The Hindu Business Line : ‘What we are doing in India is about the next quarter century’

If you thought Boeing was a company that just manufactured commercial aircraft, you could not be more off the mark. Apart from producing commercial aircraft, Boeing also makes defence equipment. The company looks at India not just as a market, but as a business opportunity. The President, Boeing India, Dr Ian Thomas, outlined the company’s current position and future plans in a chat with Business Line.

Excerpts from the interview:

How has Boeing’s approach to India changed over the years?

We have been doing business in India for the past 60 years. And I think quite successfully. In Boeing we like to say India joined the jet age on Boeing wings. Air India was the first all-jet Boeing carrier in the world. And that relationship was largely focused on civil aviation till the last couple of years.

At that time, Jim McNerney who had just become our chairman, encouraged us to take a good look at India and to begin to adapt and evolve our strategy presence and approach. Historically, we had approached India as a sales opportunity for commercial aircraft. But Mr McNerney wanted us to move beyond the sales and business unit approach.

The market fundamentals in India have changed in the last couple of years because the relationship between India and the US has changed and will continue to change. It is an expansive relation and includes economic and commercial dimensions, agriculture, education, people-to-people exchanges and a political military dimension that increasingly looks at defence cooperation and would like to include defence trade and of course the civil nuclear deal.

In the last two or two-and-a-half years, we sought to get into the defence business here and have been encouraged to do so by the Government, our customers in the Ministry of Defence and certainly by the US Government. I think that everyone rightly believes that defence trade is one component of the overall strategic partnership between the two countries.

So we have moved from looking at India simply as a commercial aeroplane opportunity and more recently as a defence opportunity, to what we call the Boeing enterprise opportunity, which is taking an approach to India which incorporates everything that we do — commercial aeroplanes, integrated defence systems and a host of activities across, between and around those which really focus on productivity and on tapping into the tools, technology and talent that is resident here. That can make us more competitive here so that we can sell more planes and more defence products and services and also make us a better global company.

Why this change to an enterprise approach?

We believe that we are moving beyond a simple resource exchange with India. It is no longer a question of ‘you send us money and we give you an aeroplane or helicopter’. We are relentlessly focused on returning value to our shareholders and customers on a quarterly basis.

What we are doing in India is also about the next quarter century. We are laying a foundation and executing an integrated enterprise strategy to make us successful for the long term even as we capture the near-term gains that we must in order to fill that quarter century.

The point is to find a competitive advantage by acting as a single enterprise and pursuing one common strategy which in India is focused on two things –growth which is about selling commercial aeroplanes and defence products and services and productivity which is about for example using an offset obligation and looking at it to create partnerships.

How much of this is being driven by the fact that some of the biggest contracts, such as Air India or the Ministry of Defence, require a 30 per cent offset?

On the Air India sale and on defence sales we have offset obligations ranging between 30 and 50 per cent depending on the contract. In both cases, and all cases, offset is not simply an obligation; it is an opportunity. It helps us create long-term effective, viable, successful, and mutually beneficial partnerships with Indian industry whether it is with PSUs such as HAL or BEL, or private sector entities.

Are you looking to have offset obligations in private sector deals as well?

Not generally or exclusively; in my experience, offset is a requirement of Governments. But the point I would make is that offset is just a catalyst to help us accelerate what we are going to do anyway. We would be here in many respects regardless of offset because we believe that the value proposition that is inherent with partnering with Indian industry — the tools, technology and the talent — is so compelling that we are moving on shore.

I think over time you will see a proliferation of commercial arrangements some of which will be only Boeing, some will for example be the Boeing-Tata joint venture. Some will be sub-contracts to say HAL, some will be research and development relationships with IITs, and some will include third, fourth and fifth parties. I think we see embryonic relationships of all these categories now and they will just begin to proliferate.

How much of your yearly global sourcing comes from India?

Sourcing from India is just getting started. It will depend on the country’s capability to be competitive but we see potential here for enhanced opportunity, for both Boeing and Indian companies.

Indian manufacturing, particularly in aerospace, is in its infancy. There is a strong automotive foundation which is not aerospace but is a great jumping off point.

When you look at modelling and simulation, software analysis, material process and the like, the core competencies here do not really exist. However, if you look at things that fly, whether in civil or defence, they are increasingly network-enabled and India’s core competence of being able to identify, manage and move data around and turn it into actual knowledge is what it does best and has been doing in banking, finance, insurance and, increasingly, in medicine. It has moved from IT to knowledge processing.

But it is in things that fly that you need that capability. I think the country is incredibly well positioned from the IT, engineering and other sectors to move into the global aerospace economy.

Do you see a position where India can be involved with Boeing for developing an aircraft for civil or defence purposes?

At the moment we have no plans for co-development. But having said that, I would add that we all want to walk before we run. We are going to partner here when and where we see value. And we see significant value. I will not put it completely off the table for the long term.

If Boeing is going to say that India has the opportunity to join the global aerospace and defence industry and be a global power in the 21st century it will require partnering for co-development — if not for the whole aeroplane, then certainly for significant systems and components. The three key areas that we are focused on here in R&D are modelling and stimulation, analysis and software, and manufacturing processes and materials. These are areas where the country excels.

Do you see a situation where Boeing ties up with a GE or some other company and then ties up with an Indian firm?

Sure, these kinds of relationships are not simply bilateral between Boeing and a partner. We have phenomenal relationships with GE, Goodriche, Rolls Royce and a host of others. In this global industry we need partners as much as they need us. It is a sheer destiny and we are trying to bring that approach into India.

Is there any exclusivity in what Indian industry is doing for Boeing?

The exclusivity has to do with the Tatas. In January this year we announced a major deal with Tata as a subcontractor. We have not announced the value but we have transferred technology to Tata that exists nowhere else in the world for the manufacture of titanium floor beams for the Boeing 787.

After aeroplane 100 all the floor beams will be made by Tata. We have sold 900 aeroplanes to date and will probably sell many thousands of this aeroplane, for which all the floor beams will be made by Tata. This is an exclusive deal of significant magnitude. The floor beams will start moving in 2010.

What is the contract worth?

I cannot give you the quantum of the contract though I can tell you that the facility that the Tatas are building in Nagpur is of a significant size. Titanium floor beams are a significant weight reduction over aluminium ones, so the economics of doing this is quite compelling.

Any equity infusion by Boeing in the project?

In the joint venture with Tata there is an equity infusion. Because it is aerospace we have foreign direct investment limits of 26 per cent holding. The floor beam contract is a sub-contract, so we are not funding that, as it were.

Besides, from a manufacturing perspective we have a pretty robust set of partnerships in aerospace and defence. The deal with HAL, which we announced in December, is a 10-year, billion-dollar deal for both commercial and defence, focusing on aerospace components. Although we are doing some commercial work there, the thrust will on defence.

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