Conflicting orders from Centre and state impact aero manufacturing - Broadsword by Ajai Shukla - Strategy. Economics. Stuff.

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Sunday, 12 April 2020

Conflicting orders from Centre and state impact aero manufacturing

Global aerospace giants are continuing work and Indian sub-vendors are required to continue supply of components

By Ajai Shukla
Business Standard, 13th April 20

Even after the Tamil Nadu and Karnataka governments issued orders allowing aerospace and defence industries to continue manufacturing work, the comprehensiveness of the countrywide lockdown, and absence of governmental coordination is preventing even a limited return to normal production.

As Business Standard reported (“Karnataka exempts aerospace and defence firms from Covid-19 lockdown”) a state government circular number CI 06 SPI 2020, dated April 1, “relax(ed) the restrictions imposed on the movement of workers and staff working in these industrial units.”

However, aerospace manufacturing companies continue to face severe difficulties in obtaining passes from the Karnataka Police for employees to travel to work.

The police are held back from issuing movement passes by a letter that Home Secretary Ajay Bhalla sent to all state chief secretaries on March 31, complaining that state governments are allowing “exceptions beyond what has been allowed under lockdown measures” by the Centre.

“This amounts to violation of the lockdown measures issued by MHA under the Disaster Management Act, 2005, and may defeat the overall objective of containing the spread of Covid-19,” wrote Bhalla, demanding that state governments must “strictly implement the lockdown measures.”

“After numerous visits to the police, we have obtained movement passes for just 10 per cent of our employees so far,” says a senior official from an aerospace production company, speaking on condition of anonymity.

Aerospace manufacturers also report another problem stemming from a growing fear of Covid-19: A culture of vigilante citizens, particularly in villages in the outskirts of Bangalore, erecting barriers, stopping vehicles and refusing to allow passengers to proceed. The Karnataka Police is doing little to stop them.

Contacted for comments, the Karnataka Police did not respond.

Meanwhile, pressure for the uninterrupted supply of aerospace components is growing from global aerospace vendors, such as Boeing, Lockheed Martin, Airbus and Bell Textron, which all source components from Indian aerospace manufacturers.

The US federal government wants America’s aerospace and defence industry to function as usual. It has cited national security to order the industry’s 2.5 million employees to continue reporting for work in many production facilities.

Boeing’s multiple production units across the US are continuing to function, except for the one at Puget Sound in Seattle, which builds commercial planes and derivatives; and the production line in Philadelphia that builds the Chinook and Osprey aircraft. This demands uninterrupted supply of components from Indian sub-vendors 

Canadian firm, Bell Textron, has written to its suppliers that its government has deemed it “part of the businesses providing important and essential activities” and “Therefore, Bell needs and expects all suppliers to proceed with diligent completion of open orders to Bell in support of the war fighters…”.

Indian aerospace suppliers say there is growing pressure from foreign customers who demand to know, on a day to day basis, what impact the Covid-19 pandemic is having on their supply lines.

Boeing has written to its suppliers that it reserves the right for remedy, as per the terms and conditions of their contract, if interruption in supply from India impacts the discharge of the company’s contract requirements.

Indian aerospace firms, mostly based around Bengaluru, are growing suppliers to global aerospace giants. Last year, Boeing sourced over Rs 7,000 crore worth of components and services from over 200 Indian companies, while Airbus sourced over Rs 4,500 crore worth of components and services from some 45 Indian companies.

However, many of these Indian firms worry that a failure to honour existing contracts could result in a flight of business to countries like South Korea – already major aerospace component suppliers – where the governments are ensuring there is no interruption in aerospace component production.

“Our foreign customers cannot pull the plug on India right away. But when production contracts come up for renewal, it will be noted that India was one of the countries from where supply was interrupted,” says an aerospace manufacturing chief executive.

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