India Needs $10 Billion Aircraft Programme to Build Jet Engines: Aequs CEO

Aequs is a 15-year-old entity focused on manufacturing. We started with aerospace manufacturing. As our DNA comes from engineering background (Aequs’ parent company QuEST Global is a global ER&D player), and high-precision engineering was a natural extension for us.

So, we started aerospace (manufacturing) due to the opportunity we saw during the 2005-to-2007-time frame. We realised that in-country value addition in aerospace was less than 20% at that point in time.

We realized that unless we increase the in-country value addition, becoming part of a global supply chain would be challenging. For example, services have 100% in-country value add. That's why we do very well in that.

But in manufacturing, raw material, cutting tools, machine tools, and all this stuff was imported, in aerospace especially. We didn't have something called surface treatments and various other processes required in the country.

So, we set out to build an ecosystem. We took a 20–30-year view of how the industry will evolve and we established a special economic zone (Belagavi, Karnataka) to overcome some of the regulatory challenges in India related to imports, exports, ease of doing business, etc. It was much easier in the special economic zone.

We chose Belagavi, a Tier 2 city because we saw globally that manufacturing cannot sustain in big cities like London, New York. It's very difficult to sustain in big cities like Bangalore, Mumbai in the long run. We took a very holistic view and chose to set up our aerospace business facility in India’s first notified precision engineering SEZ in Belagavi.

The idea was to establish an ecosystem which will help us to maximize in-country value addition. To do that, we brought in partners for the joint ventures. We kept the precision machining corporation machining as our core business and then we brought in the partners for surface treatment. Magellan Aerospace from Canada came in. We also got Aubert & Duval for forging, from France.

So today, we have products in which the in-country value addition is 100%. For example, we make wheels for Airbus and Boeing, for which the raw materials sourced within the country. We've received approvals from the customers, forged the products within the SEZ. We then machined, surface treated, finished and shipped (the products) to the customers. By doing this we are reducing the working capital cycles. It used to be sometimes 5000 miles, or even 10,000 miles, to transport and bring in raw materials/machine surface treated from Europe. We are doing everything in one location. So, that is how our theme of ecosystems of efficiency came about as a company.

And over a period of time, we have replicated this into the consumer side like consumer durables, consumer plastic and then consumer electronics.

We started predominantly focused on commercial aerospace because it’s a very large opportunity. In the recent past, we have started doing some of the defense aerospace activity with HAL and ISRO. If you look at it capacity wise, we have about 1.5 million hours per year of machining capacity.

Aequs has been at the forefront of India’s aerospace evolution, achieving numerous industry firsts. We operate India’s first surface treatment unit approved by both Airbus and Boeing, ensuring end-to-end aerospace engineering solutions. We also operate the first and largest closed die forging press with a capacity of 10,000 tonnes for aerospace components at its forging facility, SQuAD Forging, also located at Belagavi.

We make 50% of all the pylons for the Airbus A320 program. Aequs is the first Indian company to assemble plug doors and over-wing exit doors for Airbus and Boeing. We make doors, assemble doors for the Airbus A321 door plug and over-wing emergency doors at the Belagavi SEZ . We also make actuation products like the flaps.

We also make landing gears for the Airbus A320 family. We make components for Safran for their M88 and LEAP series engines.

Majority of the parts we supply are single source (Belagavi) and best dual source.

Engine development is a long term program. It is a 10 or 15 or 20 year program and cannot be done in a short period of time. There are various technologies and capabilities that need to be brought in through partnerships or developed within the country. It needs to be part of a national program in my view. Even a country like China, which has been investing for a long period of time, just announced a potentially commercial engine to be able to do that.

Such programs require significant participation from the private sector as well. Today India is taking proactive measures to become self-reliant in various areas, including aerospace and defence. But unlike a commercial engine, military applications need to meet durability and endurance, which are the biggest challenges.

Government is very open based on our interactions. We just formed the Aerospace India Association (AIA) and it's taking a lead in this process. We are engaged with the government because it's important for India to do something of this nature.

An aircraft program will cost us $10 billion. That is what the cost of a typical aircraft program is. And there is no aircraft program in the world or an aircraft company in the world which has been launched without government support, one way or the other.

Aequs was among the first to acquire companies outside India. In aerospace, we acquired in France back in 2016 and in 2015, we acquired in the US. The challenge comes down to the customer. At the end of the day, the customer wants the best cost. Customers expect that we move it (the acquired company) to India and give them cost reduction.

It’s impossible for us to do something of that nature because capability doesn't exist (here). Sometimes it takes time to do it. You already have facilities and infrastructure and people there. What do you do with that?

It's not that new work is going to show up there. So unless the existing facility in high cost countries is supported by a military program of that nature which cannot be moved.

And acquiring and transitioning is not an easy activity. There's no lift and shift opportunities because it’s all high capability people resources. You can move the equipment but that doesn't mean you can move the products so easily. These products have been manufactured by some of these facilities for 20 - 30 years.

If we see the Aequs journey and what we have achieved in India, it requires long term commitment and persistence to reach where we are today as an organization.

And the tribal knowledge is so high that it is next to impossible sometimes to move anything quickly. Organizational knowledge of the product, how it gets manufactured, what nuances have to be overcome.

Look, this industry doesn't move very fast because programs take like 20 - 30 years. Qualification process could take years together, sometimes. So they (aerospace companies) might decide to wait out for the current regime to get over rather than just shifting and lifting. Because at the end of the day, cost has to be passed on and consumers will end up paying some form of escalation in the price.

Qualifying a part in a forging could take 6 months, and for a new forging press, it could take 8 years together.

 We don't know the effect. Nobody can do anything.

They (other sectors) have immediate impact on very price sensitive market customers so they have to react quickly.

If they do that, it will equally hurt both sides. Boeing is sitting in the US and Airbus is in France.

They are not having any kind of yes or no in this, but they are willing to look at what strategically makes sense to help boost the aerospace sector and make it an integral part of a global supply chain.

Today we are like 1% of the global aviation supply chain. If you can have a goal of 5% for the coming years, it's still a decent amount.

So something of that nature and what it takes to do that, that has to be part of our national aerospace policy.

Also, today we are mostly a component subsystem: built to print guys. We have no design and build capability in the country on the commercial aerospace side and that's where the investment needs to happen potentially.

If we start with a national aircraft program or something of that nature and bring it downstream then all the subsystems and systems could be benefited from that through some kind of a design-build funding support.

At Aequs we absorb about 150 new parts every month in our system.

But today, you know we are very clear. We are a built to print company. And the IP is owned by the OEMs and tier one players.

Today Aequs is not focused on building IPs because to do so is another big ball game. Design is one thing, building IP is another. New technologies and new capabilities have to be integrated with the new program. And before it gets integrated in the new program, it has to be proven or done in some other form or fashion.

So its implementation in a program is a 30 year cycle. And we expect the next new program to be launched somewhere in 2030 and to be delivered in 2035 and that program will last till about 2065.

So it has to be treated like an infrastructure investment, a kind of funding support perspective. Companies need to be taking that kind of view also. When we come to the next program, we will have to take that with those views.

Historically we have grown at about 20-25% year on year as a business except for COVID when we took a hit. Going back to last year, we were above the pre-COVID level as the aerospace industry has picked up. This year we've taken a little bit of a hit because the Boeing programs had had a big hit because of workers union issues and plants being shut down. So it was tough for us from a growth perspective.

Still, on the aerospace side we will have a growth of close to 10% year on year. We look to continue the long term growth path of 20%.

In consumer durables, we just did a joint venture with Tramontina on the consumer durables side. It is the segment where we see positive impact coming out of the global tariff challenges. They (Tramontina) have capabilities and are one of the leading global brands and manufacturers.

That should help us to give some alternative options to the customers in US and Europe, to source from India. That joint venture is functional now and operating out of Hubli.

(Amid the India-US bilateral trade ties), we are actively engaging with the government to make sure that we are in a good position to be exporting out of India from a barrier perspective.

The consumer plastics side, which is predominantly drawn to the toys industry, had gone through significant ups and downs. We saw some big momentum coming up last year and this year coming back we see the toys market growing again.

There is a demand from the customers that India should reduce the 70% duty. Our key customers who are buying from India want the government to reduce the import duty so that they can bring their products into the country. So that's another element which is going on.

 The consumer electronics side, well, is a hot field right now, overall and from an India perspective. We are predominantly mechanical products suppliers in that industry. We should be in a good position to pick up the benefit from the recently announced PLI scheme.

Absolutely, we are. We will be qualified for that because we are making certain components necessary for this industry.

We have already committed Rs 500 crore. We have already invested a couple of Rs 100 crores last year. So we'll continue to invest.

We are working with several consumer electronics companies, so that's what I can say at this stage.

We are working strategically with each of these customers. We see an opportunity here. It's a long journey. It's a long partnership. Just like our partnership with Airbus, which started in 2009, and it continues to grow even today as we speak.

So, we expect all our customers to be in that similar situation, whether it's a consumer electronics or consumer durables or consumer plastic side. We will invest only if there is a long-term strategic partnership.

Our goal is supply mechanical parts for potential customers and we are very committed to expanding the business for electronic components.

I don't see any reason why it should discourage anybody from getting into the scheme. At the end of the day, without people you cannot really be doing manufacturing, especially when it's an integral part of business. Machines are required to build these products. So we will need a lot of labor.

 And I think the government’s focus on employment-related incentives is important. We have been advocating this for a long period of time, especially when it comes to the toys and consumer durables side. A lot more unskilled labour can be employed there. Here (electronics component manufacturing), a little more skilled labour is required. So the ratio of revenue to number of employees could be lower in consumer electronics, especially at the component level.

But the finished goods side has a much higher level of employment opportunity and it's the responsibility of companies like us to skill them and employ them and sustain those employments. Whenever we start a new product, there are a lot of employment requirements.

So I think there's nothing wrong with the government asking us to be responsible for certain employment. I think it's fair to ask.

All our life in India, we have seen that we have to hire people – young freshers -- and train them and that's the best workforce we have seen in my 25 year journey.

We have to train local, fresh out of school/college people and that's the best workforce you can sustain and retain. Some of them will go and have higher aspirations and go to some other places, which is perfectly fine. But ultimately as a company, we have a responsibility to develop the community and hire people from the community.

We hire young and talented people every year from areas where there are 50-60 engineering colleges within 100 kilometres radius. We have added 700 people and we have our own training program to skill them.

That’s all the businesses put together, but predominantly driven by the consumer electronics side. In Belagavi, we have a couple of thousand people on the aerospace side and another 3000 on the toy side. They all mostly came out of the community and we skilled them, we trained them. We have continuous programs for that.

It is an integral responsibility for the company. That way we get the right workforce and a sustainable ecosystem is built. Ecosystem is not just the product side, it's also what we have to deal with in the community.

We believe that people have to come from the local region as much as possible. If there is talent available locally, let them come and work and go back home everyday.

We are working on it. We are on track to do what we planned. We brought in investors about 18 months back. They have been very supportive of our growth journey and whatever we have had. Being a public company, we see this as part of our evolution.

IPO is a journey in my view. It’s just one point in a company’s life. So I don't see if the market is high or low; valuation is high or low. It’s the intrinsic value of the company to which investors are going to value.

We are true assets. We have been manufacturing and growing. We have a history. So if investors believe in the company and are willing to put the right valuation, then we have no problem in walking down that path.

I hope the markets will turn around sooner, but it doesn't matter. We said it 2 years back that we will go down this path because it’s part of the journey.

A few months here and there doesn't matter. It's not that it (IPO) needs to happen today, otherwise it's going to be a problem. No, nothing like that for us. We have invested in this company for years.

Look, IPO is about the need to do minimum and we try to do as minimum as possible. We believe there long term value in this company and we have no interest to do more than what is necessary.