BRICS - Possible Benefits to Civil Aviation
Archie D’Souza
BRICS is a group of acronyms that refers to the countries of Brazil, Russia, India, China and South Africa. The group held its fourth summit on MAR 29, 2012. Here are some interesting facts about BRICS:
BRICS countries account for:
- 25% of global GDP based on the purchasing power parity of national currencies
- 30% of land area
- 45% of the world's population.
The bloc's contribution to global economic growth has now reached almost 50%, making this group the principal driver of global economic development.
Last year, trade between the BRICS countries stood at around $230 billion
It should reach $500 billion by 2015.
BRICS countries have double digit growth, while many G8 countries are creating fewer businesses now than five years ago.
On an average, BRICS nations are creating 18 percent new businesses per annum compared to non-BRICS nations, which are on an average creating just 0.4 percent more new businesses per annum.
Here are some highlights of the BRICS’ summit of 2012:
- The leaders at the summit pitched for reforms of international institutions like the UN, IMF and World Bank.
- They support closer coordination for balanced and sustained global economic recovery
- They signed a pact to set up an Exchange Alliance of all BRICS’ securities exchanges
- They decided to explore the setting up of a BRICS-led South-South Development Bank. Its main objective will be to promote mutual investment and fund infrastructure projects in BRICS and developing countries
- BRICS will pitch for greater representation of developing countries and emerging economies in the IMF by speeding up quota reforms
- As part of the pressure for international institutions to reform BRICS backs a merit-based selection-process for the heads of the IMF and the World Bank. Currently, these posts are reserved for a European and an American respectively.
- BRICS cautioned the West against allowing the Iranian situation to escalate into conflict. Backs dialogue to resolve the Iranian nuclear impasse
- Backs a Syria-led democratic transition. BRICS voices 'deep concern' over Syria and calls for 'an immediate end to all violence and violations of human rights' and backs a Syrian-led political process
- It backs speedier resolution of the Arab-Israeli conflict and the creation of an independent Palestine co-existing with Israel
- Step up joint efforts for successful conclusion of the Doha Round of multilateral trade negotiations.
- Jointly help in the development and resurgence of Africa
- Backs green economy and agrees to closer coordination on global climate change negotiations
- Adopts an all-encompassing action plan that includes, among other things, meetings of foreign ministers on sidelines of the UN and meetings of Finance Ministers and Central Bank Governors on sidelines of G20 meetings/other multilateral meetings
- Identify new areas of cooperation that includes multilateral energy cooperation within BRICS framework, a general academic evaluation and future long-term strategy for BRICS; BRICS Youth Policy Dialogue; and Cooperation in Population related issues
BRICS also decided that intra-BRICS trade will henceforth be transacted in their own currencies rather than the US Dollar or Euro. Further, they would go in for maximum investments in each other’s countries. This will ensure that the days of the dominance of the dollar are over. It will also offer them a buffer from the effects of any economic crises in the developed world. This and the setting of a BRICS development bank are, in my opinion, the most important economic decisions taken and will have far-reaching impacts on the way trade is conducted and investments made.
Two areas, which I feel whose time has come don’t seem to be on BRICS agenda at the moment. Before I mention these areas, let me state a few facts. These five nations, in general, and India and China together in particular, will between them become the biggest civil aviation and shipping markets. So large a market will it be that its size will be more than what the rest of the world together will buy.
The market for large commercial aircraft (LCAs) is dominated by two players – Airbus and Boeing, with others almost invisible. There happens to be no serious competitor to the oligarchy of these two players. In shipbuilding, while China does have a prominent place, India’s potential has still to be unleashed. Surely these are areas that need to be looked at. Every one of these five countries contributes to these two areas in some way or the other. Let’s look at Civil Aviation first.
- Russia has the knowhow to make LCAs
- India and China between them will purchase more airplanes than North America and Western Europe put together
- The five BRICS countries will be purchasing more aircraft than the rest of the world put together
- Every one of the five countries has people with the entrepreneurial skills and financial capacity to run large companies
Airbus was started as a conglomerate with representatives from five EU nations. It still runs as a company with its top management from these countries. Why can’t industrialists from these countries get together and take a decision to form such a conglomerate. Getting investors for such a venture would not be that difficult. In course of time this company should be able to get a market share of at least 30%.
I have put in an idea for germination. Let’s see if there’s anyone who takes it.
When the idea of Airbus was conceived the aircraft market, especially LCAs, was dominated by three American companies with Boeing taking the dominant share of the market. So much did the Americans dominate that there was hardly a player outside the United States. LCAs were made in the erstwhile USSR but hardly any planes sold outside the Eastern Block. Airbus decided to set up its plant near the French city of Toulouse. The management of the company was multinational with representatives from Germany and Britain besides France on the board of directors. Components that go into the planes come from vendors all over the World.
In the 1970s & 80s four companies catered to the LCA market. Boeing was the dominant of these with a market share of over 60%. Lockheed Aircraft Corporation and Mc Donnell Douglas Corporation were the other two American players and Airbus the fourth. Between 1985 and 2005, thanks to a merger and take-over, we were left with just two players. The fall of the Soviet Bloc resulted in the market for Russian aircraft disappearing.
Unlike most business ventures in the free world “Airbus wasn’t launched because some person or persons, had an original idea. Instead, its origins reflect the deep anxiety of Britain, France, and Germany. Each of which wanted to preserve its aircraft industry. No one of these industries was any longer strong enough to compete with American companies, and the Europeans saw their multiparty approach – the still nascent European idea – as the only way.” – John Newhouse in Boeing versus Airbus.
It began as a consortium of four European national aircraft corporations – France, Germany, Britain and Spain. Each of these countries was represented in the board. Today, the four partners are a unified commercial enterprise, with holdings by EADS, the French State, Lagardere Aircraft Group (Also French), Spain and BAE Systems. Its shares are traded in European bourses. EADS is, by the way, 22.5% held by Daimler Chrysler. The company in its current form, as an integrated corporation, came into existence only in 2000. This makes Airbus a very young company.
The A300, in 1974, was the first aircraft to come out of the Airbus stable. Till the birth of the A380 decades later, this was their signature aircraft. If there’s one example of a truly international product – and this happened long before the AMPs (now Tyco) and GEs started outsourcing their production – it is the A300. This, with some modifications, can be a model for BRICS to follow for its own assembly. Let’s see how:
- Aérospatiale builds:
- The nose section, and
- The engine pylons
- Deutsche Airbus of Germany, made up of MBB & VFW-Fokker makes:
- The forward fuselage from the flight deck to the wings
- The upper centre fuselage, and
- The vertical tail
- VFW-Fokker of the Netherlands makes the moving wing surfaces
- CASA of Spain makes:
- Horizontal tail surfaces
- Landing gear, and
- Main doors
- SNECMA & MTU make turbo-fans under license from GE
All this prove the extent of international manufacture.
If BRICS has to replicate this it will need to work on a different model. For one, the BRICS nations may not be able to spend on subsidies of the kind that Airbus received. Secondly, they may not be able to get defence contracts from their respective governments that Boeing received. Remember, Boeing generates most of its profits from defence deals. The relationship between the governments of China & India as well as Russia & China isn’t as amicable as the EU countries. However, as this will be more of a private sector initiative, this too shouldn’t pose a problem. The cultural differences between the five countries too can be overcome. So, how will this work?
There is a certain amount of learning from Airbus and this new conglomerate can avoid repeating those mistakes. Also, there are cultural and political factors, as we have seen, that need to be taken into consideration. It will be impossible to operate from a single plant because the three biggest nations in the group – China, India or Russia – will not like it to be in another country. Hence, assembly plants will need to be set up in at least the three big nations, if not in all five. There will be a positive fallout from this of course. It will lead to excellent savings with each plant catering to a different geographic market.
China and India will be huge markets for aircraft of every size – from the mega Jumbos (B747 & A380) to the smaller one (B737 & A320). The Brazilian company Embraer already has a sizeable share of the market outside the sales made by the top two. Indian companies do have expertise in Avionics, which will be of great help. The basic frames of the aircraft made by such a consortium will come from Russia of course. The knowhow exists from the Soviet days. In fact, the largest and second largest freighter aircraft the AN 225 & AN 124, manufactured by the Russian company Antonov, already exist as a base.
The group of five has already taken a decision to set up a joint development bank and devise a mechanism to trade in their own currencies. The formal announcement on this was made at the fourth BRICS summit in New Delhi on MAR 29, 2002. Such an institution will take on the IMF and World Bank. So, why not become an aircraft manufacturer to take on Airbus and Boeing?
When the idea of Airbus was conceived the aircraft market, especially LCAs, was dominated by three American companies with Boeing taking the dominant share of the market. So much did the Americans dominate that there was hardly a player outside the United States. LCAs were made in the erstwhile USSR but hardly any planes sold outside the Eastern Block. Airbus decided to set up its plant near the French city of Toulouse. The management of the company was multinational with representatives from Germany and Britain besides France on the board of directors. Components that go into the planes come from vendors all over the World.
In the 1970s & 80s four companies catered to the LCA market. Boeing was the dominant of these with a market share of over 60%. Lockheed Aircraft Corporation and Mc Donnell Douglas Corporation were the other two American players and Airbus the fourth. Between 1985 and 2005, thanks to a merger and take-over, we were left with just two players. The fall of the Soviet Bloc resulted in the market for Russian aircraft disappearing.
Unlike most business ventures in the free world “Airbus wasn’t launched because some person or persons, had an original idea. Instead, its origins reflect the deep anxiety of Britain, France, and Germany. Each of which wanted to preserve its aircraft industry. No one of these industries was any longer strong enough to compete with American companies, and the Europeans saw their multiparty approach – the still nascent European idea – as the only way.” – John Newhouse in Boeing versus Airbus.
It began as a consortium of four European national aircraft corporations – France, Germany, Britain and Spain. Each of these countries was represented in the board. Today, the four partners are a unified commercial enterprise, with holdings by EADS, the French State, Lagardere Aircraft Group (Also French), Spain and BAE Systems. Its shares are traded in European bourses. EADS is, by the way, 22.5% held by Daimler Chrysler. The company in its current form, as an integrated corporation, came into existence only in 2000. This makes Airbus a very young company.
If BRICS has to replicate this it will need to work on a different model. For one, the BRICS nations may not be able to spend on subsidies of the kind that Airbus received. Secondly, they may not be able to get defence contracts from their respective governments that Boeing received. Remember, Boeing generates most of its profits from defence deals. The relationship between the governments of China & India as well as Russia & China isn’t as amicable as the EU countries. However, as this will be more of a private sector initiative, this too shouldn’t pose a problem. The cultural differences between the five countries too can be overcome. So, how will this work?
There is a certain amount of learning from Airbus and this new conglomerate can avoid repeating those mistakes. Also, there are cultural and political factors, as we have seen, that need to be taken into consideration. It will be impossible to operate from a single plant because the three biggest nations in the group – China, India or Russia – will not like it to be in another country. Hence, assembly plants will need to be set up in at least the three big nations, if not in all five. There will be a positive fallout from this of course. It will lead to excellent savings with each plant catering to a different geographic market.
China and India will be huge markets for aircraft of every size – from the mega Jumbos (B747 & A380) to the smaller one (B737 & A320). The Brazilian company Embraer already has a sizeable share of the market outside the sales made by the top two. Indian companies do have expertise in Avionics, which will be of great help. The basic frames of the aircraft made by such a consortium will come from Russia of course. The knowhow exists from the Soviet days. In fact, the largest and second largest freighter aircraft the AN 225 & AN 124, manufactured by the Russian company Antonov, already exist as a base.
The group of five has already taken a decision to set up a joint development bank and devise a mechanism to trade in their own currencies. The formal announcement on this was made at the fourth BRICS summit in New Delhi on MAR 29, 2002. Such an institution will take on the IMF and World Bank. So, why not become an aircraft manufacturer to take on Airbus and Boeing?
