump 61 per cent. Asia maintains a much stronger outlook for long-term disposable income growth, and low-cost carriers also continue to accelerate growth.

HUGE INDIAN CIVIL AVIATION MARKET

India is not only the fastest growing major economy, but also the fastest growing civil aviation market, and its domestic air passenger traffic touched a new high of 4,63,417 people on November 23, 2023. Already the third-largest domestic aviation market in the world, it is expected to overtake the UK to become the third-largest global air passenger market by 2024. Indian aviation contributes five per cent of the national GDP. It also plays a crucial role in promoting tourism, and cargo movement. India will have 220 airports with scheduled flights by 2025 compared to 140 in 2022. Indian airports handled 188 million passengers in 2022. The current airliner fleet of around 750 aircraft will more than double in five years. 100 per cent FDI is cleared in most sectors of civil aviation.

“Positive attitude, progressive policies, and deep trust among passengers are taking it to new heights with every flight, everyday” tweeted India’s Civil Aviation Ministry. The two largest Indian airlines IndiGo and Air India have announced plans to acquire over 500 aircraft each in the coming decade.

As per DGCA, the passenger count of India’s domestic airlines reached 1,254.98 lakhs in the period January-October 2023 against 988.31 lakhs during the corresponding period of previous year thereby registering annual growth of 26.98 per cent. The increase in the volume of passengers reflects on India’s rising economy, income levels, and demonstrates the strength and durability of India’s aviation sector, and the rising demand for air transportation.

INDIA’S TRANSPORT AIRCRAFT BUILDING ECOSYSTEM

Hindustan Aeronautics Ltd (HAL) has been producing the HS-748 ‘Avro’ and Dornier Do-228 aircraft in India under licensed production. HAL has also been making civil certified Do-228 aircraft. Also, National Aeronautics Laboratory has designed and test flown the ‘Saras’ small transport aircraft which will be used as 14-seat light transport aircraft. Saras Mk2 will be 19 seater. HAL will manufacture it at its Kanpur facility, and Defence Research and Development Organisation (DRDO) will be developing an indigenous turboprop engine for the aircraft. This is work still in progress.

The Tata group companies are already building aerostructures for many helicopters and also C-130J transport aircraft for global customers. Tata group is working with GE to manufacture CFM International LEAP engine components in India. Many Indian MSMEs and startups are in aircraft systems production.

“India will soon manufacture large passenger aircraft, marketed globally—a paradigm shift in the country’s aerospace industry.” —Prime Minister Narendra Modi

Meanwhile a Tata consortium will be building 40 Airbus C295 MW aircraft and significant numbers of its sub-systems in India at a plant in Baroda, Gujarat. The first ‘Made in India’ aircraft will roll out of the new facility in September 2026. Before the completion of deliveries in 2031, a D-level MRO (maintenance, repair, and operations) facility will be set up in India. This facility will act as a regional MRO hub for various variants of C295 aircraft. The indigenous content in these planes will be the highest ever in India, with 96 per cent of the work that Airbus does in Spain gradually being done at the new facility in India. More than 125 domestic MSME suppliers spread across different states. This project should also help India in pushing its commuter aircraft.

JUSTIFICATION FOR BUILD IN INDIA

India will buy more than 90 per cent of all airplanes delivered to South Asia in the next 20 years. India’s passenger and cargo sector requirement is close to 120 aircraft a year, implying around 10 aircraft a month. That is a significant market for any airliner manufacturer. Indian government has been incentivising ‘Make in India’ in aviation. India has the skilled manpower, and favourable demographics for many more decades. The country has large number of medium and small manufacturers who are already supplying globally certified systems to international customers. Country has huge land banks near airports that can be allotted to major manufacturers.

China’s dictatorial aggressive approach and unilateral actions in South China Sea has antagonised the world. Also, its supply chain - approach has forced responsible free world nations to decouple from it. China’s population is ageing due one child policy, and also economic growth is slowing down. The general trend among global manufacturers including Apple, Samsung and Nokia, is to move manufacturing in India. While China will continue to require many airliners, Beijing’s home-grown civil aircraft have already begun to compete with Boeing and Airbus in that market. Major manufacturers are pulling out and setting up shop elsewhere. India is the natural alternative choice.

The Indian aviation market will need an estimated 2,200 new aircraft between 2022 and 2040, a three-fold jump from the country’s commercial fleet at present. India’s economy is bullish. Country is a well-established mature democracy, and no political shocks are likely. Manufacturing in India could be nearly 25 per cent cheaper, and it could become a global hub. It could service the growing markets in West Asia.

The massive 470-aircraft Air India order includes 250 Airbus passenger jets in additional to 190 737 MAX aircraft, 20 of Boeing’s 787s, and 10 of its 777Xs. IndiGo airline has placed a record order for 500 A320 family aircraft. Both, Boeing and Airbus, are under pressure to set up manufacturing in India. They both will look for first mover advantage. Civil aviation would be an important element of India’s dream of becoming the “new factory of the world”. How early it will happen, only time will tell.

CONDUCIVE BUSINESS FRIENDLY ENVIRONMENT

India has been steadily moving up in “ease-of-doing-business” rankings over the years. The economic survey 2022-23 indicated that India reduced over 39,000 compliances for ease of doing business. Yet more is being done. The rail, road, and port infrastructure is coming up at high pace. Red-tape has reduced considerably. 100 per cent FDI is already cleared in most sectors of civil aviation. Skilled labour is getting in place. India is already a global hub for automobile and mobile phone sectors and manufacturing quality is thus not an issue. Aviation rated production quality is now of global standard. Boeing already has nearly 5,000 employees and 300 suppliers in India. They make B737 aircraft fins at their Hyderabad facility. Airbus also has nearly 50 years presence in India, and same will increase many fold with the C295 manufacture.

An important condition for foreign OEMs to manufacture in India is to have an appropriate local partner. It will greatly support regulatory clearances and project management. Major aviation giants like Lockheed Martin and Boeing have followed that strategy. India will thus be a great location for any company’s global manufacturing map and its path to profitability.

2018 TASK FORCE

Feasibility Study had been carried out by CSIR - National Aerospace Laboratories (CSIR-NAL), Bengaluru for National Civil Aircraft Development (NCAD) programme. The programme for development of a 90 seater aircraft will have two phases namely, design & development phase and manufacturing phase. The total estimated budgetary requirements of the NCAD programme is 7,555 crore, out of which 4,355 crore is for design & development phase and 3,200 crore for series production phase. In 2018, a taskforce was set up by government of India for suggesting a roadmap to build indigenous planes. It was to suggest setting up a special purpose vehicle (SPV) for the 10,000-crore project. The 106 members included those from the aircraft industry. This has been done in pursuance of the National Civil Aircraft Development (NCAD) programme and for promotion of India as an important investment destination and global hub for the manufacture, design and innovation under the ‘Make in India’ initiative. The development of the Regional Transport Aircraft was to be considered.

REGIONAL JET PLAYERS

While Boeing and Airbus have dominated the large commercial aircraft market, there are other players in regional jets which are smaller aircraft, fly shorter ranges, and carry fewer passengers. Bombardier of Canada and Embraer of Brazil are the historical leaders in the regional jet market. Commercial markets also include turboprops. There are other players in the business jet market such as Beechcraft, Cessna, Dassault, Gulfstream, etc. Around 200 regional jets are built by various manufacturers every year. The US and Europe dominate the sector. The Comac ARJ21 is a 78–90 seat regional jet manufactured by the Chinese state-owned aerospace company. 114 had been built by July 2023. The HAL/NAL Indian Regional Jet (IRJ) is planned asa 90 seater with targeted first flight around 2026. But the work is still in slow progress.

ATR VS DORNIER DO-228

The price of Do-228 is around 60 crore as compared to an estimated price of over 160 crore for ATR-72. The operational cost of ATRs is over 2 lakh per flying hour in comparison to Do-228’s 85,000 per hour. On many short haul regional routes it is difficult to fill up 70 seats of the ATR 72-600. The ATR needs a minimum 70 per cent occupancy to break even. Do-228, which is made in India turboprop with some imported components and imported engine (Honeywell), has a seating capacity of 19. The Dornier 228 aircraft requires runway length of 2,100 feet for take-off and 1,800 feet for landing. The aircraft thus has higher usability.

PRIVATE SECTOR IN AEROSPACE

Tata Advance Systems Ltd (TASL) is already in manufacture of aircraft (C295), aerostructures and many sub-systems. Mahindra Aerospace acquired Australia’s Gipps Aero and Aerostaff, and became first Indian company to go into full aircraft production, albeit a small one and that too outside India. The company has developed a major facility outside Bengaluru to produce airframe parts and assemblies within the country. The company is working with Airbus Helicopters for a joint venture to produce helicopters in India. Bharat Forge is forging aircraft parts for foreign OEMs. Reliance has the 400-acre Dhirubhai Ambani aerospace park at Nagpur for the manufacture of aerospace components. Adani Aerospace already makes UAVs in India. They are also in aircraft services and MRO.

THE ROUTE TO THE INDIAN AIRLINER

India has to harness the huge airliner and aero-engine demand to get OEMs to manufacture in India in partnership with local partners. First step is to get ATR, Airbus or Boeing to set a production line in India. Similarly India must also get some major civil airliner aeroengine manufacturer to set up a production line in India with a local partner. The next logical step would be to build our own short haul ATR-42 and 72 class aircraft, and later also single-aisle aircraft of Boeing 737 and Airbus A320 class.

The GE-F414 aero-engine will be made in India by General Electric in a joint venture with Hindustan Aeronautics Ltd (HAL), with some level of technology transfer. For civil aero-engine we must insist on a joint venture with significant technology transfer by leveraging high numbers and growing market.

India’s drone and UAV industry must start looking at manned and unmanned urban air mobility. With the drones and unmanned systems eco system getting in place in India, this is one area India must ride the bus at an early stage.

TAPPING INTO THE HUGE MRO MARKET

India has a huge MRO market for civil and military aircraft, and engines. A 2023 CRISIL report states that India’s MRO sector still faces obstacles such as difficulty obtaining credit, inadequate infrastructure, high taxes, licensing and certification issues, and high rental costs. But Indian government has introduced several policies to support making the country a global MRO hub. These includes reducing GST on MRO services from 18 per cent to 5 per cent, land lease policies for longer durations to lower rental costs, and discontinuing the 13 per cent government charged royalty on revenue. These should support reduction of costs by 10-20 per cent.

Setting up an MRO is highly capital intensive with a long break-even time. It requires continuously reskilled manpower and repeat investments in tooling, and certification from safety regulators such as the FAA and EASA, and global OEMs such as Airbus, Boeing, and many others.

Delhi and Bengaluru airports have established dedicated MRO facilities and these are being extended. A huge MRO hub will come up at the upcoming Noida International Airport, Jewar, Uttar Pradesh. More airports like Belegavi, Bhopal, and Tirupati will have MRO facilities. India’s Directorate General of Civil Aviation (DGCA) would have to stipulate international standards on the lines of those by FAA and EASA for international recognition.

As per Indian government’s top think-tank Niti Ayog report of October 2022, the Indian MRO industry was $1.7 billion in 2021. The global MRO market was worth $78.6 billion in 2022. The Indian market is expected to be $4.0 billion by 2031, growing at 8.9 per cent CAGR, faster than any other country. NITI Aayog has recommended incremental approach, by first setting up jointventures in India with global players, and gradually ascending the work-value chain. Ultimate India must aspire to be an international class MRO hub like in Singapore. A surge in local MRO facilities will be good for airlines operations, safety and costs.

CURRENT MRO PLAYERS

The current major Indian MRO players are, AIESL (Air India Engineering Services Ltd), Air Works India, and GMR Aero Technic Limited, among a few others. The airlines growth makes a great case for strategic investors, Original Equipment Manufacturers (OEMs) and global MRO players. Policy initiatives such as the MRO Policy 2021, National Civil Aviation Policy 2016, rationalisation of GST, are great incentive. Hindustan Aeronautics Limited (HAL) and Airbus have formalised an agreement to establish state-of-the-art Maintenance, Repair, and Overhaul (MRO) facilities for the A320 family of aircraft.

THE WAY AHEAD

Despite being the fastest growing economy and civil aviation market, India has not yet leveraged large airliner orders to get aircraft and engine manufacturers to set up shop in India. Nor has India tapped into the huge MRO market. The country does have manufacturing and assembly skills, but lacks original design work. The global and domestic narrow-body airliner market is huge. India must insist Boeing and Airbus to set up assembly lines in India and give component orders to local manufacturers. Large groups like Tata with aerostructure manufacturing experience, and simultaneously operating a huge airline, can bag more manufacturing orders. In the civil aviation sector, HAL is already manufacturing aircraft parts for Boeing and Airbus, and manufacturing Dornier 228 for RUAG of Switzerland. But so much more needs to be done.

India must set up an independent authority on the lines of the Aeronautical Development Agency (ADA) as envisaged under National Civil Aircraft Development (NCAD) programme to push civil aviation aircraft development. It must function under PMO as it would involve inter-ministerial support. It may subsume the transport aircraft building facilities of HAL and NAL. The agency can also be tasked to work on the MTA for IAF. The agency must also drive building MRO facilities. We may seek foreign consultancy for aircraft design. India must insist on foreign OEM to set up engine manufacturing through a joint-venture route. We must do all aircraft interiors work in India to begin with. Why cannot India make aircraft seats and other interiors in India itself? Avionics is another area where India is way behind and that requires task-force-like action.

West is moving out of China. Europe has a high cost of production. India is the next best destination. India also has large land banks near airports, especially the newer Greenfield ones. Government policies are becoming more attractive for promoting the manufacture and shifting MRO to India. Finally, India has to invest much more in R&D. Developing your own designs and having your own patents is important. India is a rising star, the time to act is now, lest we lose another golden opportunity. It has to be a whole-of-nation approach.