Outsourcing has become increasingly prevalent across several segments of the commercial aviation industry, from original equipment manufacturers (OEMs) to airline operators and logistic vendors managing specific parts of the airport operations. While the stakeholders on the operations side typically outsource in a headcount sourcing model, OEMs are looking for assistance in product development and product lifecycle management to help them establish an effective go-to-market (GTM) strategy.
In 2018, French airframer Airbus spent 3.2 billion euros on R&D with a significant portion of it directed toward engineering services and R&D outsourcing functions. Similarly, in 2019, a considerable portion of Airbus’ total R&D budget is going to product engineering, manufacturing engineering and digital engineering service providers. As Airbus expands its presence in India, service providers operating at scale in the engineering services area can leverage the growth opportunities unique to this market segment. With a captive presence in India, Airbus has already expressed interest in expanding India operations as part of its strategy to co-design aircraft parts unlike its rival, the US-based Boeing, which is gradually insourcing these functions.
From Co-designing to Co-development
As a part of its vertical integration strategy in India, Airbus is planning to shift the focus of its Indian captive in the aircraft manufacturing value chain from manufacturing detailed parts to conducting medium assembly functions. Airbus has chosen Bangalore for its 5,000-people-strong engineering centres, which are specialized establishments for modelling and simulation, digital simulation and visualization, computation fluid dynamics (CFD) and flight management systems for the A380 Superjumbo and the A350XWB. India-based Dynamatic Technologies has been manufacturing flap track beams for Airbus A320 and A330 product lines on a global single-source basis. In the last few decades, 93 percent of Airbus’s A320 flap track beams have been sourced from Dynamatic Technologies. Recently, Airbus also has been exploring options to boost the sourcing of aircraft doors and other components as well as co-developing unmanned aerial vehicles (UAVs). Airbus has been growing its sourcing agreement for A320 forward passenger doors from Hindustan Aeronautics, Ltd. (HAL) with the help of a new HAL facility near Bangalore airport to support the manufacturing of A330 and A320 product lines.
Product Engineering Outsourcing for an Improved GTM
Airbus is already outsourcing several functions to service providers, but, due to massive backlogs and delays in aircraft supply, it is accelerating its product development process. Experts expect this to boost the engineering services outsourcing industry, especially providers’ mechanical, electrical and embedded product design and development service lines. Indian engineering service providers such as QuEST Global, Axiscades, Tech Mahindra and Infosys are registered in the French OEM’s main supplier list for wing and pylon design and engineering services associated with landing gear and fuselage functions. Tech Mahindra, an outsourcing partner to Airbus, has established the HUB for Airbus Group in Bangalore to support a platform-based approach in product development and engineering services. The launch of the hub boosted Tech Mahindra’s Integrated Engineering Solutions (IES) capabilities, enabling it to offer services to support the future digital enterprise across the aerospace and defence value chain.
Sustainability in Obtaining Raw Materials
Airbus has expedited its complex assembly processes in India by engaging with Mahindra Aerostructures for manufacturing components, such as aerospace steel, titanium and Inconel for A320neo and A350 XWB aircraft. Airbus also is in talks with Bharat Forge and the Mahindra group regarding some of its aircraft parts forged in India. Airbus also is working on a recycling program to reduce waste of raw materials during production.
A Silver Lining for Airbus – A Monopoly Over the Narrow-body Market
The crash of Ethiopian Airlines Flight 302 in March 2019 led to a global grounding of the Boeing 737 MAX fleet. It is possible this will increase sales of other narrow-body jets. Repeated delay of the supply of the Mitsubishi Regional Jet (MRJ) from 2013 to mid-2020 is expected to further increase the sale of the Airbus A320neo, which is the closest competitor of the 737 MAX jet as well as other similar jetliners in its class. The A320neo, however, could face cut-throat competition with the Comac C919 due to the significant market share of global aircraft orders by Chinese airlines. The Comac is on the way to establishing itself as the primary supplier to the Chinese domestic market and is steadily progressing with its wide-body program C929, presently being co-developed with Russia. Lastly, Russian Sukhoi is planning to enter the regional passenger aircraft market, which might increase competition in the narrow-body segment.
While IT and business process outsourcing providers are suffering setbacks due to social, political and economic factors, the engineering services segment is growing. Outsourcing and offshoring providers have developed strong engineering and R&D service practices, which have become one of their fastest-growing businesses. If providers reinforce these practices with up-to-date know-how, centers of excellence, proficiency in product and manufacturing engineering support, and well-run R&D hubs, they will witness faster growth even in the face of potential global economic slowdowns.
Momentum MTI 2018 Vertical Report - Aerospace & Defence