Dynamatic and the long road to “Make in India”

Manufacturing at Dynamatic (photos courtesy: Pallon Daruwala)

By Ajai Shukla

(Slightly expanded version of an article in

Business Standard, 2nd Feb 2016)

Driving into Dynamatic Technologies’ production facilities, an hour from central Bangalore, is a transition from the grey anonymity of an industrial zone into a pleasing green layout of buildings with cheerful canary-yellow facade --- an aesthetic uncommon in a manufacturing firm. A sprightly, grey-haired man receives me in a foyer. I recognise Ravish Malhotra, who was an icy-cool test pilot whom the air force shortlisted to be India’s first astronaut. As it turned out, his compatriot, Squadron Leader Rakesh Sharma, hurtled into space on a Russian Soyuz spaceship. But, until blast-off, it could have been either.

Dynamatic started out in licence-raj India as a manufacturer of hydraulics pumps. Still in that business, the company’s revenue now comes mostly from automotive components built in Chennai and Germany for a range of carmakers, including BMW, Mercedes Benz and Audi. Meanwhile it moves steadily towards becoming a large fabricator of aerospace components and systems --- the gold standard of precision manufacturing.

While the National Democratic Alliance talks up the “Make in India” project as a quick fix for galvanising indigenisation, it has taken Dynamatic thirty years to build this capability.

Today, Dynamatic builds “flap track beam assemblies” for every one of the 54 single-aisle airliners that Airbus assembles each month. If this assembly --- critical for an airliner’s balance, lift and turn --- were not delivered on time and to precise specifications, the assembly of A-318, A-319, A-320 and A-321 aircraft in France (50 per month) and China (four per month) would grind to a halt.

Dynamatic is also a growing supplier to Boeing. Starting with an offset-linked order for mission and power cabinets for the Indian Navy’s eight Boeing P8-I multi-mission maritime aircraft, Boeing quickly expanded the order to encompass every P8 aircraft being built for the US and Australian navies. Pleased with what they saw, Boeing then placed orders on Dynamatic for the Chinook CH-47E helicopters that India is buying. The Chinook’s main pylon and ramp, which will start being delivered next month, are the most sophisticated aero structures being exported from India.

For the Indian aerospace market, Dynamatics builds one-sixth of the airframe of the Sukhoi-30MKI fighter, shipping part to Nashik where Hindustan Aeronautics Ltd (HAL) integrates them into the fighter. In November, HAL presented the company its “best supplier” award.

When Indo-US defence cooperation needed a co-development showpiece during President Barack Obama’s visit to India last January, one of the projects highlighted was a next-generation micro-UAV (unmanned aerial vehicle) called the Cheel. Dynamatic Technologies will co-develop this with the global leader in micro-UAVs, an American firm called AeroVironment.

The change agent

Malhotra escorts me to the boardroom, where Udayant Malhoutra, Dynamatic’s 50-year-old chief executive and majority stake owner, offers me coffee. A trim, man with a keen awareness of what is going on around him, Malhoutra joined his father’s debt-loaded company, then called Dynamatic Hydraulics, as a 20-year-old. Since taking the helm, his focus manufacturing “highly engineered products” has transformed its products, vision and fortunes: last year, turnover was a quarter of a billion dollars (Rs 1,629 crore), with a net profit of $11 million (Rs 79 crore). As he conducts me around the aerospace units, the compulsively hands-on Malhoutra calls practically every worker by name. He needs no guidance while explaining the technicalities of production.

He explains that Dynamatic’s growing success rests on its global production model. Instead of providing foreign vendors with a sweatshop for reducing costs through low-wage labour, Dynamatic has fashioned a multi-national capability based on comparative advantage. In 2008, Dynamatics bought over a Bristol-based, family-owned concern called Oldland. In 2011, it acquired a 630-year-old German automotive components manufacturer, Eisenwerke Erla GmbH, gaining access to a world-class foundry and cutting-edge research and development facilities.

“In fabricating aerospace and high-tech automotive components, each part of us does what they are best at. We machine the most complex parts in Bristol; and ship those to India, where we do the final assembly. Western Europe is the best place for complex, five-axis robotic machining. So we use robotic machining facilities there, since labour is expensive, while capital is cheap --- just 2 per cent, compared to 12 per cent here. Then we transport those machined components to India, where our strength is artisanal manufacture, and assemble them here. This global delivery model is winning us business against global competition”, says Malhoutra.

In three decades, Dynamatics has shifted from manufacturing 3,000 hydraulic pumps a day, to fabricating one aerospace assembly from 3,000 precisely machined sub-components. “This is a different edge of engineering,” he says.

Dynamatics carefully cultivates its heritage, even that obtained through buyouts. After buying Oldland, its aerospace brand was changed to Dynamatic-Oldland Aerospace. Eisenwerke Erla too retains its unique brand identity, as a company that dates back to pre-medieval times. “We follow the model of Chingez Khan, who amalgamated all the tribes he conquered into his banner, uniting them rather than suppressing their individual identities”, says Malhoutra

Value addition

Dynamatic lays emphasis on doing more for their customers than just providing manufacturing and assembly capacity. This is highlighted to me at the Bell-407 helicopter cabin assembly unit, which was set up after a $243 million deal in 2013 for building cabins over the succeeding ten years.

I learn that a bevy of Bell Helicopter technicians hovering over the assembly line are overseeing the conversion by Dynamatic of two-dimension paper blueprints that Bell Helicopter provided, into three-dimension computer models that are far more precise, and have tighter tolerances than the old paper drawings. Digitising the drawings creates a baseline configuration for greater accuracy. This streamlines manufacture, while also benefiting the customer.

Malhoutra recounts that, when Dynamatic first began digitising a drawing, his overseas customer cautioned that this was not part of the contract and would not be paid for. But when the digitisation was complete, it was evident that manufacturing according to the two-dimensional paper blueprint would leave tiny gaps between the different components in the assembly. Earlier, as per twentieth-century manufacturing practice, the tiny gaps between components were filled with shims. But by digitising blueprints, those tiny gaps could be entirely eliminated during manufacture.

“The customer has a cheaper product, and also a better-engineered one. This gives him a great story about the advantages of globalisation. Global vendors want Indian partners who will create for them, innovate, find cost and quality benefits, and deliver high quality service,” says Malhoutra.

An obsession with quality engineering is evident as we walk around. The production lines, the lighting, even the staircases that carry us between levels are aesthetic and functional, the work of an in-house Italian architect, Giulia Baima Bollone. Hanging on a wall are eye-catching production line photos. I learn that the noted commercial photographer, Pallon Daruwala, has been photographing Dynamatic Technologies for over a decade.

Dynamatic is also eyeing the homeland security market, for which it signed a “teaming agreement” in 2013 with AeroVironment to co-develop the Cheel, though there are no orders on hand from India’s security forces. Company executives lament the slowness in inducting UAVs, which they point out would have been able to locate the terrorists who attacked Pathankot Air Base earlier this month.

The company’s balance sheet, a mostly rising graph, has two notable blips. First, the current year’s figures will take a notable dip, with the global slowdown hitting all three lines of the company’s business --- automotive components, hydraulics and aerospace. Second, a debt burden of over Rs 600 crore, carried over from the purchase of Oldland and Eisenwerke Erla, continues to require expensive servicing.

The chief financial officer, Hanuman Sharma, downplays concerns about the debt, which he says is moderate given the company’s size and turnover. He forecasts a credit rating rise over the next two quarters, from BBB Plus at present to A, which will bring down the cost of capital from a peak of 17 per cent to about 13 per cent. With the company in a growth phase, he says debt would remain on the books as capacities are enhanced.

Meanwhile, turnover is set to grow. Flap track beam assemblies for Airbus’ long-range airliners, like the A330, will start being shipped shortly. Bell Helicopters, which has traditionally built products in-house, is expected to lean more on Dynamatic.

Space for more

The company has acquired 27 acres of land adjoining the Bangalore International Airport Limited. Here, Dynamatic Aerotropolis will cater for the expansion of all aerospace activities. With its own helipad, control tower and airspace management system, the company hopes to set up an assembly line for light helicopters and UAVs, as it transitions from a Tier-1 assembly supplier to a “prime contractor” that does the lucrative job of system integration.

Dynamatic is making a major strategic shift from manufacturing hydraulics and automotive components towards aerospace manufacture --- a high profit margin, but capital intensive, business. Sharma says aerospace, which makes just 20 per cent of the group’s profits currently, will account for 50 per cent in another three years. Meanwhile automotive parts will drop from 50 per cent today, to about 25 per cent; with hydraulics dropping marginally from the present 30 per cent, to about 25 per cent.

From the production lines, we go back to the boardroom for lunch with company executives. This is a simple meal of Subway sandwiches and pizzas, served up by the executives’ drivers. “Nobody in the company sits idle. After bringing us here in the morning, the drivers man offices, move documents around, cut vegetables, serve lunch, and then drive us back home in the evening”, explains Malhoutra. “We foster a virtuous triangle of high skills, high productivity, and high wages. We like our employees to command and demand high wages.”

Malhoutra claims to run Dynamatic as a meritocracy across 3,000 employees, including 600 engineers and 60 scientists. The company runs the largest aerospace skills development programme outside of HAL; and has adopted the Industrial Training Institute at nearby Devanhalli, aiming to turn it into India’s first aerospace ITI.

Even as Dynamatic grows its order book, a move up the value chain to systems integration --- or assembling entire aircraft from assemblies and components supplied by Tier-1 and Tier-2 vendors --- is not supported by government policy. The defence ministry’s Aatre Task Force has recommended (as Broadsword reported on Thursday) that only companies with annual consolidated turnover of at least 4,000 crore for each of the last three financial years; and capital assets of Rs 2,000 crore should be accepted as “strategic partners” to the government in fabricating weapon systems. To unlock the future of Dynamatic Technologies, the defence ministry would need to give credit to proven manufacturing competence rather than just size and turnover.