UKTI Aerospace Sector Short Term Business Attachment - India

1. Monthly Report

2. UKTI Aerospace SectorShort Term Business Attachment - India 2nd Monthly Report By Jaimie Rogers Monthly Report

3. Achievements Supported the EADS/ Airbus Low Cost Subcontracting Campaign – Supplier Visits With my UKTI ‘hat’ on this gave me the opportunity to visit 10 of the top Engineering Service Companies in India The main aim was to understand these companies capabilities See opportunities section of this report which provides an overview of this sector Appended to this report are my company visit reports Commissioned the update to the Genser Aerospace Report Draft to be completed by mid July (07) Final version by mid August (07) Regular progress reviews underway Visit to Delhi to see a number of companies and organisations. This visit had a number of aims: Let UK & Indian Government representatives know I was in country and the intent of my role Make UK company representatives aware of my role and also get their view on India and where opportunities/ gaps might lie Speak to Indian organisations & companies, let them know my role; get their view of the Aerospace Industry and where support is required The main focus was around the aviation sector. Most were very welcoming and provided insightful views on where there are gaps I will pull much of this together in my report on the Indian Aviation Sector Major action is to follow up with Confederation of Indian Industry regarding their programme of seminars. One seminar is focussed on aerospace manufacturing. This could be very good for a focused Mission in Oct 07, i.e. attending seminar, meeting companies, then visiting their facilities. I think ideal for UK SMEs. Prepare for the Paris Airshow. Primary aim was to set up 1 to 1s with UK and Indian SMEs. I initiated contacts for 12 UK SMEs. Confirmed 14 invites to the UKTI Dinner/ 3 invites for the Ambassadors Reception Secured a major sponsor role for The Engineering Design.In Conference & Expo to be held in Bangalore 9-11 August Supported Aerologistics,(an SME from Liverpool) on their visit to Bangalore. I provided consultancy & it also allowed me to visit a number of manufacturing companies with reps for the UK manufacturing industry Monthly Report

4. Achievements Companies and Organisations visited in the last month: EADS supplier visits: Infotech Infosys HCL Incat Quest TCS Altair Cades Wipro Satyam Delhi visits: Jane Owen, Head of UKTI India Lee Griffiths- 1st Secretary Defense Equipment Co-operation (Deso) Aajay Mehra - Managing Director Airbus South Asia Stephan Billep- EADS Head of India Liaison office Sanjay Bahadur- Kingfisher Airlines CCO Amitabh Khosia Executive Director Federation of Indian Airlines Srinivas Duvvuri - Bombardier - VP & Rep India Mr K Gohain - Head of Director General for Civil Aviation R K Singh- Ministry of Civil Aviation (1st report to Minister) KV Kunhikrishnan – Augusta Westlands General Manager India Sanjay Kumar – CCO Indigo Airline Sujith Haridas - Director for Confederation of Indian Industry Kapil Kaul – CEO Centre of Asia Pacific Aviation Aerologistics visits: Tocol Enterprises Vijaya Metal Finishers Triveni Hi-Tech Titan Industries Maini Precision Products NS Narahari – Director at RV College of Engineering Other Visits: Joseph Varkey – Sec. Gen. Society of Indian Aerospace Technologies & Industries (SIATI) Genser Monthly Report

5. Actions in next month Attend the Paris Airshow Support 1 to 1 meetings Provide advice and consulting for UK SMEs looking to work with India Provide feedback to UKTI Glasgow on how the secondment is going and buy off of future plans Priority to see Hindustan Aeronautics Ltd. and Confederation of Indian Industries Set up programme of company visits over the reminder of my time in India: Identify top companies and organisations in each Aerospace sector and group by geographic location. Genser, the consultants who are updating the ‘Genser Report’ may also support some of my visits to help them gather data. The focus on company visits this month will be mainly manufacturing. The intention is my next report will focus on this sector Attend the Open Sky Summit in Delhi on the 3rd July. The focus being on issues within the Indian Civil Aviation sector. Also include further companies visits in the trip. Commissioning of a UK Aerospace Industry Brochure of Companies wanting to work with the Indian Aerospace Industry From my research to date, I do not see the benefit in producing this currently. My perception is that the Indian Aerospace Industry is very aware of UK capabilities. There is already an existing ‘UK First in India’ brochure produced for Aero India 07, which I intend to use for The Engineering Design.In Conference & Expo to be held in Bangalore 9-11 August. This has the 2 key elements I think are required: Firstly it has a section which looks at the big, headline grabbing activities that are going on in the UK currently, the projects and products that market UKAI to India. Secondly it has a listing of some of the UK companies wanting or already doing business in India. Adding a few more companies will add little benefit. What we need to see in UK companies coming to India to start relationships. The action is to produced an update for the next Aero India in 2009 which should include more UK companies and more on the marketing of UK Aerospace relating to India. Monthly Report

6. Opportunities The Indian Engineering Services Sector The subcontracting of packages of engineering design work to offshore destinations is becoming more and more important as companies look to reduce costs and also meet offset obligations. For UK SMEs this is maybe something they do on their own initiative as part of their company strategy or because they are being driven down this route by an OEM. This is probably one of the biggest and most important sectors for the UKAI. The Growth of the Indian Economic in a nut shell - The Indian economy was given a huge boost during the build up to the year 2000 and the concerns in the IT industry over the ‘Millennium Bug’. Much of the work was undertaken in India where there was a large, low cost, educated work force. This not only kicked off the economy but also started their process revolution: This ability to analysis and optimize is what India does very well. They take a process or application, break it down into very small, simple sections. Optimize each and when it is all linked back together they have generated a total optimized process. This demonstrates their ability to think innovatively within a process. What they tend not to be so good at is thinking outside the box – i.e. non logical innovation, laterally thinking. The Growth in Indian Companies - This process revolution has lead to the creation of some very large Information Communication Technology (ICT) Companies, who are now global players such as: TCS, Infosys, Wipro, Satyam & HCL. These companies strengths are their ability to understand the tools and processes they work with and their delivery capacity. What they currently trying to gain is aerospace engineering experience. There are also a number of other companies in the young Aerospace Engineering Services Field, such as Cades, Incat, Quest & ProSim whose background is engineering. This maybe automotive, general engineering, power, rail or marine/ offshore. Although they have engineering background, the kind of work they have undertaken in these field still tends to lean towards the IT support side. So once again these companies are looking for Aerospace experience. Aerospace Experience - With both the ICT and the engineering based companies their aerospace groups are still a relatively new. Cades are the oldest, formed in 1997. Most are only 2 to 5 years old. Aerospace experience is what differentiates companies. They are all ‘chasing’ experience either through the work they are undertaking or through recruitment. There are a number of retiree ‘consultants’ who now work for these companies from Hindustan Aeronautics Ltd and National Aerospace Laboratories. Some are also recruiting retirees from Western Companies. Some have formed strong relationships/ engineering centres with Western Aerospace Companies e.g. Monthly Report

7. Opportunities Quest & Rolls Royce; Magellan HCL & Finmeccancia; Smiths Aerospace TCS & HAL Infotech & GKN; Pratt & Whitney; Boeing Infosys & Spirit AeroSystems; Triumph Group; Alstrom Cades & Butler International; Cebenetwork Initially this work will be very low end, repetitive stuff but as confidence grows more technical work is being undertaken offshore in India. It is still remains the simpler work. Of the companies visited there was a wide range of aerospace experience. Some have undertaken large packages of work or are doing ongoing work with international aerospace companies. The other end of the scale is where they have modified some software on an aerospace CAE tool or supported CAE applications on aerospace programmes. The experience drops off pretty quickly after the top 5 companies. What an Indian company claims it can do needs to be fully interrogated and challenged through visits to their premises. Their skills and expertise span out from those developed from the ICT sector. All companies will do software development but very few have experience in stress hand calculations. The diagram on the following page gives an indication of the spread of skills that Indian Engineering Service Companies are currently capable of undertaking. What’s in it for them- Why do these organisations what to get involved in aerospace? Firstly the large financial returns possible. Secondly prestige. Aerospace sits well in their portfolio of work and the Indians do like to be associated with large international companies. It also gives their other groups more credibility. In most cases aerospace is still a small part of large organisations. They can afford to invest heavily in a relatively small group to get up to the necessary industry standards so they are able to take on work. Most are AS9100 approved, their offices are of good western standard and they are not short of the industry standard hardware and software. These companies are thinking longer term. Their investment in aerospace may not start to see returns for 5 to 10 years. These companies are cash rich. Investment capital is not an issue in India. They also make very (very) good profits on the work they undertake. Although they provide very good charge rates, by western standards, they still have significant profit margins built into their rates whilst ensuring they are still competitive. As the workforce becomes more experienced and salaries rise their overheads will increase but they have capacity to absorb some of it within their rates. As experience grows the hours to undertake work should also reduce. Monthly Report

8. Opportunities Increasing Complexity of Work Monthly Report

9. Opportunities Charge Rates and Overhead Costs Advertised company charge rates – General spread of charge rates seen across the companies: Designer: £ 10.80 to £ 21.60 /hr depending on years of experience Stress: £ 13.50 to £ 23.00 /hr depending on years of experience Hourly charge rates should not been seen as a deciding factor on company capability. Employee attrition and salary escalation are an issue although it has improved over the last 2 years. There are lots of stories that the average time someone worked in the ICT sector was 6 to 9 months before they moved on or the attrition rates in call centres was about 70%. In the Aerospace this not the case. The average attrition rate stated was about 11.5%, still quite high by European standards but companies are addressing it. Providing training and opportunities to undertake further academic qualifications such as Masters. They are also trying to provide better job satisfaction with far less data processing than in the ICT sector. Staff will still get attracted away from engineering into the ICT sector where salaries are on average higher: According to the Times of India, 27 June 2007, 73% of ICT graduates start on somewhere between £ 2500 and £ 5000 per annum. Most of the big engineering service companies are based in Bangalore. The cost of land has doubled as Bangalore has expanded to 7 million people from just less than one million in 2000. The cost of commercial land is equivalent to £20 sq. ft. The cost of building is very low: a guestimate would be ¼ the cost in the UK. Utilities are cheap. Hardware is also available cheaply with a lot of the it being manufactured and sourced in India. Little in the way of other capex costs, such as manufacturing machinery. Software licenses are the only cost I not sure the Indians can reduce but I’m sure they will have struck deals with the distributors. Company Structures - The top ten companies have good logical Organisational Breakdown Structures. They have domain experts for their areas of interest. The large companies have someone who is responsible for delivery of all their projects. They use project managers to run packages of work, some might be the lead engineers as well, which may cause bottle necks. There big issue is the number of staff with only 1 or 2 years experience compared to the number of experienced staff, which may only be 5 years. The lower order companies tend to have a very poor ratio. One lead engineer to 20 or more inexperienced staff. Staff- All the companies’ staff are academically well qualified. All will have a degree, many a masters and there domain experts will probably have PhDs. In general a masters is the equivalent to a standard degree in UK. Many companies allow their staff to undertake training for qualifications such as masters but are now limiting places due to demand. The average level of training is 2 weeks a year. Most companies have a 3 to 6 month induction course when a new employee starts. Monthly Report

10. Opportunities Tools- Most of these companies work with the industry standard tools for CAD, CAE, FEM, PDM, DMU. In some cases they may have experience of using company specific packages if they have undertake work for a major customer. They will invest in tools if commercially worth while Quality- All can talk extensively on quality and quality procedures, most of the top ten are AS9100 approved, as well as many other approvals. They have feedback and lesson learnt processes running, which because they have such a strong process driven culture they do use and learn from them. In terms of a quality deliverables these companies will learn quickly but there needs to be that good integration to ensure both parties understand requirements. - This is where a UK Co. need to invest effort to ensure the job is delivered to time and quality. Intellectual Property Rights (IPR) - In all the companies visited IPR was an issue that all had experience of dealing with. All had good data/ information separation and also staff separation where appropriate. One learning point – make sure that the contract/ agreement clearly states how IPR should be addressed if it is a concern. They will do it but only if asked. The Future- The speed at which these companies will gain experience in aerospace over the next 5 years will accelerate due to these companies ‘chasing’ it but also due to the fact that the International OEMs will put more and more work both direct and indirect to offshore for the cost advantage and offset obligations. India is seen as a good destination for off shoring: they speak English; no big cultural issues; are IPR sensitive; have a ‘aim to please culture’ and the companies have good infrastructures and backing. All these companies have offices in the UK, which are mainly for marketing currently. Some do have a large presence in the UK and Europe with their staff supporting work on shore at customers sites e.g. TCS have a number of engineers support the Airbus design centre in Birmingham, They also have a very large team supporting Labinal on the electrical concessions in Toulouse. As more packages of work come for the UK it won’t be long before some of these companies set up engineering design offices in the UK to provide better integration of this work. Satyam are on the verge of doing this. Infosys are looking to follow suit. As confidence grows in India’s abilities and as more Indian companies bid directly for work packages more work will be moved out of the UK direct to India. More international companies will develop long term relationships and set up MoUs and or engineering centres within these companies. Some of the large OEMs will open their own engineering centres in India, e.g. Rolls Royce already have to manage and integrate their work in India. Airbus & EADS are doing so currently, where India companies will have large teams to integrate and support large packages of work. Monthly Report

11. Opportunities Some Indian engineering service companies are now looking to partner with manufacturing companies so they can provide design build capabilities and offer amortization. UK SMEs strategy to work with Indian Engineering Service Companies– Think long term. The first package placed will not give much cost savings due to ‘start up’ issues. There will be some hard work to get it right, just like any work package offload. All Indian companies I spoke to usually expect to place someone from their company in the UK company at least for a period to pick up a package of work. Most have representatives in the UK who will act as an interface, attending meetings where required, usually at the outset and monthly reviews. If it is the very first one it may have to be for longer. Be prepared that a UK person will need to go to the Indian office for a period, especially for the first package. Regular trips, phone conferences and video conferences will also become part of the day job. All companies I interviewed seemed to be aware of how to project/ technical manage a package; how to manage and resolve issues via reviews, escalation and using agreed assumptions. Think very carefully about what work to off shore to India. What I’m not endorsing is moving work to India that will put people out of work in the UK. Rather, where it will benefit a UK SME. Yes, one of the major advantages is the cost benefit, but currently the work should in general still be the labour intensive, repetitive, low risk work, that will free up experienced personnel that can work on new design packages and new technology. Some of the work that these Indian companies are strong at are tech pubs, 2D drawing to 3D model conversion or from legacy CAD systems; product weight optimisation; CAE tool customisation. They all have a good set of industry standard CAE, CAD tools. There are opportunities for UK SMEs to utilise these tools especially where the SME does not have them themselves because they may not see these as on of their key competency. Their view is that the minimum size of package to see any real benefit should be 4-5 men for 4 months i.e. 3000 to 4000 hrs. Once a package is complete long term support of 1 or ½ a FTE will also work. They do expect smaller packages of work to start the relationship with a company. Don’t put different packages of work with different companies. Develop a relationship with 1 or 2 and work with them and develop them. Start low risk. Put out some very simple work: Data conversion, 2D work. Then build up size and complexity of work as confidence and the relationship matures. In general the work will always remain lower order work. Be aware of the issue of time and distance. Ensure requirements are very well defined in the contract and that the Indian team leader/s fully understand as well. This will be ongoing throughout the life of a project. Monthly Report

12. Opportunities A number of European and North American companies have signed some type of MoU with India companies. There is no reason why a UK SME or consortium of UK SMEs (who may undertake work for the same OEM) could not do the same. Inward Investment into the UK- The other major opportunity coming from this sector in inward investment into the UK. All the top companies have offices in the UK. Currently mainly small offices for marketing. As the amount of work from the UK and Europe grows they will look to open bigger, technical offices in Europe to provide better integration of the work packages, i.e. have lead engineers and integration teams located close to their main customers. The UK need to ensure it becomes the home of these offices, not France or Germany. I suggest UKTI need to start direct contact regarding this with these companies. As I hold follow on meetings I am discussing this with their representatives, they realise this is a major marketing point for their campaigns in Europe. The reports of my visits to a number of the engineering services companies will follow in due course. Having seen first hand and now have a better understanding of this sector and capabilities, I have identified a number of other engineering service companies I intend visit: ProSim BAEHal Geometric or Accenture Monthly Report