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The Aerospace Industry: Prospects for Co-operation Among the IBSA Countries. Dr Mills Soko Director, Mthente Research & Consulting Services (Pty) Ltd. Senior Lecturer, University of Cape Town SAIIA Research Associate . Overview. Project rationale & methodology. Global context. SA’s vision.

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the aerospace industry prospects for co operation among the ibsa countries

The Aerospace Industry: Prospects for Co-operation Among the IBSA Countries

Dr Mills SokoDirector, Mthente Research & Consulting Services (Pty) Ltd.

Senior Lecturer, University of Cape Town

SAIIA Research Associate

overview
Overview
  • Project rationale & methodology.
  • Global context.
  • SA’s vision.
  • Findings.
  • Way ahead.
project rationale methodology
Project Rationale & Methodology
  • Purpose of report examine strategies for strengthening cooperation among IBSA countries in aerospace sector.
    • Based on in-depth interviews with representatives of 5 SA aerospace companies.
      • Denel.
      • Aerosud.
      • Reutech.
      • Grintek.
      • African Defence Systems.
    • Interviews informed by semi-structured questionnaire.
project rationale methodology4
Project Rationale & Methodology
  • Questionnaire covered 7 areas.
    • General.
    • IBSA economic relationship.
    • South-South cooperation.
    • Capabilities.
    • Value addition.
    • Role of government.
    • Threats.
  • Also collected statistical information about aerospace companies.
    • Number of employees.
    • Annual sales.
    • Annual exports and imports etc.
global context
Global Context
  • Aerospace industry key generator of wealth and driver of technological and economic development in industrialised countries.
  • Also crucial source of employment.
    • E.g. In 2000, European aerospace industry employed 429 000 people.
  • Global aerospace sector poised to expand by 25% in real terms in next two decades to $250 billion per year.
  • Yet industry remains dominated by few economic powers.
global context6
Global Context

Annual sales of selected aerospace companies, 2000

Source: Paul Hatty, cited in AStrategy for Sustainable Economical and Growing Aerospace Industry, Pretoria: DTI, 2003

south africa s vision
South Africa’s Vision
  • To develop aerospace sector as sustainable and growing industry by 2014.
  • To this end, government has sought to position sector as high-value global manufacturing industry and regional African transport hub.
  • DTI has unveiled Aerospace Industry Support Initiative (AISI) to bolster SA’s aeronautical, space and defence industries and encourage their full integration into global aerospace supply chains.
south africa s vision8
South Africa’s Vision
  • AISI seeks to achieve its objectives by:
    • Improving global competitiveness of aerospace industry.
    • Providing an institutional platform for encouraging partnerships and innovation among government, industry and academia.
    • Identifying, developing and promoting the interests and capabilities of the SA aerospace industry.
competitive strengths
Competitive Strengths
  • SA’s competitive strengths are in avionics, aerospace systems development, and production of airframes and engine components.
  • Other capabilities include inertial sensor systems, integrated logistical support and aircraft protection systems.
findings south south cooperation
Findings: South/South Cooperation
  • Currently very little or no aerospace collaboration between IBSA countries.
  • Respondents agreed on need for coooperation, but important to clarify rationale for such cooperation.
    • Is the objective of cooperating to compete with Boeing and Airbus? Or to have a sustainable high-tech industry that can provide skilled employment while making available tailor-made products to global manufacturers at reasonable prices?
findings south south cooperation11
Findings: South/South Cooperation
  • Three areas of potential cooperation identified.
    • First, expansion of aerospace supply chains, based on commercial opportunities offered by diverse capabilities of IBSA countries.
      • Premised on prospects offered by Embraer, Brazil’s regional aircraft manufacturer.
      • From SA perspective, demand for regional aircraft in Africa expected to grow in the future, with commercial carrying capacity poised to double over the next 6 years.
      • Provides opportunities for provision of SA-based aircraft maintenance, modification and upgrade infrastructure to service regional African fleet.
      • Also potential to create employment and spin-off companies.
findings south south cooperation12
Findings: South/South Cooperation
  • Second, collaboration on aerospace systems in support of strategic defence needs.
    • Global trend towards industrialisation of defence production offers opportunities for integrating domestic defence industry with global supply chains via international srategic alliances.
    • SA engaged in discussions with Brazil with view to upgrading/replacing some of Brazil’s ageing airforce hardware – mainly fighter jets, but also supporting sub-sytems.
    • Grintek made progress in entering Indian defence market – supplies Indian fighter aircraft with self-protection systems.
findings south south cooperation13
Findings: South/South Cooperation
  • Third, collaboration around small and micro satellites.
    • Brazil and India have strong competencies in small and micro satellites, including launching capability.
    • SA has small but reputable small and micro satellite industry and ground support infrastructure.
    • Respondents called for more integrated approach in these fields.
      • Exchange expertise and technology platforms, and foster closer working relationships between public and private sectors in IBSA countries.
findings capabilities
Findings: Capabilities
  • Scope for developing better technological capabilities in aircraft and aircraft components production.
    • SA aerospace industry could exploit its competitive niche areas to integrate SA manufacturers with Brazilian and Indian aircraft production sectors through, for example, risk-sharing development and government-supported marketing efforts.
    • Concern that although IBSA countries have infrasctructure to develop vibrant aerospace sector, there was a lack of funding, a lack of defence coordination, and uncertainty about markets prepared to buy from IBSA grouping.
findings capabilities15
Findings: Capabilities
  • SA’s infrastructure capabilities vary:
    • Skilled personnel.
      • SA universities offer useful courses.
      • Aviation baseload underpins appoinment of new engineers.
      • Companies determined to further improve industry’s skills base
      • E.g. Aerosud plans to increase staff from 200 to 700 within 2 years to meet contractual obligations, has been investing in skills training in partnership with DTI & DST.
    • R&D spending low, but growing thanks to AISI programme.
findings capabilities16
Findings: Capabilities
  • Insufficient investment in manufacturing facilities and capital equipment.
    • Some companies, especially Aerosud, have led the way in investing in modern production methods and in increasing production output.
  • Insufficient financial resources.
    • The IDC is willing to offer financial support, provided a viable business case is made.
findings value addition
Findings: Value Addition
  • Europe and US high-cost manufacturers.
    • This offers oportunities for emerging economies.
      • But important to note that aviation is a high-risk business requiring very large upfront investments with long-term break-even times.
  • Value addition instruments most likely to yield optimal benefits.
    • Boosting R&D.
    • Shared research.
    • Joint marketing arrangements.
    • Technological exchanges.
findings role of government
Findings: Role of Government
  • SA government’s approach to aerospace industry pro-active.
  • Government’s role is to:
    • Provide aerospace sector with strong direction.
    • Collaborate with IBSA countries on projects.
    • Address concerns around import duties, tariffs, manufacturing and investment incentives, and transaction costs.
    • Provide subsidies for collaborative investment and manufacturing programmes.
findings challenges threats
Findings: Challenges/Threats
  • Corruption allegations levelled at Denel by Indian government.
  • Competition vs. Cooperation – Can IBSA countries develop common interest? Need for ‘win-win’ focus projects.
  • Problem of over-capacity and declining defence expenditure in Brazilian and SA defence industries.
  • Indian/Brazilian attitudes to SA government’s BEE policy.
  • Can SA’s Airbus/A400M strategy be balanced against imperative of South-South cooperation?
way ahead
Way Ahead
  • Clear interest in SA in proposed aerospace programme.
  • DTI offered to host preliminary meeting of aerospace players in IBSA countries to explore ideas, proposals, plans and strategies that can take aerospace initiative forward.
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