- Boeing’s February deal with Air India is the largest in civil aviation history, but it also comes as India seeks to raise its profile as a defense manufacturer.
- Last week US Secretary of Commerce Gina Raimondo traveled to India to strengthen ties with the Asian nation.
- India’s dream of becoming the “world’s new factory” to compete with US geopolitical rival China will not remain without growing pains as gargantuan bureaucracy, backward infrastructure and labyrinthine red rapes have all stubbornly stubbornly passed foreign multinational efforts in the past hindered in the market.
A model of the Boeing Co. 777 at the company’s booth during Aero India 2023 at Air Force Station Yelahanka in Bengaluru, India on Tuesday, February 14, 2023.
Bloomberg | Bloomberg | Getty Images
The ties between American companies and India as manufacturing and supply chain partners are becoming ever closer. Boeing’s recent deal with Air India is a prime example, a record deal announced last month for the US aerospace company to supply India’s largest airline with 220 aircraft valued at about $34 billion, the largest purchase in the history of civil aviation.
The deal is Boeing’s third-biggest dollar sale ever, and its European rival is also involved in the deal. Air India’s monstrous order for 470 aircraft includes 250 Airbus passenger jets in addition to 190 737 Max aircraft, 20 Boeing 787s and 10 Boeing 777Xs.
It will not only be a test for the companies, but also for the South Asian economic giant, which is pulling out all the stops to attract foreign companies to become a global manufacturing hub, while Western companies seek to sever their dependency on China, de facto factory of the world.
Last week US Secretary of Commerce Gina Raimondo traveled to India to strengthen ties with the Asian nation.
The Boeing deal is indicative of the general trend among global manufacturers, including Apple, Samsung and Nokia, to accelerate manufacturing in India. The deal could bolster Boeing’s plans to expand its Indian supply chain and boost local manufacturing.
“As a company with over seven decades of presence in India, Boeing continues to support the development of indigenous aerospace and defense capabilities in the country,” wrote Dave Schulte, Commercial Aircraft’s managing regional director of marketing for Boeing’s Asia Pacific and India region in an E -Mail. “India has many opportunities to offer and our growth along with an increase in supplier partnerships demonstrates our efforts to make progress towards an Aatmanirbhar Bharat [Self Reliant India].”
The growth of India’s aviation industry will create more opportunities for local sourcing, qualification and service support, he added.
India has aggressively presented itself as an Asian alternative to Chinese manufacturing. Back in 2014, she launched the Make in India campaign to raise India’s profile as a global manufacturing hub and to encourage multinational companies to manufacture in India. But boosting production to 25% of GDP, a key goal of the initiative, has proved elusive.
Recently, in 2020, the Atmanirbhar Bharat campaign was launched that Boeing’s Schulte was referring to.
“Being a global manufacturing hub is a stated policy goal of the Indian government,” says Amitendu Palit, an economist specializing in international trade and investment at the National University of Singapore. “Global developments that have led to a shift away from China in some key markets such as smartphones and semiconductors are clearly areas where India looks to capitalize by engaging large segments of the supply chain.”
hurdles to become new factory in the world
India’s dream of becoming the world’s new factory faces longstanding hurdles. Impressive bureaucracy, declining infrastructure and labyrinthine red rapes have forced many foreign companies to either avoid India or shut down their local operations. A lack of skilled labor and innovation, poor production quality and a reluctance to adopt rapidly developing technologies are also seen as obstacles.
Invest India officials declined to comment.
In a recent interview with local Indian media, Brendan Nelson, President of Boeing International, said that India is an important part of the aircraft manufacturer’s supply chain ecosystem and that the company plans to significantly expand its presence in India.
Boeing currently has 5,000 employees and 300 suppliers in its supply chain in India. These numbers could increase significantly as the supplier base expands in India and additional support is provided to Boeing’s international supply chain.
“These suppliers are an integral part of our global supply base, manufacturing and exporting systems and components for some of Boeing’s most advanced products from India to the world,” Schulte wrote.
At the recently concluded Aero India 2023, Boeing announced investments in building the Global Support Center and Logistics Center in India, which will also help provide faster and more efficient local support to Boeing’s customers.
Boeing has a longstanding partnership with Air India and the Tata Group. The two operate a joint venture in India called Tata Boeing Aerospace Limited (TBAL), which is closely linked to India’s quest for self-reliance and jointly develops integrated aerospace and defense systems for India and other nations.
The company’s Hyderabad manufacturing facility recently introduced the first batch of complex vertical tail structures for the 737 family of aircraft. The vertical stabilizers were manufactured by Xi’an Aircraft Industry in China.
Issues from Boeing, Air India
The partners have to solve their internal problems. Boeing, from the 737 Max to the Dreamliner, has encountered inventory issues and production delays that led to a surprise loss last quarter. Debt-ridden Air India is in the midst of an ambitious turnaround plan under its new owner, TATA Group, the Indian conglomerate that regained ownership of the state-owned national carrier in 2021.
This adds to the hurdles foreign companies face as manufacturing and supply chain partners in India’s acceleration.
Apple could be on its way to 25% of iPhones made in India, up from around 5% to 7% Apple products currently, though not without growing pains. A recent FT report claimed that Apple is encountering problems with poor product quality in its initial foray into India-based manufacturing.
“Aligning national standards with global quality benchmarks is an ongoing process,” said Palit, who argues that the process will improve as more multinationals bring their global suppliers to India, “much like they did with automobiles.”
“India will take two to three years to navigate these advanced areas, but they will make it,” says Vivek Wadhwa, a Silicon Valley-based entrepreneur and academic who recently returned from a trip to India, where he is met with Prime Minister Narendra Modi and Ratan Tata, CEO of Tata Group.
The advantages that China has built up over the years in scale and speed of production will be difficult for India to replicate any time soon. China also benefits from regional support that India cannot restore. “A neighborhood” of industrially complementary and powerful countries including Taiwan, Hong Kong, Japan, Korea and Southeast Asia is a notable advantage, Palit said. For India, “its neighboring South Asian region remains industrially underdeveloped, with the exception of some sectors such as apparel,” he said.
India’s GDP is projected to outperform China
Regional industrial growth could be key to realizing India’s aspirations to become a global manufacturing hub, and India’s potential is undeniable. The International Monetary Fund’s forecast for India’s GDP growth in 2023 is 6.1%, well ahead of China’s 4.4% increase. Additionally, India is expected to overtake Germany and Japan to become the world’s third largest economy in the next decade, with a $10 trillion economy by 2035, according to a report by the Center for Economics and Business Research.
But to effectively tap the local consumer market, foreign companies need strong relationships through local manufacturing to ultimately benefit on the consumer side.
“An essential condition for the success of foreign companies in India, especially in the manufacturing sector, is to have competent local partners,” said Palit. “Licensing agreements can be successfully expanded into joint ventures with the ultimate goal of building in India.”
This is exactly the strategy Apple and Boeing are pursuing in India, along with many others. By establishing manufacturing facilities and producing for global markets, these companies have been able to reach an ideal point: cheaper manufacturing and an abundance of emerging middle-class consumers to sell their products and services to.
“It’s only a matter of time before tensions with China rise to the point where companies have to relocate production,” Wadhwa said. “India is the best alternative.”
These efforts are as important to Boeing as they are to any company hoping to capture India’s burgeoning but underserved aviation market. As a revitalized Air India strives for the top spot in regional aviation and competes with its Middle Eastern competitors to win back passengers on long-haul international flights, India could increasingly become a critical component of Boeing’s global manufacturing map and its path to profitability.
“India will become the third largest commercial aviation market in the world over the next 10 years and will receive more than 90% of all aircraft delivered to South Asia over the next 20 years,” said Schulte. “Air India’s order can have a domino effect across the economy, supporting job creation and improved economic growth.”