Aerospace companies move from manufacturing to services. But Quest Global has taken the opposite route. Can one feed into the other to beat competition?
The skies over Bangalore’s Yelahanka airbase thundered with the sound of fighter planes, helicopters, turboprops and other aircraft. As the biennial air show—its 2013 edition in February is considered Asia’s biggest-ever aviation event—was in action, one aircraft had a different flight path: Business jet Embraer Phenom-100 made chartered flights to Belgaum. Perhaps it was the right time for Quest Global Inc to show potential customers that the aerospace hub it has been building is ready for take-off.
On the outskirts of Belgaum, nearly 500 km from Banglaore, is the 300-acre special economic zone (SEZ) set up by Quest. Driving through the beautiful landscape, it is difficult to believe it could soon be the most sophisticated industrial belt in the region. It is already notified as the state’s first precision engineering region. “You can walk away from this place with a finished [aerospace/automotive] product without stepping out of this facility,” says Aravind Melligeri, co-founder and chief executive of Quest Global Inc, the manufacturing arm of Quest Global Engineering.
No other facility in India, other than state-owned Hindustan Aeronautics, can claim such a design-to-build capability in aerospace. “It is built very neatly, in a graded manner,” says Ashok Baweja, former chairman of Hindustan Aeronautics.
Over the past four years, Quest has developed essential capabilities of an aerospace cluster, such as machining, surface treatment, forging and assembly. It has done some on its own; for others, it formed joint ventures with overseas partners: Magellan Aerospace of Canada, Saab of Sweden and Aubert & Duval of France. The ventures are to serve the global supply chain, although India’s share in the $100 billion commercial aerospace manufacturing is a paltry $100 million.
It was the 2005 defence offsets policy that turned things on its head. Most industrial groups, including the Tatas, Mahindras and L&T, formed partnerships and talked big investments. Looking back, it appears they moved opportunistically. “Even the human resource deployment was convenience-based,” says a public sector aerospace official who saw automotive professionals handling aerospace projects. Three SEZs, two in Hyderabad and one in Bangalore, were also announced.
This February, Karnataka announced a 10-year aerospace policy, which will target $10 billion in investment. It also announced a 1,000-acre industrial park near its SEZ. Even if one considers all this to be hot air, it remains plausible for states to roll out the red carpet for big companies.
Additionally, the conglomerates are finally getting a hang of this high compliance industry. Mahindra Aerospace’s first greenfield project is nearing completion in Kolar. With competition soaring, can Quest create an aerospace cluster in Belgaum, like Toulouse near Paris or Wichita near Kansas City?
Melligeri has bet his life he can.
The Bug of Business
As a child, Melligeri knew he had to get higher engineering degrees from the US. No sooner did he get there that he knew he had to start his own business, even abandoning his PhD programme. It took him a while to find an entrepreneurial young engineer to team up with. Ajit Prabhu, co-founder and chief executive of Quest Global Engineering, was also looking for a like-minded partner.
Prabhu landed himself at the GE R&D centre near New York soon after graduating. He had to pay off the debt he incurred on his credit card while paying for his parents’ US visit. At GE, the engineer in him felt like a “kid in a candy store”, but the businessman in him kept bugging him. Every time his manager cribbed how contract agencies couldn’t find the right skills for the company, Prabhu knew his business idea lay right there: An engineering services company.
At GE, Prabhu did structural analysis of gas turbine rotors; Melligeri modelled the impact of automotive crash at Ford in Detroit. Just over two years into their jobs, in 1997, they decided to borrow money on their credit cards and register Quest Engineering in New York. It was registered in India the following year. In the first year, Quest made $300,000. All the projects that Prabhu had worked on at GE eventually came to Quest, even though his manager thought starting a company “was the stupidest idea”.
By 2001-02, the company was grossing $20 million. Prabhu, who sold incense sticks as a schoolboy to get a sense of business, found more projects coming his way than he could handle. And then Enron—the energy trading giant—collapsed. Several GE power generation contracts got cancelled. Quest, which got 80 percent of its revenue from GE, saw revenue dip to $14 million, and GE’s share in it fell from $18 million to $6 million.
Another reason for the sluggish start is that most government defence acquisitions have been delayed; so, contracts aren’t really awarded. Also, says Nidhi Goyal, director at Deloitte Touche Tohmatsu India, business in this sector requires approvals and licences from various ministries before and after awarding the contract.
(This story appears in the 17 May, 2013 issue of Forbes India. To visit our Archives, click here.)