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 Ltd | TCS Ltd
|
| Mahindra and Mahindra Ltd | INFOSYS
|
| Tata Motors Ltd | MAX Aerospace Ltd
|
| Tata Power company | Taneja Aerospace
|
| Punj Lloyd Ltd | Dynamatic Technologies
|
| Vectra Engineering Pvt Ltd | Hindustan Aeronautics Ltd
|
| Godrej and Boyce Manufacturing Co Ltd | Bharat Electronics Ltd
|
| Rolta India Ltd | Bharat Dynamics Ltd
|
| HCL Information Systems | Mishra 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.
| 
