Rebalancing the Economy: Trade and Investment - Business, Innovation and Skills Committee Contents


Supplementary written evidence from A|D|S

SUPPLEMENTARY EVIDENCE - REBALANCING THE ECONOMY "TRADE & INVESTMENT" INQUIRY SESSION

I am writing to you on behalf of ADS. Our Managing Director Graham Chisnall gave evidence to the Committee on 1 February alongside Airbus, BAE and Smiths Detection.

Mr. Chisnall informed the Committee that ADS was creating "Ambassador's Pack" which would equip British Ambassadors in target countries with the key facts about the Aerospace, Defence, Security and Space industries that we represent. MPs asked to see this, and I have attached the top-level brief to the British High Commissioner in India that we are providing as part of this Pack.

The evidence session also focussed on our supply chain. ADS runs the 21st Century Supply Chains (SC21), a change programme designed to accelerate the competitiveness of the Aerospace and Defence industry by raising the performance of its supply chains. I have attached a briefing note and the "SC21 Benefits Guide" for your reference.

6 April 2011

INDIA : BRITISH HIGH COMMISSIONER'S BRIEFING

A|D|S

A|D|S is the trade organisation advancing the UK Aerospace, Defence, Security and Space sectors, nationally ad internationally with over 900 UK based members.

A|D|S has offices in England, Scotland, Northern Ireland, France and India (Bangalore and New Delhi) with new offices planned in China and the Middle East. Together with its Regional Trade Association partners, A|D|S represents over 2,600 companies spanning the whole value chain from Prime contractors through to SMEs, and involving almost all of the major global companies in the four sectors.

Farnborough International Limited (FIL), a wholly-owned subsidiary and is the exhibition and events arm of AIDIS and organisers of the world famous Farnborough International Airshow held in the UK biennially. FIL is also the joint organisers of the Bahrain International Airshow working in partnership with the Civil Aviation Authority of Bahrain and India Aviation, working with the Ministry of Civil Aviation and the Federation of Indian Chambers of Commerce and Industry (FICCI).

FIL has a long and strong pedigree of working on air shows in India and our involvement dates back to 2006. In 2006 we assisted in the organisation of Aero India 2007, working closely with the Ministry of Defence, Government of India and the Federation of Indian Chambers of Commerce and Industries (FICCI) to deliver a very successful show. Since that time FIL has continued to be very active in the Indian air show market and has been working closely with the Indian Ministry of Civil Aviation, Government of India and FICCI as the international sales and marketing arm of India Aviation, India's leading civil aviation show. The show due to take place in 2012 will be the third successive India Aviation that FIL will have been involved in and the show in 2012 will be a special one for UK industry as this is the year when the UK has been awarded partner country status.

A|D|S also encompasses the British Aviation Group (BAG) the leading representative body for UK companies involved in the airport and aviation development sector. It consists of companies of all sizes whose products and services are required in the strategic planning, finance, design, construction, equipping, securing, management and operation of airports and air traffic control systems. BAG's primary role is to assist UK companies win business in the UK and overseas, helping clients identify UK suppliers of goods and services that will meet their requirements. We provide support for UK businesses seeking to export products and services to new markets, deliver intelligence reporting of airport and aviation events, statistics and news as well as provide information on aviation and airport tenders and sales opportunities.

UK AEROSPACE, DEFENCE, SECURITY & SPACE SECTORS

These sectors are an ongoing success story for the British economy. They generate an estimated £60Billion in revenues, employ 500,000 in high technology, high paid jobs and collectively represent 25% of the total Advanced Engineering and Manufacturing sector within the UK.

These sectors play a vital role in the UK Government's agenda for rebalancing the economy and driving export-driven growth. Given the growth opportunities forecast in India, the UK sectors we represent are looking to grow their businesses in India and have a consistent track record of investment in country, led by companies such as BAE Systems, Martin Baker, GKN Aerospace, Cobham, Meggitt, Goodrich, Honeywell etc.

ADS PRESENCE IN INDIA

In order to maximise the opportunities for UK companies A|D|S has partnered in the setting up of two fully staffed offices in India. The office in New Delhi was established to focus mainly on the defence and security sectors and is a joint venture between A|D|S and UKTI, through their Overseas Market Information Scheme (OMIS).

In 2009 A|D|S established a second, cross sectoral office that complements the New Delhi office. This Advanced Engineering office enables in country representatives to market advanced engineering companies in aerospace, automotive and advanced manufacture; to grow Indian knowledge of UK capability; and to help UK companies to collaborate/partner with Indian companies, identified via OMIS work. The office is based in Bangalore, the heart of the aerospace and space sector in India.

OPPORTUNITIES FOR ADS SECTORS IN INDIA

Defence

India is among the top 10 Defence spenders in the world and is embarking upon on major acquisition programmes to replace the ageing and obsolete defence equipment and hardware and also midlife upgrades on existing platforms and weapon systems. UK companies have benefited from this already (eg BAE Systems supply of Hawk advanced jet trainers), but there is much more to do.

UK Defence exports to India in general involve significant "Offset", which is a form of economic and industrial compensation provided by an offshore supplier to a purchasing nation. Indian companies should benefit through added business and investment stemming from the fact that India is likely to be one of the largest available markets for defence in the World, with some US$100 billion (or Rs 4,50,000 crore) worth of equipment purchases to be made over the next decade, many of which will undoubtedly involve overseas suppliers. Whilst widely perceived as a burden on UK exporters due to its bureaucratic operation within India, offset provisions are also an opportunity for the UK firms to develop long-term partnerships with their Indian counterparts, giving them longer term access to the Indian market, and vice versa.

India is in need of massive investment and the offset rules are one means by which it is seeking to meet its target for 30% of GDP to be derived from manufacturing (currently 16%) over the next 20 years.

Nearly 70 Indian companies in large and medium categories are authorised by the Ministry of Defence, Government of India to bid on Indian government Defence contracts. Several of these are actively looking for UK partners to build capacity and capability to take on offset work.

Major current and future programmes:

  • 1.  The Medium Multi-Role Combat Aircraft (MMRCA) the medium combat fighter requirement for 126 aircraft at a value of $10-12 billion. The UK is competing with the Eurofighter Typhoon, against competition from the French, USA and Russia. This is the largest open competition for combat jets active in the world and is a key priority for BAE Systems and Rolls-Royce; currently things are looking good for the UK with the Typhoon as the front runner.
  • 2.  Light Utility Helicopter (LUH) a competition for 397 aircraft with 197 to be imported and the final 200 to be developed and built in India.
  • 3.  Light Combat Helicopter (LCH) forecast is for approximately 100 aircraft to be developed and built by Hindustan Aeronautics (HAL).
  • 4.  Advanced Light Helicopters (ALH) forecast for this aircraft exceed 1,000.
  • 5.  In addition to the above platforms there are plans to develop and build Medium Lift and Heavy Lift Helicopters to be developed and built in India over the coming 20 years.
  • 6.  Forecast for 99 ab-Initio trainers to be imported with a further 100 planned to be built in India.
  • 7.  The Indian Government plan to purchase under FMS C17 Globemaster, C130J Hercules and P8I Long Range maritime aircraft at a value of $10 billion.
  • 8.  The 12 additional BAE Systems Hawk aircraft are already signed with BAE Systems.
  • 9.  Plans for Network Centric Warfare and proposals for force multipliers, night fighting capability and simulators provide huge opportunities for a vast range of equipment.
  • 10.  Development of various naval vessels including Stealth Frigates, Air Defence Ships with Integrated weapon and control / management system along with a newly designed submarine.

Aerospace

As one of the fastest growing countries, India is forecast to require 1,000 new commercial airliners over the next 10 years. Most of these will be supplied by the large Primes such as Airbus and Boeing; whilst national regional aircraft programmes may contribute to these totals should they be successfully brought to market. A key requirement for the UK is to be able to establish partnerships with the appropriate Indian companies so that indigenous Indian companies can benefit from their growing aviation sector without this proving to be a barrier to UK company access in due course.

In the aerospace sector, Hindustan Aeronautics Limited (HAL) is planning to outsource 35% of its manufacturing capacity to the local market, and is looking to international partnerships and expertise to help to undertake this. The increase in world aerospace requirements for low cost manufacturing is predicted to result in Indian participation in aerospace growing globally from US$20m in 2007 to over US$ 2Billion by 2015. India is also predicted to grow its engineering services sector to US$5Billion in the same period. For India to be truly successful in its ambitions it will need to develop its supply chain. The UK supply chain is well equipped and able to support this growth by partnering with the Indian industry. A significant barrier to this is the restriction of Foreign Direct Investment which limits the equity for foreign companies to invest, see later paragraph.

Air passenger growth in India has been one of the highest in the world; India's civil aviation market has recently grown at a compound annual growth rate (CAGR) of 18 percent. The Airports Authority of India (AAI), a Ministry Of Civil Aviation organisation has the mandate to develop Airport Infrastructure in India to meet the challenges of growing passenger traffic and cargo volumes. AAI manages 125 Airports, which include 11 International Airports, 8 Customs Airports, 81 Domestic Airports and 25 Civil Enclaves at Defence Airfields. AAI also provides Air Traffic Management Services (ATMS) over entire Indian Air Space and adjoining oceanic areas with ground installations at all Airports and 25 other locations to ensure safety of Aircraft operations. Keeping in line with policy of liberalisation, the Government of India has decided to modernise the major International Airports and attract private participation in order to induct the much-needed capital for expansion and modernisation of metro airports to world class standards. Four metro airports at Delhi, Mumbai, Bangalore and Hyderabad have, or are being, developed and operated by private entities through Public Private Partnerships (PPP) concessions while Kolkata and Chennai are being developed by the Airport Authority of India.

The Indian Maintenance, Repair and Overhaul market as a support industry, will continue to expand steadily as the growth in passenger and cargo traffic increases current predictions are that it will grow from $1.17 Billion per annum in 2010 to $2.6 Billion per annum by 2020.

Security

India is expected to spend US$10Billion on Homeland Security over the next two-three years and India's private security industry plans to invest US$12.3Billion by 2016. Expenditure related to airport security is estimated to be in excess of US$3.2Billion by 2016.

In the Cyber Security sector, India's vibrant ICT sector needs a secure and strong corporate business environment and the UK can provide it. E-commerce and online data protection and identity assurance is key and India recognises that the UK can offer much needed capabilities and skills.

Space

The successful launch of HYLAS (Highly Adaptable Satellite) in November, in reaching geostationary orbit on the European Ariane-5 V198 launch vehicle was also good news for ISRO and the Indian space sector because HYLAS was jointly built by ISRO/Antrix and EADS/Astrium for the UK's Avanti Communications of UK.

After HYLAS launched, ISROs Master Control Facility at Hassan took over the control and command operations of the satellite and successfully guided it to its geostationary orbit. The HYLAS Satellite remains in good health and in continuous radio-visibility from Hassan. This bodes well for future UK and European joint ventures with India and already discussions have begun between the respective industries and space agencies to determine a programme of follow-up to HYLAS.

A|D|S used the opportunity presented by AeroIndia in February to brief the A|D|S office in Bangalore on developments with planning for FIA12, in order for the Bangalore Office to approach ISRO to invite them to attend the show and take a stand in the expanded FIA12 Space Zone (double the size of 2010). The A|D|S Bangalore Office intends to brief ISRO with a detailed presentation of the space zone proposal put together by A|D|S and FIL. If successful the attendance of ISRO at FIA12 with the attendant Indian space companies to the zone including Antrix, and would be good for both Farnborough and UK industry, presenting an opportunity to build on cooperation on HYLAS.

To assist the development of this two-way business, the following obstacles need to be addressed:

FOREIGN DIRECT INVESTMENT (FDI) LIMITS

Foreign companies can invest only up to 26% equity into Indian defence companies. UK companies are reluctant to license their proprietary technology to an Indian company in which their equity is restricted to a minority of just 26%. Eliminating or significantly raising the ceiling on FDI would encourage greater cooperation and information sharing between international Defence manufacturers, which have finite funds with which to execute offset contracts) and Indian Defence companies

OFFSET

The current Indian Offset Regulations are not proving to be as effective as they should be in generating the benefits sought for India, and have also proven to be hugely bureaucratically burdensome for the offshore companies involved. This is why A|D|S and five other international trade organisations from across the USA and Europe came together and submitted an unsolicited letter to the Indian MoD in August 2010 outlining some constructive suggestions for how the Indian Offset Policy could be changed to achieve the desired outcome. It must also be remembered that through offsets Indian companies should benefit with added business and the introduction of high end technologies and substantial investments.

Major Indian Organisations looking for or already have relationships with UK companies

Indian Company Indian Company
Larsen and Toibro LtdTCS Ltd
Mahindra and Mahindra Ltd INFOSYS
Tata Motors LtdMAX Aerospace Ltd
Tata Power companyTaneja Aerospace
Punj Lloyd LtdDynamatic Technologies
Vectra Engineering Pvt LtdHindustan Aeronautics Ltd
Godrej and Boyce Manufacturing Co LtdBharat Electronics Ltd
Rolta India LtdBharat Dynamics Ltd
HCL Information SystemsMishra Dhatu Ltd
WiPRo Electronic Corporation of India Ltd
Bharat Heavy Electricals Ltd

A|D|S and its Member companies wish to work with the British High Commission to overcome these business obstacles, to benefit from these opportunities in the Indian market, and to more closely link the industries in the two countries. Close active support from the High Commission will be vital to the success of these efforts and we would welcome the opportunity to brief you and your staff more fully on these opportunities with the aim of developing plans together directed at capturing more of this business potential for UK companies in due course.

ADDITIONAL NOTE - 21ST CENTURY SUPPLY CHAINS (SC21)

What is SC21?

The 21st Century Supply Chains (SC21) is a change programme designed to accelerate the competitiveness of the Aerospace & Defence industry by raising the performance of its supply chains.

At a time when international competition necessitates rapid improvement in the effectiveness of our supply chains, SC21 positions UK Aerospace and Defence companies to deliver competitive exports and makes the UK a more attractive place to those wanting to invest in the sector.

At the same time, industry must ensure that it delivers competitive solutions for customers whilst maintaining profitable business growth. Since the launch of the programme, SC21 has been endorsed by companies of all sizes from the prime movers to SMEs in the UK Aerospace & Defence industry, including the UK Ministry of Defence. To date there are over 500 businesses committed to improving the performance of their business and thereby positively impacting the competitiveness of the UK Aerospace & Defence supply chain.

Large and small companies alike are, and can be signatories to the SC21, which commits companies to:

A new SC21 business culture: no matter what our role or position in a supply chain, we are determined to effect fundamental business transformation. We will work openly and transparently, through sharing information and working collaboratively, to deliver benefits across the industry. We will avoid duplication and waste.

Delivering innovation: we will build on success to enable our industry to be a leader in the development of competitive value chains. We will pursue the most competitive solutions for our customers, by accessing innovation and specialist expertise. We will encourage innovation and investment of all types throughout the supply chain, achieved through providing a more trusting and open environment.

Through-life solutions: total through-life cost is of paramount importance to our customers. We will involve all functions of the supply chain, for example: procurement, engineering and finance, throughout the project, product or service lifecycle. Transparency will be encouraged, with more planning and forecast data made available using bid conferences, project conferences and other means of communication.

Delivering the SC21 plan: as a signatory to this action plan, we accept that our adherence to the commitments will be tested annually and that our performance will be measured and published. We will help in the development of this plan by sharing experiences.

Leadership: we will encourage colleagues in the industry, including our customers and suppliers, to join SC21 as both signatories and active participants.

Ethical practices: we will ensure that all business is conducted in a principled manner, with the highest degree of personal and business integrity.

Increased pace of change: our rate of change and improvement will be at an accelerated pace. Signatories will work together to harmonise how supply chains are developed, how accreditation occurs, how performance is measured and how relationships are improved.

SC21 Partners

Developing a more efficient supply chain network involves tapping into networks throughout the UK. SC21 for instance has relationships with several partners, including:

Regional Trade Associations (RTAs).

  • Manufacturing Advisory Service (MAS).
  • Business Links.
  • Regional development agencies & devolved administrations.
  • Department for Business, Innovation and Skills (BIS).
  • CIPS (Chartered Institute of Purchasing and supply).
  • Trade unions.
  • Regulatory bodies e.g. EASA, CAA.

Key success

  • SC21 has over 50 award winning companies that have evidenced improved efficiency and driving towards world class supply chain performance to there customers. The customers have seen greatly improved performance and greater supply chain flexibility. SC21 is now seen as a significant change in business culture and will help retain a competitive manufacturing industry in the UK.
  • SC21 companies are also recognized internationally with global companies looking to source work with companies that are world class performers. The programme has been endorsed by the Australian Innovation Minister Kim Carr. SC21 can aid the export drive within the country to demonstrate this countries world class manufacturing. The industry collaboration within SC21 is clear to see and gives us a clear advantage over global competitors.

Key challenge

  • ADS works with the RTAs and MAS to secure funding. Inconsistency of funding across the regions is a problem. Compounding this is different processes, procedures and criteria for funding in each region, thereby creating a confused picture. ADS proposes SC21 needs national funding to support and sustain the benefits of the programme.




 
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Prepared 11 July 2011