Mahindra War Room 2014 Mahindra Aerospace Business Caselet
MAHINDRA SYSTECH SECTOR
AEROSPACE BUSINESS CASELET
Mahindra Systech, manages four businesses spread across ve countries Automotive Components, Engineering Services, Aerospace and Steel, with a business size of USD 950 Million. This caselet pertains to the nascent Aerospace business of the Mahindra Systech Sector.
BUSINESS BACKGROUND
Mahindra ventured into Steel Trading in 1945, and subsequently started manufacturing steel products with the incorporation of Mahindra Ugine Steel Company (MUSCO) in 1962. In 2004, Mahindra Systech Sector was created take care of the existing Steel Business and also to foray Mahindra Groups entry into the Automobile component industry to capitalise on the opportunities presented by its growth as a result of increasing domestic vehicle production as well as growing emphasis on Low Cost Country sourcing for Global Automotive OEMs. With a series of acquisitions of companies in Germany, Italy and United Kingdom, Systech sector today has art-to-part capability in Forging, Casting, Gears, Stampings, Steel, Ferrites, Contract Sourcing, Composites and Engineering Services. Systechs components are used in Industries like Electrical, Medical Equipment, Power, Defense and Aerospace, beyond Automotive and Farm Equipment Sectors. The Systech Sector is one of the most globalised businesses of the Mahindra Group, with over 45% revenues generated outside India. MUSCO made Alloy Steel using Electric Arc Furnace technology, which turned uncompetitive over time. In 2012, MUSCO collaborated with Sanyo Steel and Mitsui, both of Japan, to form Mahindra Sanyo Steel, owned 51% by Mahindra, 29% by Sanyo and 20% by Mitsui. In June 2013, Mahindra Group entered into an alliance with CIE Automotive of Spain, wherein Mahindras Components business was housed into Mahindra CIE Automotive, owned 51% by CIE and 20% by Mahindra; in exchange, Mahindra became the second largest shareholder in CIE Automotive, acquiring a 13.5% stake in Madrid Stock Exchange listed company. The Systech Sector has shown signicant ability to grow inorganically, and realise shareholder value through alliances and acquisitions.
LIVE BUSINESS CHALLENGE: AEROSPACE BUSINESS STRATEGY
The foundations of Mahindra Groups Aerospace division was created in 2006, with Mahindra Engineering Services acquiring Plexion Technologies, to expand its services in Aerospace design. Plexion had partnered Australias Seabird Aviation, that had a prototype of a 2-seater aircraft, which it looked to market in Asia. Plexion also had an Broadvision Perspectives Client Condential Page of 1 3 Mahindra War Room 2014 Mahindra Aerospace Business Caselet agreement with National Aerospace Laborotaries (NAL), to develop a 5-seater aircraft targeted at the private sector, codenamed NM5. Mahindra subsequently broadened its vision, to aircraft unto 20 seats, and acquired Gippsaero of Australia, a successful 20- year old player with experience in design and manufacture of general aviation aircrafts with less than 20 seats. GippsAero aircrafts had already been sold in over 30 countries, with FAR 23 certication, signifying high standards of safety. GippsAeros 8-seater Airvan aircraft which was a best seller, 10-14 seaters and the NM5 constituted the product line-up of the Aerospace Division. Mahindra also acquired Aerostaff Australia, a local supplier to GippsAero, which manufactured precision sheet metal parts and assemblies for Aerospace and Defense Industries, enabling entry into the Aerospace components market too. With manufacturing facilities in India and Australia, Mahindra has signicantly lower operating costs compared to traditional European and North- American companies, with superior technology compared to other emerging manufacturing locations.
GippsAero sells globally in critical markets like Australia, Southern Africa and USA, and currently sells around 20-30 aircrafts a year. It faces brand and regulatory challenges in key markets. For example, Indian regulations require twin engines for turboprop aircraft with more than 5 seats, but GippsAero offers single engine turboprop with 8 seats. This has prevented Mahindra from realising dormant opportunities to sell small aircraft that can connect Indias numerous towns and cities. Indias low cost production strengths have not been brought to the aircraft manufacturing business. There is not a single manufacturer of commercial aircraft in India today, with Hindustan Aeronautics Limited being a defence aircraft manufacturer. Global majors such as Boeing, Airbus and other larger players have not set up aircraft manufacturing plants in India. However, Mahindras acquisition of GippsAero has had its benets - Mahindra has gained capability and condence as a group in all aspects of aircraft development, production, marketing, after-sales support and cultivating rich, long-term relationships.
Embraer of Brazil, founded in 1969, has gone on to become the market leader in commercial jets unto 130 seats, producing more than 5000 aircraft that operate in 80 countries. Mahindra dreams of being the Embraer from India in this classic Rise setting, triggering a dream - Can Mahindra acquire one of the Top 10 global small aircraft manufacturers, replicating their proven ability to realise shareholder value through inorganic growth in automotive components? Is this opportunity for real? Can Mahindra acquire one or more companies to make an inorganic, quantum leap into small aircraft manufacturing beyond 20-seaters, with international brand recognition? If so, which are the possible companies and why? Conduct a detailed due diligence on 1-2 of the identied companies with detailed analysis-backed recommended course of action. Evolve an inorganic Broadvision Perspectives Client Condential Page of 2 3 Mahindra War Room 2014 Mahindra Aerospace Business Caselet entry strategy for Mahindra into the small commercial aircraft space, and a roadmap to realise the opportunity to create shareholder value.
The following table lists the Top 10 small commercial aircraft manufacturers, and their market and technological data, some of which seem to offer an opportunity for inorganic growth in this space: Broadvision Perspectives Client Condential Page of 3 3
Options and Efficiency Author(s) : Stephen A. Ross Source: The Quarterly Journal of Economics, Vol. 90, No. 1 (Feb., 1976), Pp. 75-89 Published By: Stable URL: Accessed: 20/12/2014 08:54