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Boeing 737 Max crisis: Indian IT firms may take a $1-bn hit

By Debasis Mohapatra
January 03, 2020 14:26 IST

Major IT firms such as Tata Consultancy Services, HCL Technologies, Infosys, Cyient, and L&T Technology Services have direct exposure to Boeing or its suppliers’ ecosystem, which comprises engine manufacturers, body suppliers, and avionics providers.

These firms provide services like application development, testing, engineering, avionics, and business process management for the Boeing 737 Max programme.

IT outsourcing contracts of more than $1 billion currently executed by Indian companies are at risk of termination because Boeing has halted the production of its flagship Boeing 737 Max jets with effect from January.

According to sources in the know, major IT firms such as Tata Consultancy Services, HCL Technologies, Infosys, Cyient, and L&T Technology Services have direct exposure to Boeing or its suppliers’ ecosystem, which comprises engine manufacturers, body suppliers, and avionics providers.

 

“Boeing figures on the top ten list of many Indian service providers.

"So, those players will definitely be affected in the short run.

"But the larger issue is if Boeing is hit, overall spending in the aerospace segment will also come down,” said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting.

After temporarily discontinuing the production of 737 Max wide-bodied aircraft earlier this month, the US-based aerospace giant told its suppliers to halt shipments starting from January.

As a sign of the ongoing crisis, the firm earlier this week ousted its chief executive officer (CEO) Dennis Muilenburg as it struggled to win regulators’ trust after deadly crashes in Indonesia and Ethiopia.

According to estimates, the aerospace engineering outsourcing market worldwide is estimated at close to $4 billion per year, which is equally contributed by Boeing and Airbus.

Of the $2 billion of IT works outsourced by Boeing, Indian service providers get mostly half the deals every year.

Among the global service providers, Accenture and Capgemini lead the list.

Currently, suppliers to Boeing include engine manufacturers like Pratt & Whitney, Rolls Royce, General Electric, and Safran, while body parts of Boeing 737 Max are provided by Spirit AeroSystems and Safran.

Similarly, Rockwell and Honeywell are the major avionics providers to Boeing’s programmes.

“Most Indian players have exposure directly to Boeing or to its supplier ecosystem.

"For instance, TCS, HCL Technologies, and Cyient have direct exposure to Boeing, while Spirit AeroSystem is a client for Infosys,” said a person familiar with the outsourcing market.

Detailed emails sent to TCS, HCL Technologies, Cyient, and L&T Technology Services remained unanswered till the time of going to press. Infosys declined to comment.

“Usually outsourcing contracts have safeguard clauses, which are likely to protect IT firms from losses (in the case of termination).

"But, profitability will definitely be hit in the short run,” said Sanchit Vir Gogia, founder and CEO, Greyhound Research.

He, however, added all the suppliers had long-term views about their engagement with Boeing and would overcome this short-term blip.

The Boeing crisis, which has brought down American manufacturing output apart from its trade and sales of durable goods, has a silver lining.

“Engineering services firms are still counting on the silver lining from this crisis.

"If 737 Max goes down, Boeing may increase its spend on other programmes like 797.

"This will support Indian engineering services firms,” said another outsourcing advisor.

Boeing 797 is the company’s another new aircraft programme, which is likely to come up with 225- and 275-seater aircraft.

Photograph: Matt Mills McKnight/Reuters

Debasis Mohapatra in Bengaluru
Source: source
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