Aequs: Revolutionizing Aerospace Component Industry In the aerospace industry, it has established partnerships with major customers, including OEMs and companies such as Airbus, Collins, Safran, Boeing

When Aravind Melligeri decided to foray into manufacturing products for the aerospace industry, he chose Belagavi in Karnataka. Although he had to start from scratch in Belagavi, as most of the talent is concentrated in Bangalore, he was certain that Bangalore was not suitable for long-term manufacturing plans."There are historical reasons to look at Karnataka, with the presence of ISRO, DRDO labs and HAL, the aerospace ecosystem is thriving in the state. We decided to establish our operations in Belagavi and build from scratch, as it provides a more sustainable cost structure and global competitiveness for the coming decades," says Melligeri, chairman and CEO, Aequs, which operates India's first Aerospace SEZ, the Belagavi Aerospace Cluster (BAC).

"When it comes to manufacturing, it is not advisable to be located in a metropolitan area where the majority of the workforce is inclined towards service-oriented industries. The infrastructure costs are considerably higher in major cities, and this is particularly applicable to service-based businesses rather than manufacturing or high-tech manufacturing. This is why we often observe manufacturing facilities moving away from larger cities and towards suburbs or the interior regions, both in the United States and in India. This trend has already taken place in the Western world and will continue to occur in India as well," he further explains.

In 2006, QuEST Global, an outsourced engineering services company co-founded by Aravind Melligeri in 1997, decided to foray into manufacturing products for the aerospace industry, mostly for commercial jetliners. In 2014, QuEST Global, was rebranded as Aequs.

In the aerospace industry, it has established partnerships with major customers, including OEMs (original equipment manufacturers) and companies such as Airbus, Collins, Safran and Boeing. "Even during the challenging times of the Covid-19 pandemic, we have ensured uninterrupted production and met our customers' demands," he says, explaining that its business was generating slightly over $100 million before the onset of the COVID-19 pandemic, but it dropped significantly to as low as $35 million during that period. "However, we are on track to make a strong recovery this year and surpass our pre-pandemic levels. It will likely take another two to three years, particularly on the aerospace side, to fully regain our previous numbers." In 2019, the aerospace business had set a goal to achieve $300 million in sales by 2023. "Today, aerospace is growing almost 50 per cent year-on-year, fortunately, the market has been highly favorable and our customers have been steadily booking orders for the next seven to ten years. We have already secured contract extensions through 2030 for most of our agreements, which adds to our confidence in the future."

Furthermore, the challenges faced by companies in the western world, such as inflation and resource availability in the manufacturing sector, have worked in India's favor. Additionally, the supply chain disruptions caused by the Ukraine war have prompted a restructuring and re-evaluation of material availability, particularly regarding titanium sourced from Russia. "As a result, we anticipate some delivery adjustments and the potential for new opportunities in this area."

The aerospace business continuously expands its portfolio by adding around 80 to 100 new parts per month, which translates to approximately 8,000 to 12,000 components per year.

The availability of materials has been a significant challenge, particularly since the onset of the pandemic. The disruptions in the supply side, especially for raw materials like steel, have resulted in a capacity shrinkage that cannot be resolved overnight. Moreover, there has been a shortage of titanium in the market as Russia's potential as a supplier has been limited.

"Until new sources, such as Japan, come into play and new forging and casting capabilities are developed, the market will continue to face capacity constraints. However, it typically takes three to five years to bring new material sources online. These investments are contingent on the original equipment manufacturers (OEMs) committing to take or pay clauses in our contracts. Fortunately, some necessary steps have been taken to reduce dependence on specific companies and mitigate risks in the supply chain," he says.

Apart from the aerospace business, Aequs has two more verticals: Toys and consumer durables. Aequs has set up the Koppal Toy Manufacturing Cluster (KTC), at Koppal in Karnataka in 2016. It has also set up integrated manufacturing parks in India for consumer durable goods at Hubballi in Karnataka in 2022.

In April 2023, mid-market private equity firm Amicus Capital led a $27.5 million (INR 225 crore) equity round of funding in Aequs. On being asked about how he is planning to use the funding, the CEO says, "This marks our initial round of investment from external sources. We have invested a significant amount of our own capital, but this is the first time we have sought financial investors to bring in additional funding. We have successfully secured this capital, which is primarily allocated to support our existing operations and the expansion of our toys segment, as well as fulfill consumer durables. Our aerospace division is currently self-sufficient and experiencing steady and sustainable growth."

Currently, the toy business is growing 20-25 per cent y-o-y and consumer durables is expected to grow by 50-75 per cent, y-o-y.