AVIATION

Boeing’s New Flight Trajectory

‘ India can become a significant partner as part of a larger global supply chain and help
us reduce costs'

The Boeing Company’s India subsidiary, Boeing International Corp. India, has just
moved into a new office in the upmarket Eros Building in New Delhi’s Nehru Place
neighbourhood. The move resonates well with the $61.5-billion US-based aviation
giant’s plans for India. After a hugely successful two years of selling commercial
airplanes — Indian companies have ordered 132 Boeing aeroplanes in the past 20
months — and after committing close to $185 million in smaller projects such as a
maintenance, repair and overhaul facility (MRO) in Nagpur, Boeing has decided to shift
gears in the country. In January, the company sent Ian Q.R. Thomas, vice-president
(Europe) of its Integrated Defense Systems (IDS), to head India operations as president,
Boeing India. Thomas, 40, has a brief to strengthen the company’s local presence and
find new ways to pursue growth. An impending visit in April by chairman and CEO Jim
McNerney is in line with the company’s new strategy. Thomas spoke to BW’s Anjuli
Bhargava to explain Boeing’s new philosophy and what sets India apart in the region.
Excerpts:

Boeing has restructured its India operations. Why?

It would be fair to say that India joined the jet age on Boeing wings. We
have been doing business here for the past 60 years, predominantly in
commercial airplanes. On the back of the recent strategic alignment
and the growing partnership between India and the US, both politically
and strategically, the civil nuclear agreement and a host of accords
under the leadership of Indian Prime Minister Manmohan Singh and US
President George Bush, we believe there is (now) a very significant
opening in the defence market. But we believe the market in India is a
lot more than just selling commercial aeroplanes or defence products. I
am here to lead a cross-enterprise team that goes beyond these two
areas. We would like to partner Indian business in a host of things such
as IT, BPO, engineering, manufacturing and raw materials sourcing that
Boeing Company can bring to bear as an enterprise.

What kind of partnerships will you look to leverage?

Well, I am really here to take this beyond a simple resource exchange

— you give me money, I give you aeroplanes, if you will. In the process
of making these transactions, for example, Boeing has incurred
significant offset obligations on the civil side. As we begin to develop
the kind of partnerships and commit investments to meet those
obligations, we can see some significant transformational opportunities
in how we do business, not just in India but globally, too. India can
become a significant partner as part of a larger global supply chain and
help us reduce costs.

We are already committed to setting up an MRO facility in Nagpur, in

which we will invest $100 million, and for which we are actively
scouting for an Indian partner. Alteon (Boeing’s training school) will be
setting up a training centre in India (the second in the Asia-Pacific after
Brisbane, Australia) for pilot and flight crew training with an
investment of $75 million. An additional $10 million is to help fund
some existing pilot training schools.

We are talking to a number of R&D institutes and universities for

composites and structures projects, and manufacturing processes. We
announced an MoU with L&T at the Aero India earlier this year in
Bangalore. We are already working with Infosys, HCL, Wipro and TCS
on IT and BPO projects.

Would different wings of the Boeing Company operate through

Boeing International or would, say, Phantom Works (the R&D
unit of the Boeing Company) enter directly and work with
Indian companies?

If it is R&D, it will predominantly be through Phantom Works. In fact,

we have a team that is currently meeting with various technical
institutes, working out ways to structure R&D investment, whether it is
through consortia or bilateral arrangements, and whether it is with
Indian industry or the government.

You spoke of meeting offset obligations, but does all of it make

commercial sense for the Boeing Company?

I think it makes great commercial sense. First of all, it helps facilitate

future sales. It also drives down cost for today, particularly on BPO, IT
and engineering. This is partly about what is going on in the Indian
market, but it is also about what is going on within the Boeing
Company in terms of reducing our own costs, making us more
competitive, leaner and making our processes more efficient. And
there is the global aspect to that where we combine the two and it
makes us much more competitive globally.

Will all this reflect in the kind of resources you commit to

India?

In many ways, India is the template for this cross-enterprise approach

that we are taking in terms of having very strong representation from
each business unit — commercial, IDS and corporate — supported and
connected with Phantom Works and the Shared Services Group (IT,
engineering, manufacturing). They will all be resident here in India —
most of them in this office. This will be one of the few Boeing offices in
the world that will have all of this strong executive leadership in one
place.

Till very recently, we tended to have separate business units doing

separate functions. Jim McNerney has looked at this and felt that there
is a lot of value locked up in operating separately. If we operate
together, we can unlock a lot of that value and create value not just for
our shareholders but, most importantly, for our customers. You can see
this not only in the cross-enterprise approach that we are taking here
today in India on the ground, but also in terms of the products we have
recently brought into the market — the aircraft (737s) we have sold to
the Indian Air Force, the maritime patrol aircraft, the tanker campaign
where you take a 767 green, off the line from Seattle and turn it into a
defence product.

We will keep a pretty lean executive structure here. But on the MRO
and the training side, the base could grow from several hundred to
several thousand. The defence side will be determined by our success.

So, in the Asia-Pacific, is India the first country where you are
setting up operations with this cross-enterprise approach in
mind?

It is. In China, we do not do any defence business. In many respects, it

is quite simple. We do commercial aeroplanes and we do services. But
India has the potential for every single product and service we do on
the commercial and defence sides as well as for all our support
functions. In Australia, we are probably ahead in terms of
manufacturing and in terms of investment. But India is light years
ahead in terms of the market potential and the potential for the
company to come together as an enterprise and grow the business
while making investments in the country, and leveraging those
investments globally. What we are doing is taking the tremendous
foundation of success on the commercial side, marrying it with our
aspirations on defence and mixing in the whole enterprise of what we
do — in terms of raw materials sourcing, IT, BPO, manufacturing and so
on. This will bring huge benefits to India as there is no aerospace and
defence company in the world today that can bring this kind of
breadth, scope and depth to the table.

Do you see the defence market in India outstripping the commercial

ones anytime soon?
The defence market alone could be easily $10 billion-15 billion over the
next 5-10 years. The commercial market is, by no means, going away
but it will moderate slightly for Boeing relative to the last two years,
though our forecast remains $72 billion over the next 20 years on the
commercial side. We are looking at the new growth in defence to
complement and support the commercial side.