India Offers To Spend $12B To Break Monopoly


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Sep 22, 2012
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NEW DELHI — The Indian government, acting on Air Force demands, has offered to spend $12 billion to encourage private firms to establish an aircraft manufacturing facility — a move that would break Hindustan Aeronautics Limited's monopoly on aircraft manufacturing after years of delays on several projects.

Specifically, the Indian government has offered an advance order for the homemade light combat aircraft (LCA) Mark-2, a Defence Ministry source said.

The offer was conveyed to senior private sector executives during several meetings with MoD officials in the last month, the source said. India's private defense majors, Tata Group, Mahindra & Mahindra and Larsen and Toubro, are the most capable of setting up an additional military aircraft plant, either independently or in partnership with overseas firms.

None of the executives who participated in the meeting would comment on whether they would consider building such a facility.

Madhukar Vinayak Kotwal, president, Heavy Engineering of Larsen & Toubro, said, "Since this [building of an additional facility] is a matter currently under discussion at various levels in the government as well as in industry associations, we would like to refrain from giving any comments at this stage."

The LCA, developed by Bangalore-based Aeronautical Development Agency (ADA), a laboratory of the Defence Research and Development Organisation (DRDO), is nearly 20 years behind schedule. The first order for 40 of the Mark-1 version of the aircraft has been given to state-owned Hindustan Aeronautics Ltd. (HAL). The final operational clearance is expected to be granted in 2015, after which the aircraft can go into production.

The Indian Air Force has a future requirement for only the next-generation LCA Mark-2, which would be powered by the higher thrust General Electric GE-414 engine. But the aircraft is still in the development stage and is not expected to be ready for production before 2017-18. The Air Force has a requirement for 250 LCA Mark-2s, which the government estimates would be covered by the $12 billion advance order.

The Air Force has demanded establishment of an additional aircraft facility to break the monopoly of HAL, India's sole military aircraft manufacturer, and has complained of delays in delivery of aircraft.

HAL, with annual sales of $2.3 billion for the year that ended March 31, has produced more than 50 types of aircraft and helicopters, and has been designated as the production agency for the $12 billion Medium Multi-Role Combat Aircraft program, in which Dassault's Rafale has been short-listed as the favored aircraft.

"It is absolutely essential to set up an additional military aircraft facility here, as HAL is overloaded for the next 10 years and has become too unwieldy," defense acquisition expert Miral Suman said.

Vivek Rae, former director general (acquisition) in the MoD, said, "India sorely needs aircraft manufacturing capability in the private sector. We cannot afford to put all eggs in the HAL basket."

Subhash Bhojwani, retired Air Force air marshal, agreed an additional manufacturing facility is needed, but said HAL should be made more commercial.

"HAL is into the design and contemporary manufacture of fighters, transports, trainers and helicopters, as well as avionics and engines," he said. "It is possibly the only company in the world to be so diversified. However, while this may sound good in a book of world records, it isn't good as a commercial model."

Defense analyst Amit Cowshish, a retired Defence Ministry bureaucrat, said the objective should be "not to create an entity that could compete with HAL but to have additional capability in India to manufacture aircraft so that the requirement, both of the military and civil sectors, could be met in a more cost-effective manner and in shorter time frames. Of course, competition would help in improving HAL's efficiency."

Sujith Haridas, deputy director general of India's industry lobbying agency, the Confederation of Indian Industry, said, "It is very much desired to have an additional manufacturing facility, but one should not ignore that it takes several decades of consistent investment and efforts to create a mammoth system integrator like HAL."
Would It Build Fighters?

Analysts disagree about whether the new facility should be used to build fighter aircraft

India's private sector is able to set up such a facility, and could acquire the capability to build the LCA Mark-2 over time, but it could be a challenge, Cowshish said.

"LCA is a program in the pipeline for more than three decades. HAL and DRDO have worked hard on it, and the final operational clearance is expected sometime later this year," he said. "To bring in a new manufacturing agency at this stage may not be a very good idea. Though it is possible to pass on the technology to the private industry for manufacturing the aircraft, selecting such an agency may turn out to be a [technically] tricky affair."

Defense analyst Rahul Bhonsle said, "Setting up a new military aircraft facility is no doubt a Herculean task. But the new facility will be looking primarily at system integration."

But Muthumanikam Matheswaran, retired air marshal and adviser (for strategy) to the chairman of HAL, said no private-sector aircraft facility could build the LCA.

"There appears to be a misconception that if ADA wishes, the LCA can be produced by the private sector. Nothing can be further from truth. The LCA cannot be produced by anybody without the major involvement of HAL." â– 

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