Mukesh Ambani’s aerospace venture ready to take off

[Rajaraja Chola]

I would prefer TATA, mahindra over reliance anytime... I dont trust Mukesh, anytime....

 

[IND151]

^^They are already in defence sector. godrej aerospace is another example.

 

[cloud_9]

Will Mukesh Ambani's billion-dollar bet on aerospace business work?​

There is a talk in India's defence circles that when Reliance Industries Ltd (RIL) chairman Mukesh Ambani hired Vivek Lall from Boeing more than a year ago to launch RIL's aerospace and homeland security businesses, India's richest man had a dream: to build an entity like Boeing.

There are others who say Ambani dreams not just big, but bigger — he wanted to build an aerospace company bigger than the world's best.

Whatever the talk may be, the "quiet aggression" from India's largest private-sector company in forging ahead with its plans in aerospace business is remarkable, says a Mumbai-based consultant who has watched RIL for decades. "They are ready for the long-haul game," he says asking not to be named because he isn't authorised to speak to the media.

ET reported on Saturday that RIL has sought an industrial licence to make aircraft parts and develop aerospace technologies. The company has filed an application with the department of industrial policy and promotion ( DIPP), under the ministry of commerce and industry.

As the report says, the objective of the new entity, called Reliance Aerospace Technologies Pvt Ltd, is "to design, develop, manufacture, equipment and components, including airframe, engines, radars, avionics and accessories for military and civilian aircraft, helicopters, unmanned airborne vehicles and aerostats".

The report quoted executives close to the matter as saying that RIL is expected to invest close to $1 billion in its aerospace business in the next few years. The Rs 44,000-crore conglomerate is also looking at hiring more than 1,500 people in the new business, the report said.

Idea of a Hub

Creating a manufacturing hub is at the heart of Mukesh Ambani's ambition in the aerospace business, says the Mumbai consultant. "He seems to be focusing on aircraft parts in the short term and on developing new technologies in the long term," this person said. He also felt RIL, now ranked No. 99 on the Global Fortune 500 Companies list, is likely to emerge as a "predominant player" in the aerospace and defence segments "to the extent that its other businesses might not be as important in a decade from now".

RIL executives refuse to be drawn into making forecasts about the chunk of its revenues that would come from defence projects a decade or so later. However, they have long maintained that aerospace is a "significant segment" for the company — both in the aircraft parts and the aircraft building business. They have also said the highly networked and deep-pocketed company clearly has a natural edge in such cost-intensive segments.

Tough Scenario

Washington-based aerospace consultant Robert Metzger, who has written extensively about India's aerospace and defence markets, says it requires guts on the part of private players to enter India's aerospace business. "India should be encouraged that a company as powerful and accomplished as Reliance is prepared to enter the aerospace business. In my view, this shows vision on the part of that company's leadership and resolve to surmount many challenges," he says.

He adds that continued preferences in favour of public-sector enterprises (such as defence public-sector units, ordinance factories, national laboratories, etc) deprives many private companies within India of the opportunity to enter aerospace markets with realistic chance of business success. "India's Defence Procurement Procedure contains no mechanism for the government to award design and development contracts to national private-sector companies," he says.

He has a word for caution for RIL. For the company to succeed, it must also develop products outside areas of direct government authority. "Even Reliance will find that it is not good business to try to invent anew in India," he says.

RIL seems to know the hazards of being in this new business. In aerospace, the company plans to make products for global players — essentially non-government customers — who find it tough to get high-quality products in the country. "The company is expected to be attractive for such players," says another Mumbai-based analyst who also spoke requesting anonymity. Many companies say they often face huge delays in receiving components.

Monopoly Woes

At least two aircraft majors that ET Magazine spoke to among companies that do business with state-owned Hindustan Aeronautics Ltd (HAL), India's largest aerospace company, say they are disappointed with the way things are. They complain of low-quality products and frequent delays.

The spokespersons of these companies spoke on condition of anonymity. HAL denied the charges of inferior quality products. However, it confirmed in a statement that there have been delays in aerospace projects. "Even the best players in the world run behind schedule. Singling out HAL is therefore not fair," HAL said in response to a query by ET Magazine .

Metzger puts it bluntly: "HAL's relationship with foreign suppliers may be less than ideal. I believe that HAL's 'monopoly' in aircraft and aviation systems is such that no major Indian industrial company sees an opportunity to compete directly. Yet, this is not a 'monopoly' earned by superior market performance so much as one that has been dictated by government policy."

As luck would have it, the aircraft parts and maintenance, repair and overhaul (MRO) industries are growing slowly in India despite the huge growth in aerospace business. While all segments of the Indian aerospace industry grew substantially, the original equipment manufacturing posted maximum growth of 20% CAGR over the past five years.

The MRO segment grew much slower, but is expected to grow faster and reach $1.8 billion by 2016. Analysts say the segment was hurt by a series of factors such as HAL's monopoly and the justifiable reluctance on the part of private players to take huge risks.

Here is a tale that brings to the fore the sad state of affairs of the aircraft components segment in the country: An official at an MNC, again on condition of anonymity, told ET Magazine that some of the aircraft parts his company had received from an Indian vendor a few years ago could be traced to a bicycle shop in Bangalore. "The situation is that hopeless," he says.

Adversity as Opportunity

What is bad for the market is a good opportunity for companies that are ready to take the plunge. There are many other local players who have entered into pacts with foreign aircraft companies to pursue projects at home. But there is a difference between them and RIL, says the first Mumbai analyst.

"Unlike other Indian aerospace players who have tied up with foreign companies ( see table: Key existing foreign-local aerospace & defence partnerships ) to compete for individual projects, RIL has a greater goal. It is not of landing projects but creating a manufacturing hub," he says.

As with partnerships, RIL is looking at creating synergies to begin with, until it develops technologies — and aircraft — on its own. The company is in advanced talks with various global aircraft majors to enter into JVs and strategic collaborations, said executives close to the matter. It already has signed an MoU with Dassault Aviation to make major parts of Rafale in India.

This deal was signed after the Centre announced Rafale as the winner in the $11-billion IAF deal for 126 medium multi-role combat aircraft. According to Dassault Aviation, which makes Rafale combat jets and Falcon business jets, the French company entered into an MoU with the RIL "for pursuing strategic opportunities of collaboration in the area of complex manufacturing and support in India".

More Likely Deals

Other major companies RIL is in parleys with to enter tie-ups — across aerospace and homeland security businesses — include Raytheon, Airbus, Siemens, IBM, Cisco besides Northrop Grumman, said executives close to the matter, adding that the company is most likely to enter into a pact with an international aircraft maker to enter into a mega project to build aircraft and components.

A Delhi-based defence expert says RIL could tap into opportunities in the civil aviation manufacturing segment ahead of entering local military aviation in which HAL has a monopoly. RIL, executives close to the matter said, wants to engage in both: civil as well as military aviation. "But it will take a while...it is only a matter of time," the defence expert said.

According to market research firm Lucintel, the Indian aerospace industry, which has experienced significant growth in the past five years, is expected to reach $24 billion in the next eight years from the current size of less than $2.5 billion.

This is in line with the trends in Asia-Pacific: consulting firm Frost & Sullivan says India and China are among the preferred Asian countries for investments in aerospace business thanks to lower costs. By 2030, Asia-Pacific is expected to account for a 33% share of passenger traffic, followed by Europe at 23% and North America at 20%.

RIL is looking at entering into tie-ups with companies such as Airbus and Honeywell besides Boeing in the offsets business. Thanks to India's defence offset policy —which requires foreign aerospace sellers who get local orders worth Rs 300 crore or more to invest at least 30% of the contract value into local research and development or production— overseas players have entered into joint ventures or strategic partnerships with local players.

Meanwhile, according to documents reviewed by ET Magazine , the Naresh Chandra Task Force on national security has recommended that the benefits of offsets should be primarily directed towards increasing domestic designing, manufacturing and technology acquisition.

"The Indian offsets partners should be able to develop capabilities to become part of the global value chain. Institutional mechanisms for coordination between civil aerospace and defence aerospace need to be urgently reviewed," it suggests.

On The Tarmac

RIL also looking at tapping its inherent advantages of a large number of highly qualified engineers and scientists to create an R&D base. "They (RIL) have already made the right moves in the right direction by investing in sectors such as aerospace and homeland security and in the right people," says Rahul Gangal, director of defence advisory and investments at consultancy Aviotech.

Of course, Lall's appointment as CEO and president of the aerospace and home land security businesses was a good decision, says another New Delhi-based defence consultant. "The credit goes to Mukesh Ambani for picking the right people, especially Lall who [having worked previously with Raytheon and Boeing besides Nasa] enjoys a great reputation among overseas companies looking to tie up with Indian companies," he says. This consultant didn't wish to be identified.

Clearly, in aerospace, things are looking much more favourable than ever for private players like RIL, but a few analysts are skeptical. For RIL to be able to do more than what the existing private-sector players are doing in the sector, it has to stretch a bit more than it can, says the Mumbai analyst quoted earlier in this story.

"Key challenges [for new players in aerospace] may include management of pre-operative investments made in an environment where threats of programme slippages and cancellations are real and unquantifiable," notes Gangal. "Given those risks, maybe Reliance alone can tide over odds," the analyst says.

A Very High-stakes Game

Reliance Industries Ltd recently created two new entities: Reliance Aerospace Technologies Pvt Ltd and Reliance Security Solutions Ltd. The creation of these businesses were set in motion more than a year ago when RIL created an entity called "new business" and hired the then Boeing India chief Vivek Lall for launching its aerospace and homeland security divisions. With Lall at the helm, RIL wants to make aircraft of its own.

$500 mn to $1 bn: Size of initial investment by Reliance Industries in its aerospace business.

1,500 plus: Employees it plans to hire for its new aerospace venture.

Grand Foray

• Recently RIL applied to the department of industrial policy and promotion (DIPP) for an industrial licence for its aerospace arm.
• It applied for licence to design, develop, manufacture, equipment and components, including airframe, engine, radar, avionics and accessories for military and civilian aircraft, helicopters, unmanned airborne vehicles and aerostats.
• It also seeks to conduct research, design, development, and production of new aerospace technologies, testing and certification of such technologies, materials, components and equipment.

 

[shree835]

Will Mukesh Ambani’s defence aerospace gambit pay off for RIL?

Hindustan Aeronautics Ltd (HAL), which enjoys absolute monopoly in India’s military aviation, is the butt of many jokes. American defence historian and strategist Edward Luttwak refers to it as a “fossil of a company” famous for not delivering “operationally ready Tejas Light Combat Aircraft after 30 years of trying”. Notes Neelu Khatri, head of defence and security advisory services at KPMG India: “HAL is overbooked (with orders). And it is a fait accompli that giants will emerge.”
Khatri is referring to the “emergence” of big private sector players in Indian aerospace. One of them is Reliance Industries Ltd (RIL). “They will focus more on technology partnerships and on building up infrastructure [to start manufacturing products],” she forecasts. Dhiraj Mathur of Pricewaterhousecoopers(PwC) has no doubts either. “As a company that has a track record of working on large-scale projects, it (RIL) definitely has an advantage like other players such as the Tatas and Mahindra. Having deep pockets helps,” he says.

To Replicate Success

RIL, one of the latest major private-sector entrants into aerospace, had cash reserves of Rs 82,975 crore as on March 31, 2013. The Mukesh Ambani-controlled conglomerate recently signed a memorandum of understanding (MoU) with Boeing to grab the offset work when the aerospace giant begins work on supplying P8I naval reconnaissance aircraft to the Indian Navy.

India’s biggest private sector company by revenue is looking to spend $1 billion (almost Rs 5,500 crore) in the sector and hire some 2,000 engineers over the next few years in its aerospace division; it has now agreed to partner with the world’s second-largest aerospace company in the latter’s offset programme — which requires for-eign aerospace sellers to source 30% of its inputs from domestic partners.
RILBSE 0.15 % entered the fast-growing segment two years ago after hiring then Boeing India chief and Nasa scientist Vivek Lall as its head. According to the MoU signed between Boeing and RIL — documents of which are available with the Indian Navy and reviewed by ET Magazine — the two companies may go for “a more definitive agreement” in future. “Like in refining and [oil] exploration, RIL is really in for the kill in aerospace,” says a Mumbai-based defence consultant who has tracked the company for years. “Maybe they are looking to do here [in aerospace] what they did some time ago in oil and gas,” says this consultant who didn’t wish to be named because he isn’t authorised to speak to the media. Neither RIL nor Boeing responded to queries from ET Magazine.

The Long-Haul Game


Built from scratch by Dhirubhai Ambani, RIL went public in 1977 and over the next couple of decades pursued backward vertical integration — from textiles to polyester, fibre intermediates, plastics and petrochemicals. Towards the end of the 90s, the Ambanis had further integrated into refining by commissioning the world’s largest grassroots refinery at Jamnagar in Gujarat.

Soon, it went another step backward — into oil & gas exploration — when it secured a bid for 12 exploration blocks auctioned by the government of India. In 2002, RIL located the largest Indian natural gas field in the Krishna-Godavari basin.

Following the split in the group between brothers Mukesh and Anil in the mid-2000s, the former inherited the oil & gas and refinery business. In fiscal year 2013, RIL — now an oil & gas major with joint ventures with the likes of Chevron and Pioneer Natural Resources for shale gas in the US and a petrochemicals giant coupled with a relatively fledgling organised retailing business and a subsidiary that will soon provide broadband wireless access — had racked up a net profit of Rs 21,000 crore on a top line of Rs 371,000 crore.

RIL posted a 32% jump in its fourth-quarter net profit, the biggest increase in almost three years, as strong margins in its oil refining business helped offset fall in natural gas production. RIL now operates the world’s biggest refining complex in Jamnagar.

“These [oil & gas and refining] are highly capital intensive segments. It is a turf for those who are ready for the long-haul game. I think RIL has demonstrated that ability,” says a senior defence ministry official who didn’t wish to be named.

New Business Frontier?

Another defence official isn’t as excited though. “This [aerospace] isn’t a territory where RIL has any experience. The only plus it has for the time being is that it has at the helm an aerospace expert,” he says. In the four years that Lall, now 44, spearheaded Boeing’s defence business, it won orders worth $8 billion in India, including those for C-17 heavy-lift aircraft for the Indian Air Force (IAF), P-8I aircraft for the Indian Navy and Harpoon missiles for both the IAF and navy.

This official is worried that Indian defence players who acquire technology and develop defence capabilities may find it tough to face shortages and uncertainty of orders. For instance, companies such as Larsen & Toubro, which had hired hundreds of engineers to develop a hull for a nuclear submarine for the India Navy, will soon stare at trouble if orders fall through, he says.

Khatri offers a different viewpoint: being a company with huge financial prowess and networking power is RIL’s real plus in a sector in which it takes years of endurance to make a profit.

Will It Pay Off?

Of course, RIL is not putting all its eggs in one basket: it has already entered into an alliance with French defence giant Dassault to supply components for Rafale fighter aircraft and Falcon business jets. Dassault secured the highly lucrative $15-billion MMRCA (medium multi role combat aircraft) deal to supply IAF with 126 Rafael aircraft two years ago. The fiercely fought bid saw Dassault outbid the likes of Boeing, Eurofighter, Saab and Lockheed Martin. The second defence official quoted earlier said the government of India is ready to spend as much as Rs 15,000 crore initially for a “technology transfer pact” with Dassault.

“The government is taking a keen interest. The finance ministry is ready to give the money if the ministry of defence asks for it,” he said without elaborating.

A person close to the matter said RIL is in “advanced talks” with Airbus Military for collaboration in the run-up to the bid to secure the Rs 13,000-crore IAF deal to replace its 56 ageing fleet of Hawker Siddeley 748M Avro aircraft. The request for proposal (RFP) from IAF requires contenders to deliver 16 aircraft from abroad and build 40 of them in partnership with an Indian company. Madrid-based Airbus Military, owned by EADS, declined to comment to queries.

Meanwhile, a Jerusalem-based senior executive of a defence company is of the view that the “RFP issuance by IAF” to eight foreign aerospace vendors is a big departure in the history of Indian military aerospace. “HAL has been sidelined in the process,” she said, requesting anonymity.

Battling Monopoly

State-owned HAL has often attributed complaints from overseas partners — that HAL supplies them inferior quality products — to the latter’s “business interests”. “We need to take their [overseas original equipment manufacturers' or OEMs'] comments with a pinch of salt and give due credence to our national interests,” an HAL spokesperson had told ET Magazine when quizzed about “inferior quality of its components” and delays.

However, Thursday’s decision by the Indian Air Force to offer RFPs to overseas companies — in a project that will also see several local companies emerging as manufacturers of aircraft parts — must be an eye-opener for HAL, which had monopolised the segment in free India, says a government official who spoke on condition of anonymity.
HAL’s mistakes are many, admits this official. While the likes of Luttwak call for privatising HAL, he says its biggest blunder is that “it tried to be many things at the same time”. He elaborates: “In aerospace, if you are an integrator [a company that assembles all compo-nents made by tier-1 companies to make an aircraft], you have to be an integrator, not a tier-2 or tier-3 company. HAL wanted to be all of them at the same time. In the process it ended up exposing itself and its inefficiencies.”

According to the government official, who has worked closely with HAL, tier-1 companies are those that make engines, fuselages, wings etc. Tier-2 ones, he says, are those that make components for engines, fuselage, etc. Tier-3 firms are those that make nuts and bolts, the most basic of components, he explains.

American defence consultant and lawyer Robert Metzger echoes the concerns of overseas players: “There is a perception that HAL has received too large a share of the government’s assignments for aircraft development, build and support and too large a piece of the funding pie.” He adds: “Many have observed that HAL’s projects take longer and cost more than expected but produce less performance than needed. It is time to face these facts.”

“Companies like RIL could play the role of an integrator,” says PwC’s Mathur, emphasising that in the “supply chain” even the very small player can coexist with big ones. “It is a winwin situation for all,” says he. “In that role, staying power is crucial,” notes the government official, adding that it isn’t economically viable to do “everything that goes into the making of an aircraft. Nobody in the world does it”.

The Dream & Hopes

It is too early to say that defence PSUs such as HAL can be battered “in direct competition”, says the Mumbai-based consultant. However, private-sector defence companies are emboldened by the recent changes to India’s arms rules that analysts say are “highly encouraging” for them. Promising “winds of change”, defence minister AK Antony brought in many amendments, including doing away with the “process of nomination” in defence procurement policy (DPP) for choosing companies that maintain, repair and overhaul (MRO) aircraft.

Private players have welcomed the DPP amendments cleared by the defence advisory council (DAC), saying that they open up a lot of opportunities for them. Thanks to outdated technologies, ordinance factories and defence PSUs had to do work frequently on aircraft and other defence vehicles, incurring high costs.

Several private-sector companies are already in pacts with overseas ones (see Other Key Foreign-Local Aerospace Partnerships) to tap an opportunity in the Indian military aerospace segment that KPMG says will be worth $94 billion by 2020. As the armed forces of India, the world’s biggest arms importer, step up their modernisation drive and replace obsolete weaponry, the annual growth rate of the aerospace OEM market in the country over the next five years is expected to be 20% (see Big-ticket defence…).

According to a person close to the matter,RIL — whose entry into aerospace followed that of private companies such as Mahindra, Tatas, and L&T — has big dreams in the aerospace sector. RIL’s “vision”, he says, is to finance tier-2 and tier-3 companies and nurture them to supply them components. “They are looking for a country-wide outreach either to search for or set up such companies,” he adds asking not to be named.
Challenges Galore

How does such financial support benefit RIL? “The companies they incubate can be a support base for RIL, which can get the best commercial terms from them,” said this person.

The first defence official quoted earlier says that what sets RIL apart is that it has the appetite for such a business. “Who is ready to wait and that too for many years before even breaking even? Only big companies with huge cash reserves can,” he says. “It is possible only for companies that are ready for a leap of faith,” he adds with a philosophical flourish.

This official emphasises that any partnership that replaces Avro aircraft for IAF will have to sell at least 150 aircraft to even start breaking even. “It is not for the fainthearted,” he insists. Metzger, too, has words of caution: “RIL is a formidable player. But reliance upon Dassault as the principal partner and MMRCA as the keystone project could prove to be a mistake. It is taking much longer than most expected for the MMRCA contract to be resolved and some believe MMRCA will prove too expensive for India in the end.”

Besides, he feels that there are more differences than similarities between the oil and gas markets and aerospace markets. “Even elite Western companies have found that it takes many years to accumulate necessary expertise and to create and operate necessary (aircraft) production facilities.” Metzger is also anxious about the wariness of India’s leading private-sector companies to “commit”, and about rigid government policy. Other analysts say that since there is no “required integration” between the military and educational institutions, unlike in the US, companies may face huge talent shortage.

Khatri, for her part, feels that companies such as RIL are known for their powers of persuasion with regard to policies. “It is an opportunistic move for sure for them [to enter a new segment that is expected to see a lot of business and policy changes], but in this journey they do seem to have a latent desire to stay on [the ride],” she says. It is going to be a long journey .

Will Mukesh Ambani's defence aerospace gambit pay off for RIL? - Economic Times

 

[sancho]

Thanks for posting this in the right thread!

 

[buddyboyyash]

Bangladeshi's say..

Reliance is working with raw
Tommorow you will say Sahara is working with Raw....
Bangla Media is working for Raw
Awami league are working for Raw

Pakistani's say

MQM is working for RAW
Terrorist in NE Frontier are working for RAW
Afghan President Karzai is working for RAW
Sardars in Bolochistan are working for RAW

Sri Lankan's say
LTTE is working for RAW

Chineese say
Tibet monks are working for RAW


It seems like the whole asia is working for RAW and RAW itself don't have information about that....

seems like RAW has more employees than Indian Railways and Wal-mart combined