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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 l.jpg

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 l.jpg
Overview IBSA Countries

  • Project rationale & methodology.

  • Global context.

  • SA’s vision.

  • Findings.

  • Way ahead.

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Project Rationale & Methodology IBSA Countries

  • 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.

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Project Rationale & Methodology IBSA Countries

  • 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.

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Global Context IBSA Countries

  • 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.

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Global Context IBSA Countries

Annual sales of selected aerospace companies, 2000

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

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South Africa’s Vision IBSA Countries

  • 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.

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South Africa’s Vision IBSA Countries

  • 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.

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Competitive Strengths IBSA Countries

  • 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.

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Findings: South/South Cooperation IBSA Countries

  • 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?

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Findings: South/ IBSA CountriesSouth 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.

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Findings: South/South Cooperation IBSA Countries

  • 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.

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Findings: South/South Cooperation IBSA Countries

  • 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.

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Findings: Capabilities IBSA Countries

  • 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.

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Findings: Capabilities IBSA Countries

  • 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.

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Findings: Capabilities IBSA Countries

  • 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.

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Findings: Value Addition IBSA Countries

  • 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.

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Findings: Role of Government IBSA Countries

  • 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.

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Findings: Challenges/Threats IBSA Countries

  • 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?

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Way Ahead IBSA Countries

  • 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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Thank You IBSA Countries