AIRBUS DOOR CASE STUDY - PROJECT MGMT APPROACH

Management of meeting Airbus commitments for delivery of Doors for their fleet - Cost reduction & continious Quality Improvement

1. ROLE OF IMM IN IMPROVING
COMPANY’s FINANCIAL
HEALTH
Dr. V Bharathi
HAL Management Academy
1

2. Session Outline
Finance in Business Organization
A quick understanding on HAL’s Financial
Statements
Role of IMM in improving the financial
performance of the organization
Outsourcing as a Supply Chain Strategy in
HAL

2

3. Finance in Business Organisatio
n
3

4. 4
Components of Financial Statements
Revenue /
Sales /
Income
Expenses Liabilities Assets
TRANSACTIONS
Profit & Loss Account
or
Income and Expenditure
Account
Balance Sheet

5. Understanding on HAL’s Financial
Statements
5

6. Profit & Loss Account
6

7. Revenue Recognition
In respect of:
Sale of Goods
Services
Interest, royalties and
dividends
7

8. Revenue Expenditure
Revenue expenditure where the full benefit of which is
enjoyed in one accounting period only.
This does not increase the earning capacity of the
business but it is incurred in order to maintain the existing
earning capacity of the business.
It includes all expenses which arise in normal course
of
  business.
The expenditure is of a recurring nature i.e. incurred
every year
8

9. Examples
Raw materials consumed for conversion into finished
goods.
Selling and distribution expenses incurred for sale of
finished goods e.g. sales office expenses, delivery
expenses, advertisement charges, etc.
Establishment expenses like salaries, wages, rent, rates,
taxes, insurance, depreciation on office equipment.
Depreciation of plant, machinery and equipment.
Expenses incurred in order to maintain the existing fixed
assets in an efficient and workable state such' as repairs
to buildings, repairs to plant, etc.
9

10. EXPENSES
Revenue Expenditure
Operational Expenditure
Non Operational Expenditure
10

11. Different Types of Profit
Gross Profit (GP)
Profit Before Depreciation,
Amortisation, Interest and Tax
(PBDIT)
Profit Before Tax (PBT)
Profit After Tax (PAT)
11

12. Income Statement
Rs. Lakhs
  SYMBOL Amount
Sales S 150
Cost of goods sold COGS 110
Gross margin(GM) GM= S-COGS 40
Transportation TC 5
Ware housing WC 7
Inventory Carrying IC 2
Other operating cost OOC 8
Total operating cost TOC = TC + WC + IC + OOC22
Earnings before interest and
taxes
EBIT = GM - TOC 18
Interest INT 1
Taxes TX=(EBIT-INT) x 0.355.95
Net Income NI=EBIT-INT-TX 11.05

13. VALUE OF PRODUCTION
(VOP)
The gross value of production
measures the actual production
output of an establishment. Operating
activities include all production
output, also production for own use
and production for the enterprise's
other establishments.

14. The formula for gross value of production is
the following:
Turnover
+ deliveries to the enterprise's other establishments
+ change in the inventory of finished products
+ production for own use
+ other operating profits
- transfer gains from fixed assets
- purchases of goods for resale
= GROSS VALUE

15. Value of Production
2012-13
  (Rs. In Lakhs)
Inland Sales   1394081.18
Product 1182545.42 
Services 211535.76 
     
Export Sales   38281.41
Product 36515.63 
Services 1765.78 
     
TOTAL   1432362.59
Add
: Changes in
WIP
& SIT
  -12180.27
Value of Production (VOP) 1420182.32
15

16. Analysis on Value of
Production
16

17. Year
Sales Value of Production
Rs. Crs % Growth Rs. Crs % Growth
2002-03 3120.42  3477.84 
2003-04 3799.78 21.77% 3756.14 7.41%
2004-05 4533.80 19.32% 4984.55 24.64%
2005-06 5341.50 17.82% 5916.62 15.75%
2006-07 7783.61 45.72% 9201.88 35.70%
2007-08 8625.33 10.81% 8791.52 -4.67%
2008-09 10373.38 20.27% 11810.85 25.56%
2009-10 11456.70 10.44% 13489.59 12.44%
2010-11 13115.50 14.48% 16450.84 18.00%
2011-12 14204.21 8.30% 12693.19 -29.60%
2012-13 14324.00 

1.2% 14202.00 

12.8%
CAGR 14.9%  13.6%
17

18. 18

19. Rs in Crs
Material Consumption - Imports Vs. Indigenization
Year
Raw Material
Consumption
Material content
Imports % Indigenized%
2007-08

5,476

4,392 80.2% 1,083 19.8%
2008-09

8,052

7,090 88.1% 962 11.9%
2009-10

9,606

8,899 92.6% 707 7.4%
2010-11

11,898

11,301 95.0% 598 5.0%
2011-12 6,1465,319 86.5% 82713.5%
2012-13

7,407

6,315 85.3% 1,092 14.7%
Average   87.9% 12.1%
19

20. Dependence Matrix
Year Value of
producti
on
ImportsConsump
tion
Imports
Imports
as a % to
VOP
Consumptio
n as a % to
VOP
Indigineo
us
Content
Indigineous
Content as
a % to VOP
2003-04 3756 2079 183155.35% 48.75% 46812.46%
2004-05 4985 3306 315566.32% 63.29% 325 6.52%
2005-06 5917 4753 357680.33% 60.44% 63710.77%
2006-07 9202 6715 602572.97% 65.47% 812 8.82%
2007-08 8792 6286 432971.50% 49.24% 108312.32%
2008-0911811 8255 709069.89% 60.03% 962 8.14%
2009-101349010398 889977.08% 65.97% 707 5.24%
2010-1116451113381130068.92% 68.69% 598 3.64%
2011-1212693 5642 531944.45% 41.90% 827 6.53%
Average87097587725152467.48% 59.16% 6419 7.37%
20

21. Note : Incidentally this also brings to
light that as against Imports of Rs
58772 Cr during the period 2003-04
to 2011-12 only an amount of Rs
51524 Cr has been consumed with
the balance Rs 7248 Cr adding to the
Inventory.
21

22. Savings Potential through indigenization (Rs Cr)
Year Value of
Production
(Estimated)
Imports Additional
@ 5 % @ 7.5%
2013-14 19365 13067 242 363
2014-15 22068 14891 276 414
2015-16 24282 16385 304 455
2016-17 27313 18430 341 512
2017-18 29087 19628 364 545
2018-19 30631 20669 383 574
2019-20 32419 21876 405 608
2020-21 33783 22796 422 633
2021-22 35615 24033 445 668
Total 254563 171776 3182 4773
22

23. Balance Sheet
23

24. Sources of Funds
A. Long Term Liability
1.Share Capital
2.Reserve & Surplus
- Earnings not distributed to
shareholders
3.Loan Funds
24

25. B. Current Liabilities &
Provisions
Current Liabilities
(1) Sundry Creditors
(2) Subsidiary Companies
(3) Advance payments
(4) Unclaimed dividends
(5) Other Liabilities
(6) Interest accrued but not due on loans
(7) Short Term Borrowings
25

26. Current Liabilities & Provisions
B. Provisions
(8) Provision for Taxation
(9) Proposed dividends
(10) For contingencies
26

27. Capital Expenditure
Fixed Assets (Tangible)
Special Tools & Equipments
Intangible Assets
Investments
Current Assets, Loans & Advances
28
Application of Funds

28. Current Assets-Current Liabilities
= Net Current Assets
29

29. Analysis on Asset Utilization at HAL
 Fixed Assets
 Current Assets (Inventory)
30

30. Fixed Assets
31

31. Inventory
32

32. 33

33. 34

34. Outsourcing as a
Supply Chain
Strategy in HAL
(AIRBUS DOOR)

35. HAL – Aircraft Division signed a
contract with Airbus industries of
France for supplying forward passenger
doors in April 1990 at a value of
approximately USD 53 million
Each aircraft door has around 1200
parts to be assembled using complex
manufacturing and assembling
processes.
Phase – I Production: The Airbus
supplied the first 15 sets of door in kits.
Journey of Airbus door

36. Journey of Airbus
door(Contd..)
It transferred the technical data;
trained HAL technicians in the area of
manufacturing, assembly and quality
and also approved special processes
for the surface treatment
First ship set for the first article
inspection was delivered in Sep 1991
15 sets of phase I by April 1994

37. Journey of Airbus
door(Contd..)
From 1994, started Phase II
production (from the raw material
stage
In June 2009, HAL bagged an
order from the Airbus Industries
for supply of 2000 forward
passenger doors (door sets )
 The order worth around USD 150
million (Rs 900 Cr)

38. AIRBUS DOOR
COMPONENTS

39. Machined Parts (590)
Sheet Metal parts
(245)
Sub Assemblies (101)
Assemblies (98)

40. WORK BREAK DOWN OF AIRBUS DOOR
PROJECT
AIRBUS
PROJECT
Material Procurement
(R/M, Castings and
Forgings, Std. Parts &
Consumables)
Processing
(Labour
content)
Packing and
forwarding
Machining / Sheet
Metal
Sub Assembly
/Assembly
Outsourced
(60 % )
In house
(40 %)
In house
(100 %)

41. Terms of the contract
Negotiation with the suppliers of Raw
materials, Castings and forgings,
Standard parts and Consumables for
the total requirement of the Project
The prices are fixed by the Airbus.
Credit period of 30 days provided
42

42. Tri-partite Agreement
A few standard parts are purchased at
suppliers’ prices, which leads to price
fluctuations
The identified suppliers are spread
across France and USA.
Terms of the contract

43. Monitoring of supplies from identified
suppliers to HAL
Extensive support in resolving issues
with the identified suppliers (if any)
Delay delivery is penalized. Delay
includes both early(early by more than
5 days) as well as late
(late by more than 2 days) deliveries
Terms of the contract

44. Reimbursement of Material
Procurement Cost (Including Freight
and clearance charges)
 Labour Cost is fixed for life
time
 USD 87200 per Ship Set
Terms of the contract

45. Manufacturing and Sub-contracting
Detail PartsInvolved In-house
Sub-contract
No. of
parts
No. of
vendors
Machined parts 590 121
(21%)
469
(79%)
20
Sheet metal
parts
245 117
(89%)
28
(11%)
2
Total detail
parts
835 338
(40%)
497
(60%)
22
Sub-assemblies
101 101 0 0
Assemblies
98 98 0 0

46. Air Bus door - Cost
Breakdown
Details %
Labour 45
Materials 51
Others 4
Total 100

47. Material cost
Type Absolute In 51
%
Forgings and castings 34 % 18 %
Raw materials 24 % 12 %
Bought out and
standard parts
34 % 18 %
Consumables 7 % 4 %
TOTAL 100 % 51%

48. WORK BREAK DOWN OF AIRBUS DOOR
PROJECT
AIRBUS
PROJECT
Material
Procurement
(R/M, Castings and
Forgings, Std. Parts &
Consumables)
Processing
(Labour
content)
Packing and
forwarding
Machining / Sheet
Metal
Sub Assembly
/Assembly
Outsourced
(60 % )
In house
(40 %)
In house
(100 %)

49. PRODUCT : AIRBUS FORWARD PASSENGER DOOR
INCOME AND EXPENDITURE STATEMENT
PARTICULARS
Per Ship set 240 Ship sets 
USD INR USD INR Rs. In Cr
AREVENUE FROM SALES (A) 87,200 52,32,000 2,09,28,000 1,25,56,80,000 125.57
BEXPENDITURE     
1MATERIAL PROCUREMENT     
 Import of materials 57,000 34,20,000 1,36,80,000 82,08,00,000 82.08
2PROCESSING     
2.1
 
Machined and Sheet Metal parts     
 
Outsourced (60%) - 5.2 Lakhs SMH
for 240 sets
5,833 3,50,000 14,00,000 8,40,00,000 8.40
 
Inhouse(40 %) - 3.5 lakhs SMH for
240 sets
13,368 8,02,083 32,08,333 19,25,00,000 19.25
 2.2
Sub Assemblies and Assemblies -
In house
     
 
Sub Assemblies - 30000 SMH for 240
sets
1,146 68,750 2,75,000 1,65,00,000 1.65
 
Main Assembly Process - 35520
SMH for 240 sets
1,357 81,400 3,25,600 1,95,36,000 1.95
3PACKING & FORWARDING 2,000 1,20,000 4,80,000 2,88,00,000 2.88
 TOTAL EXPENDITURE (B) 80,704 48,42,233 1,93,68,933 1,16,21,36,000 116.21
 Net Operating Profit 6,496 3,89,767 15,59,067 9,35,44,000 9.35
 Profit Margin (%) 7% 7% 7% 7% 7%

50. WHAT IF SCENARIO ?

51. PRODUCT : AIRBUS FORWARD PASSENGER DOOR
INCOME AND EXPENDITURE STATEMENT
PARTICULARS
Per Ship set 240 Ship sets 
USD INR USD INR Rs. In Cr
AREVENUE FROM SALES (A) 87,200 52,32,000 2,09,28,000 1,25,56,80,000 125.57
BEXPENDITURE     
1MATERIAL PROCUREMENT     
 Import of materials 57,000 34,20,000 1,36,80,000 82,08,00,000 82.08
2PROCESSING     
2.1
 
Machined and Sheet Metal parts     
 
Outsourced (60%) - 5.2 Lakh SMH
for 240 sets
6,417 3,85,000 15,40,000 9,24,00,000 9.24
 
In house(40 %) - 3.5 lakh SMH for
240 sets
14,705 8,82,292 35,29,167 21,17,50,000 21.18
 2.2
Sub Assemblies and Assemblies -
In house
     
 
Sub Assemblies - 30000 SMH for 240
sets
1,260 75,625 3,02,500 1,81,50,000 1.82
 
Main Assembly Process - 35520
SMH for 240 sets
1,492 89,540 3,58,160 2,14,89,600 2.15
3PACKING & FORWARDING 2,000 1,20,000 4,80,000 2,88,00,000 2.88
 TOTAL EXPENDITURE (B) 82,874 49,72,457 1,98,89,827 1,19,33,89,600 119.34
 Net Operating Profit 4,326 2,59,543 10,38,173 6,22,90,400 6.23
 Profit Margin (%) 5% 5% 5% 5% 5%

52. Glance at Ship sets delivery
1992-2013
Year
No. of shipsets
delivered
Year
No. of shipsets
delivered
1992-93 6 2003-04 80
1993-94 8 2004-05 90
1994-95 4 2005-06 136
1995-96 13 2006-07 186
1996-97 17 2007-08 234
1997-98 19 2008-09 240
1998-99 37 2009-10 240
1999-00 43 2010-11 240
2000-01 58 2011-12 240
2001-02 68 2012-13 240
2002-03 75  
TOTAL 2274

53. THANK YOU