Boeing Prez: India, a test case for our global strategy

Ian Thomas, who was recently appointed President of Boeing India, has also served in the office of US secretary of defense. Not surprisingly, he’s as much at ease giving his big-picture take on Boeing’s India operations as talking about the US Nato policy. Excerpts:

How do you read the Indian civil aviation market; there is strong growth but profits are difficult to come by?

I think there will be very strong returns to shareholders. India is a very competitive market and we are seeing some consolidation (Jet Airways and Sahara). As the market matures, consolidates and grows more, there will be profitability. We are seeing the US carriers coming out of the most difficult downturn in the history of civil aviation. It is a cyclical market there and it will be cyclical here too.

There is lots of competition, lots of entrepreneurial foray, and innovation. All that energy and dynamism, fuelled by this explosive market growth and the desire of Indians to travel, will rationalise the market and yield profitability. When that will happen is difficult to say. Most economists who study aerospace and the civil aviation sector will tell you that the cycle seems to last for 5-7 years. We think that this particular cycle will extend to 9-12 years because of all the exogenous factors; 9/11, SARS or the economic crisis in various places. If you look in, including US and Europe, you are starting to see profitability return to the commercial aviation sector and one would think that would flow here as well.

There is a perception in India that while Boeing has done well, Airbus has outperformed it over the past couple of years.

That is certainly not our perception. This is a great industry. But it’s a marathon not a sprint. So looking at the last three years is sufficiently important to know what has happened and maybe what’s to come but I think its important to take a longer view and to take a global view. And it is true that some of our competitors have been successful in various sectors or segments or with particular airlines, we are quite satisfied with the successes we have had over the last couple of years in particular. We have been doing business here for over six decades and would like to say India joined the jet age on Boeing wings. We don’t really focus too much on our competitors. We are really focused on our customers and developing the right products for the market at the right time and at the right price. We are not too worried about who sold the maximum narrow body airplanes last year.

How do you read the domestic demand for aircraft and which type are best suited for the Indian market?

If you go by the civil aviation ministry’s forecast of 25% CAGR in passengers over the next decade - and there was 40% growth in passenger numbers last year — you have this huge growth and staggering numbers. The need is there. The US has 250 million people and 6,000 aircraft. India has 300 for 1.1 billion. There is a whole lot to be done on the cargo side.

Lot of our customers are looking at that. For a country of 1.1 billion there is just seven dedicated cargo planes, that is another staggering number. We are here to develop the cargo market. We are going to look to continue to sell the planes that we have; the 737, 787, the 777 and the 747. Clearly, 737 is an ideal plane for the domestic market. For longer travel and heavier needs we have the wide-bodied aircraft. We are developing the cargo variant of the 747. 777 continues to be a very good seller.

Are Boeing’s offset commitments, under the various contracts won, an opportunity or obligation?

I think the government has a right to impose offset commitments. If intelligently applied, they can help in economic development. It would have to be a win-win situation. The commitment we have, vis-a-vis the Air India order, is about $1.6-$1.7 billion. We don’t see this as an obligation that we have to meet before we move on to next sale or next market.

Although we take the obligation aspect of that quite seriously, we see this as an opportunity to change the way we do business in India. We are looking across the breadth of our enterprise - commercial airplanes, defence, IT, R&D, engineering, manufacturing, maintenance and repair, logistics and raw material - to create an interlocking relationship with the great names of the Indian industry, public sector and institutions. We are doing that because we have an obligation to fulfil, yes partly. But the real reason is that we want to be more competitive in India and be more competitive globally. We want to take the best of India and put it in Boeing. To put it differently, even if the offset was not there we would be doing all this in India for the reason why the rest of the world is coming here; because of the highly skilled workforce and competitive costs.

You have restructured your India operations and have brought civil and defence operations under one roof.

India is a kind of test case or the template for new Boeing to transform as an enterprise. We have not been effective in leveraging the two sides of our enterprise. So, the emerging thought is what can be done as a common entity and unlock the synergies and cross-references. In India, that is kind of taking shape.