Article Posted on : - Dec 16, 2009

The auto maker sees an opportunity in the defence off-sets space.

MUMBAI (PTI): Making a strategic entry into the aerospace business, auto major Mahindra & Mahindra (M&M) said it has picked up 75.1 per cent stake each in two Australian aerospace firms for Rs 175 crore and plans to make aircraft and allied components to service the global market.

In a joint acquisition with Kotak Private Equity, Mahindra Aerospace Pvt Ltd bought majority stakes in component-maker Aerostaff Australia and general aircraft manufacturer Gippsland Aeronautics.

“Over the next five years, we believe that we could build as many as 475 aircraft in the 2-20-seater range and expect a peak revenue of about Rs 650 crore,” Mahindra Systech Sector president and M&M group management board member Hemant Luthra told reporters here Tuesday.

The company is setting up a plant in Bangalore to complement these acquisitions and provide dual shoring and benefits to customers, he added.

“We now have an opportunity to play in the defence off-sets space. We can provide off-set components in the commercial aircraft business and we can also provide components for the general aviation business,” Luthra said.

The 2-20-seater market (turbo prop market) is amongst the fastest growing segments in general aviation. Turbo props provide operational adaptability in environments with relatively poor infrastructure and can serve the market at the lowest cost per passenger seat kilometre.

Mahindra will retain the existing managements of Gippsland and Aerostaff, securing the services of the founders who developed this technology. These two Victoria-based companies, on the other hand, will hold a 20-25 per cent equity in Mahindra Aerospace.

“The deal has been structured in a very sensible manner. There is not a large amount of payout upfront. These companies who are selling a majority of their stakes to us will have stock options in Mahindra Aerospace,” Luthra said.

Aerostaff Australia and Gippsland Aeronautics are relatively smaller companies with a total turnover of about Rs 80-100-crore with orders to deliver 18 aircraft by June.

Luthra said the company would initially manufacture sheet metal aero-structures and over a period of time invest more to make components, sub-assemblies and eventually aircraft in India and Australia.

“Research indicates that the global aerospace industry is a market for 4,000 planes. The reason Australia (operation) is being kept alive is because of certification. Everything in the general aviation industry depends on certification. A process can take anywhere between 18-24 months,” he added.

Gippsland has four planes with certifications operating in 32 countries, Luthra said. Mahindra intends to plug a gap in the domestic market, which is fraught with poor infrastructure and will also export aircraft and components across the world.