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15.2.11

The Mahindra group is looking to scale up its aerospace business to capture a slice of the $12-billion offset business in the Indian defence market. Group company Mahindra Aerospace Private Ltd (MAPL) is looking to rope in a strategic investor (it already has Kotak PE) and is pumping in Rs 284 crore in a new facility in Karnataka for components, assemblies and aerostructures both for its own and other large aircraft. The idea, said a top company official, is to create competence for components on one hand and build compact, rugged, affordable aircraft - 'Scorpio of the aero industry' - on the other.

"We are talking to potential strategic investors including OEMs and tier I suppliers. We are looking at a relationship that will help us access both customers and technology - not just for the offsets business but for aerospace competency beyond that too ...," Hemant Luthra, president, Systech, M&M, told TOI. A tie-up is a "distinct possibility" in the quarter. The top tier 1 suppliers globally are players like Alenia, part of the Italian group Finmeccanica, Premium Aerotec, Aernnova Spain, Aerolia, and Spirit Aerosystems but Luthra refused to speculate on the name of the potential strategic partner. The $7.1 billion Mahindra group is building a 20-acre component plant at Narsapura in Karnataka.

The company has acquired equipment from the Boeing Aerostructures plant in Melbourne Australia for the Narsapura plant. "We bought the assets of Boeing's metallic aero structure plant and it is being shipped as we speak. Acquisition of assets of Boeing Aerostructures Australia further enhanced by additional capabilities being built will ensure that the India plant has both sheet metal cutting and several distinct unique capabilities in terms of stretch forming and post machining processing capabilities matched by few others and should give us a distinct advantage to meet tier I plus OEM needs, including our own as we build out our own NM5 and GA aircraft," Luthra said.

Kotak Mahindra owns one-third stake in MAPL which has two arms - components, assemblies and aircraft. The former is built around the acquisition of Aerostaff and the latter around Gippsland - both Australian companies that MAPL acquired last year. The new strategic investor is rumoured to be looking at an equity stake in the components and assemblies arm. There are also plans to list the aerospace business but not in the near future.

The Narsapura facility has been expanded five times since the acquisition of the Boeing plant. Initially, M&M was supposed to pump in $10 million for a five-acre plant. Now the investment has been pushed up to about $75 million in a 20-acre plant, said Luthra. Together with M&M's Australian aerospace acquisitions - Gippsland Aeronautics Pty Ltd and Aerostaff Australia Pty Ltd - M&M is investing around $100 million in the aviation business.

Scaling up the Narsapura plant will be crucial for Mahindra Aerospace since it will allow the company to move up the aero component, assemblies and aerostructures value chain. "At present, the metallic aero structures (the components that go into wings and fuselage) are made either in the US, Europe or Australia, countries where labour costs are uncompetitive," said Luthra. "Thanks to acquisition of assets from Boeing plant, and given the pressure of offsets we will able to do both manufacturing and more important processing of components, assemblies and aero structures."

The government's offset policies mandate 30-50% sourcing of local components for all defence equipment deals. M&M's Narsapura plant will help the company become a tier II supplier for global tier I vendors. "Strategically this tier II arrangement is important for us because it offers a nice steady cash flow from offset requirements and will also feed us when we scale up and turn OEM ourselves to build small, rugged, 8-seater planes of our own," said Luthra. Mahindra Aerospace recently showcased the GA8-TC-320 Airvan which has been designed and built by its Australian subsidiary Gipps Aero at the ongoing Aero-India show in Bangalore.

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