INDUSTRY PROFILE

Global aerospace industry enjoys high growth as military expenditures continue to rise and emerging economies take the lead in the civil aviation industry. While dominant players are based in Western Europe and the US, Asia Pacific, including India is set to gain from outsourcing of manufacturing as well as MRO activity. The global aerospace industry has come a long way since the first flight was undertaken in 1903; market size of commercial and defence aircraft was estimated at US$ 97 billion in 2007.Defence sales account for more than 80% of the total market typically dominated by the Government and public sector, while the growing private sector civil aviation has led to a broad-based expansion of the industry across the world. In addition there is sizeable MRO activity -Maintenance, Repair and Overhaul -- which is a major component of operating aircraft. On an average, the aerospace industry spends more annually on MRO than on manufacturing or development. The global aerospace market has five main components, each with distinct market structures and drivers military aircraft and light combat aircraft make up the bulk of the market, while jets and helicopters account for less than 20% share. In the past decade, military expenditure has been rising with the international war on terrorism, while civil traffic has seen a spurt due to robust economic growth, rising incomes, globalisation and falling air fares. Though the recession in 2008 in advanced countries has been a setback for the civil sector, emerging economies have taken charge of leading global growth by recovering faster China, India and the Middle East are the most promising drivers of the civil aviation market. According to research by Boeing, the fastest growing economies in Asia will lead change in the market space, with Asia-Pacific set to be the largest air transport market in the world with 45% share of air travel. Commercial airplane market is estimated to be a huge $ 3.2 trillion by 2027, with Asia-Pacific accounting for 37% of the total market. Moreover, while presently the industry is dominated by US and EU based companies, there has been an increasing trend in outsourcing as firms look out for low cost manufacturing locations. MRO outsourcing is set to rise from 52% in 2006 to 65% by 2016. Here again, the Asia-Pacific is set to gain with its efficiency, expertise and labour cost advantages. Demand for military aircraft is also on the rise, with increased military expenditure across the world. Prominent Global Companies: Boeing USA EADS Netherlands Lockheed Martin USA Northrop Grumman USA BAE Systems UK General Dynamics Raytheon United Technologies General Electric

Finmeccanica Among the largest users of aerospace technology are the Department of Defense (USA), National Aeronautics and Space Administration (NASA), European Space Agency (ESA), Ariane France and others. The Indian Scenario The Indian aerospace industry is one of the fastest growing aerospace markets in the world. With a long history spanning six decades, the country has an excellent pool of resources matching global standards. Indias liberalised economy offers sound opportunities for international companies look to outsource manufacturing and MRO activities. Globally, Indias position in civil aviation improved from tenth to ninth position in 2007. Air traffic has been growing at almost 25% annually.The country has been upgrading its airports to international standards, catering to heavier cargo and passenger traffic.It is in the space industry that India has made even more significant strides it is one of the six countries in the world that undertakes space launches with commendable work put in by Indian Space Research Organisation (ISRO) through its commercial arm, Antrix. Private airlines now account for 75% of domestic aerospace market. Opening up the skies led to a boom in air traffic, both passenger and freight, which was reversed in 2008 with the global slowdown. However, as the graph below shows, recovery has begun and the aviation sector is set to continue on its high growth trajectory. Going ahead, growth in air traffic is expected to outperform the global average till 2025. In military aviation, India is expected to spend about $35 billion over the next 20 years as it replaces its existing fleet. Indian MRO segment has been growing at 11 percent and has not been affected significantly by the slowdown. This market is expected to grow at an average of 10% and reach $ 2.6 billion by 2020. The Government recognises the need for massive investment to meet these growing needs: The Ministry of Civil Aviation estimates investment of $ 200-300 billion over the next 25 years, till 2034. The Airports Authority of India has planned investment of $ 3.04 billion to upgrade airports across the country, even as the sector is open for public-private partnerships (PPPs). According to Boeing, India needs 856 airplanes worth $ 72.6 billion over the next 20 years to meet the surging demand. Investments in the Indian Space Programme to the tune of Rs. 39,750 crores during the period 2007-2012, under the Governments Planning Commission programmes. Policy initiatives: The Indian Government has liberalised the framework for operating in the aerospace industry considerably: Manufacturing and R&D activity is allowed 100% Foreign Direct Investment on automatic route in all areas, except air traffic services.

 While 100% domestic private investment is allowed in the defence sector, there is a limit of 26% FDI in the manufacture of defence equipment, which is also subject to licensing requirements. 100% FDI permitted under automatic route for MRO, flying training institutes and technical training institutes. 100% tax exemption for airport projects for a period of 10 years. Defence Offset Policy, effective from September 2008 has a mandatory offset requirement of a minimum of 30% for procurement of defence equipment in excess of Rs. 3 billion, only direct offsets are allowed, banking of direct offset credits permitted for up to two years, transfer of technology not counted towards offset calculation and vendor is free to choose Indian offset partner. Tax incentives are given for investing in Special Economic Zones. Karnataka state scenario Karnataka produces more than a quarter of Indias aircraft and spacecraft, it is the base for all global players in this industry. Excellent support from the government has come through in the form of centres, including Hindustan Aeronautics Limited (HAL), National Aerospace Laboratories (NAL), Aeronautical Development Agency (ADA) and Gas Turbine Research Establishment (GTRE). The State continues to draw huge investments in this Sector as it gears up to meet the rising global demand. The history and background of Indias aerospace industry owes much to the state of Karnataka; home to Indias aerospace industry, the state is all set to reap dividends of the potential in this sector. Starting from 1940, when Indias first private aircraft factory Hindustan Aircraft Ltd. began its operations in Bangalore, the state has created a conducive environment that has nurtured the growth of the aerospace industry. The hub of manufacturing, research and development, the state produces more than a quarter of the countrys aircraft and spacecraft. HAL, has 19 production units and 9 research and development centres in 7 locations across India, of which, 8 production units and 4 R&D centres are located in Bangalore. Ranked 40th in Flight International's list of the Worlds Top 100 aerospace companies in 2008, HAL has a total turnover of Rs. 10,400 crore. It has manufactured 12 types of aircraft with in-house R&D and 14 types under licence. While it has built more than 3,550 aircraft and 3,600 engines, over 8150 aircraft and 27,300 engines have been overhauled at its facilities. Bharat Electronics Ltd. is another public sector firm working in this industry, which has entered into MOUs with international companies like Lockheed Martin, Boeing, EADs etc.

NAL was set up in 1959 under CSIR in Bangalore. The aeronautical lab consolidated its position as a major player with the approval of Indias Light Combat Aircraft project in

1983.NAL, the only civilian aerospace laboratory in the country, is a leader in civil aviation design. Though in the public sector, these aerospace centres have grown in stature, registering international standards of technical excellence and capabilities. They work with many firms in the private sector to raise technological skills, technical and managerial processes etc. Private sector suppliers to the defence sector and the public sector firms were exposed to high standards, raising their capabilities as well. While industrial liberalisation has been underway since 1991, reforms have been gradually spreading through to all sectors and the defence sector was opened to the private sector in 2001. For instance, Air Works India Engineering Private Ltd, established in 1951, became the first DGCA-approved independent Airline MRO in November 2008 for its facility near Bangalore. Private firms registering a major presence in the industry include: QuEST Global, the engineering company, set up base in Bangalore in 1998 and moved into the aerospace manufacturing in 2006, having entered into a 10-year strategic relationship with Magellan Aerospace. In 2007, the firm set up the countrys first special processing facility for aerospace manufacturing, delivered the first set of A-380 components to SABCA and achieved Airbus and AS 9100 certification. The very next year, it became the first Indian private sector player qualified to offer end-to-end solutions to European Aeronautic Defence and Space Company N.V. (EADS), and set up a dedicated sheet metal fabrication facility for aerospace. In 2009, QuEST established Indias first aerospace SEZ in Belgaum, 300 acres dedicated to offering an aerospace customer all from design to manufacture of components and systems in one place. QuEST Global has a manufacturing facility in Bangalore that does precision machining. Capabilities have been enhanced in the Belgaum SEZ to include additional precision machining capabilities, sheet metal work, and aerospace special processing (through a JV with Magellan Aerospace). The company has signed MoUs with 3 major players in the aerospace manufacturing space: SABCA, Belgium: Airbus A-350XWB Flap track mechanism metallic parts manufacturing and assembly work from SABCA Magellan Aerospace: to evaluate setting up an aero-engine focused manufacturing facility with annual revenues of $50m Farinia SA: MOU to evaluate the establishing of an aerospace forging facility

COMPANY PROFILE

Hindustan Aeronautics Limited (HAL) based in Bangalore, India, is one of Asia's largest aerospace companies. Under the management of the Indian Ministry of Defence, this public sector company is mainly involved in aerospace industry, which includes manufacturing and assembling aircraft, navigation and related communication equipment, as well as operating airports. HAL built the first military aircraft in South Asia and is currently involved in the design, fabrication and assembly of aircraft, jet engines, helicopters and their components and spares. It has several facilities throughout India including Nasik, Korwa, Kanpur, Koraput, Lucknow, and Hyderabad. The German engineer Kurt Tank designed the HF-24 Marut fighter-bomber, the first fighter aircraft made in India. HISTORY OF THE COMPANY Hindustan Aeronautics has a long history of collaboration with several other international and domestic aerospace agencies such as the Airbus Industries, Boeing, Sukhoi Aviation Corporation, Israel Aircraft Industries, RSK MiG, BAE Systems, Rolls-Royce plc, Dassault Aviation, Dornier Flugzeugwerke, Aeronautical Development Agency and Indian Space Research Organisation. HAL was established as Hindustan Aircraft in Bangalore in 1940 by Walchand Hirachand to produce military aircraft for the Royal Indian Air Force. The initiative was actively encouraged by the Kingdom of Mysore, especially by the Diwan, Sir Mirza Ismail. The British Government bought a one-third stake in the company by April 1941 as it believed this to be a strategic imperative. Later in April 1942, it bought out the stakes of Walchand Hirachand himself and other promoters so that it can act freely. The decision by United Kingdom was primairly motivated to boost British military hardware supplies in Asia to counter the increasing threat posed by Imperial Japan during Second World War. However, the Mysore Kingdom refused to sell its stake in the company but yielded the management control over to the British Government. Thus, within 2 years of establishment, it was nationalized. Hindustan Aeronautics Limited (HAL) came into existence on 1st October 1964. HAL was set up as a amalgamation of Hindustan Aircraft Limited along with Aeronautics India Limited and Aircraft Manufacturing Depot located in Kanpur, India. Hindustan Aeronautics Limited has it headquarter located at Bangalore, India. HAL is one of the largest aerospace company which is run by the Ministry of Defense. The principal activities of HAL involve manufacturing aircraft, aerospace, navigation, and instruments for communication purposes. Apart from these, few other activities performed by HAL are designing, manufacturing, and collecting aircraft, jet engines, helicopters, along with their elements and spares. Hindustan Aircraft Limited which located at Bangalore, was incorporated by the industrialist the late Seth Walchand Hirachand in December 1940. The Government of India became a stakeholder of the company in 1941 and seized the management department in 1942. HAL has 19 Production Units and 9 Research and Design Centers in 7 locations in India. The Company has an impressive product track record - 12 types of aircraft manufactured with in-house R & D and 14 types produced under license.

HAL has manufactured over 3550 aircraft, 3600 engines and overhauled over 8150 aircraft and 27300 engines. HAL has been successful in numerous R & D programs developed for both Defence and Civil Aviation sectors. HAL has made substantial progress in its current projects: Dhruv, which is Advanced Light Helicopter (ALH) Tejas - Light Combat Aircraft (LCA) Intermediate Jet Trainer (IJT) Various military and civil upgrades.

Dhruv was delivered to the Indian Army, Navy, Air Force and the Coast Guard in March 2002, in the very first year of its production, a unique achievement. HAL has played a significant role for India's space programs by participating in the manufacture of structures for Satellite Launch Vehicles like PSLV (Polar Satellite Launch Vehicle) GSLV (Geo-synchronous Satellite Launch Vehicle) IRS (Indian Remote Satellite)I NSAT (Indian National Satellite)

HAL has formed the following Joint Ventures (JVs) : BAeHAL Software Limited Indo-Russian Aviation Limited (IRAL) Snecma HAL Aerospace Pvt. Ltd. SAMTEL HAL Display System Limited HALBIT Avionics Pvt. Ltd. HAL-Edgewood Technologies Pvt. Ltd. NFOTECH HAL Ltd

Apart from these seven, other major diversification projects are Industrial Marine Gas Turbine and Airport Services. Several Co-production and Joint Ventures with international participation are under consideration. HAL's supplies / services are mainly to Indian Defence Services, Coast Guards and Border Security Forces. Transport Aircraft and Helicopters have also been supplied to Airlines as well as State Governments of India. The Company has also achieved a foothold in export in more than 30 countries, having demonstrated its quality and price competitiveness. HAL has won several International & National Awards for achievements in R&D, Technology, Managerial Performance, Exports, Energy Conservation, Quality and Fulfillment of Social Responsibilities. HAL was awarded the INTERNATIONAL GOLD MEDAL AWARD for Corporate Achievement in Quality and Efficiency at the International Summit (Global Rating Leaders 2003), London, UK by M/s Global Rating, UK in conjunction with the

International

Information

and

Marketing

Centre

(IIMC).

HAL was presented the International - ARCH OF EUROPE Award in Gold Category in recognition for its commitment to Quality, Leadership, Technology and Innovation. At the National level, HAL won the "GOLD TROPHY" for excellence in Public Sector Management, instituted by the Standing Conference of Public Enterprises (SCOPE). The Company scaled new heights in the financial year 2009-10 with a turnover of Rs.11456.70 Cores.

PRODUCTS OF HAL

PRODUCTS IN CURRENT MANUFACTURING RANGE Su 30 MKI Twin-seater, Multi-role, Long range Fighter / Bomber / Air Superiority Aircraft. MiG-27 M Tactical Fighter / Bomber sweep wings. Single-seater with variable

MiG-21 Single-seater Front Fighter Aircraft.

VARIANTS line Tactical Interceptor/

METALLIC DROP TANKS The Division manufactures different types of metallic drop (Jettisonable) tanks with capacity of 490 and 800 litres
DIVISIONS OF H.A.L

Accessories Division Aerospace Division Aircraft Division Aircraft division Avionics division Avionics division Engine division Engine division :

LUCKNOW BANGALORE

: : : : : :

NASIK BANGALORE HYDERABAD KORWA BANGALORE KORAPUT

Foundry & Forge division Overhaul division transport aircraft division Helicopter division Industrial & Marine gas turbine division OBJECTIVES OF HAL

: : : ; :

BANGALORE BANGALORE KANPUR BANGALORE BANGALORE

To ensure availability of Total Quality People to meet the Organizational Goals and Objectives To have a continuous improvement in Knowledge, Skill and Competence (Managerial, Behavioral and Technical) To promote a Culture of Achievement and Excellence with emphasis on Integrity, Credibility and Quality To maintain a motivated workforce through empowerment of Individual and Team- building To enhance Organizational Learning To play a pivotal role directly and significantly to enhance Productivity, Profitability and improve the Quality of Work Life

STRATEGY OF HAL To be in total alignment with Corporate Strategy. Maintain Human Resource at optimum level to meet the objectives and goals of the Company. Be competent in Mapping, Analysis and Upgradation of Knowledge and Skills including Training, Re-training, Multi-skilling etc. Cultivate Leadership with Shared Vision at various levels in the Organization. Focus on Development of Core Competence in High-Tech areas. Build Cross-functional Teams. Create awareness of Mission, Values and Organizational Goals through out the Company. Introduce / Implement personnel policies based on performance that would ensure growth, Rewards, Recognition and Motivation.

VISION "To make HAL a dynamic, vibrant, value-based learning organisation with human resources exceptionally skilled, highly motivated and committed to meet the current and future challenges. This will be driven by core values of the Company fully embedded in the culture of the Organisation".

MISSION Enable all those working for HAL to give their best to ensure their all-round growth as well as that of the organization. To become a globally competitive aerospace industry while working as an instrument for achieving self-reliance in design, manufacture and maintenance of aerospace defence equipment and diversifying to related areas, managing the business on commercial lines in a climate of growing professional competence. " To become a globally competitive aerospace industry while working as an instrument for achieving self-reliance in design, manufacture and maintenance of aerospace defence equipment and diversifying to related areas, managing the business on commercial lines in a climate of growing professional competence ". VALUES CUSTOMER SATISFACTION We are dedicated to building a relationship with our customers where we become partners in fulfilling their mission. We strive to understand our customers ' needs and to deliver products and services that fulfill and exceed all their requirements. COMMITMENT TO TOTAL QUALITY We are committed to continuous improvement of all our activities. We will supply products and services that conform to highest standards of design, manufacture, reliability, maintainability and fitness for use as desired by our customers.

COST AND TIME CONSCIOUSNESS We believe that our success depends on our ability to continually reduce the cost and shorten the delivery period of our products and services. We will achieve this by eliminating waste in all activities and continuously improving all processes in every area of our work. INNOVATION AND CREATIVITY We believe in striving for improvement in every activity involved in our business by pursuing and encouraging risk-taking, experimentation and learning at all levels within the company with a view to achieving excellence and competitiveness.

 TRUST AND TEAM SPIRIT We believe in achieving harmony in work life through mutual trust, transparency, cooperation, and a sense of belonging. We will strive for building empowered teams to work towards achieving organisational goals. RESPECT FOR THE INDIVIDUAL We value our people. We will treat each other with dignity and respect and strive for individual growth and realization of everyone's full potential. INTEGRITY We believe in a commitment to be honest, trustworthy, and fair in all our dealings. We commit to be loyal and devoted to our organization. We will practice self discipline and own responsibility for our actions. We will comply with all requirements so as to ensure that our organization is always worthy of trust. CUSTOMERS International Customers Airbus Industrie, France APPH Bolton, UK BAE Systems, UK Chelton, UK Coast Guard, Mauritius Corporate Air, Philippines Cosmic Air, Nepal Dassault Aviation, France Dowty Aerospace Hydraulics, UK EADS, France ELTA, Israel Gorkha Airlines, Nepal Hampson, UK Honeywell International, USA Island Aviation Services, Maldives Israel Aircraft Industries, Israel Messier Dowty Ltd., UK Mistubishi Heavy Industries, Japan MOOG, USA Domestic Customers

Air India Air Sahara Airports Authority of India Bharat Electronics Border Security Force Coal India Defence Research & Development Organisation Govt. of Andhra Pradesh Govt. of Jammu & Kashmir Govt. of Karnataka Govt. of Maharashtra Govt. of Rajasthan Govt. of Uttar Pradesh Govt. of West Bengal Indian Airforce Indian Airlines Indian Army Indian Coast Guard Indian Navy Indian Space Research Organisation Jet Airways Kudremukh Iron ore Company ltd. NALCO

Namibian Air Force, Namibia Peruvian Air Force , Peru Rolls Royce Plc, UK Royal Air Force, Oman Royal Malaysian Air Force, Malaysia Royal Nepal Army, Nepal Royal Thai Air Force, Thailand Smiths Industries, UK Snecma, France Strongfield Technologies, UK The Boeing Aircraft Company, USA Transworld Aviation, UAE Vietnam Air Force, Vietnam

Oil & Natural Gas Corporation Ltd. Ordnance Factories Reliance Industries United Breweries

ACHIEVEMENTS & AWARDS: HAL has been honored with number of awards. 1) It has bagged the Engineering export promotion council ( EEPC) award once again for best performance in engineering consultancy. Technology know how and other engineering services category. 2) Hindustan Aeronautics Limited (HAL) has received the Institution of industrial engineering (IIE) enterprise excellence award and gold shield in the manufacturing group (Engineering for financial operational strength for the year 2002-03 during the 2nd Coe's conference on world class ingts practices held on 4th June 2004 at Hyderabad. 3) HAL has been conferred the '' Top- 10 MOU award'' by the department of public enterprises ministry and heavy industries for excellence in achievement of MOU targets for the year 2003-03. 4) HAL is proud of this chairman Mr. N.R. Mhanty who has back conferred with '' Padma Shri'' award by his excellence''. Dr. AP AbdulKalam Khan honorable president of India in recognition to his contribution to the nation in the field of science and technology.

ORGANIZATION HIERARCHY

DEFENCE MINISTER SECRETATRIAT SCHEDULE---A : CHAIRMAN SCHDULE---: MANAGING DIRECTOR GRADE : EXECUTIVE DIRECTOR GENRAL MANAGER ASST. GENRAL MANAGER DEPUTY GENRAL MANAGER CHIEF MANAGER SENIOR MANAGER MANAGER DEPUTY MANAGER OFFICER ASST. OFFCIER GROUPS : SENIOR ASST. SUPERVISOR ASST. SUPERVISOR HIGH SKILLED TECHNICIAN HELPERS

EVOLUTION AND GROWTH OF THE COMPANY The Company's steady organisational growth over the years with consolidation and enlargement of its operational base by creating sophisticated facilities for manufacture of aircraft / helicopters, aeroengines, accessories and avionics is illustrated below.

FINANCIAL PERFORMANCE

BALANCE SHEET

PROFIT AND LOSS ACCOUNT