While the Indian private sector has developed expertise in the manufacture of components and aero structures, even the leading Indian companies are unsure of their capability to undertake assembly and systems integration of complete aircraft, especially in the category of medium- or large-size platforms

In response to a proposal by the Indian Air Force (IAF) in May this year, the Ministry of Defence (MoD) issued a request for proposal (RFP) to eight foreign aerospace majors inviting participation in joint production in India of an eight-tonne payload capacity, twin-engine, medium-transport aircraft to replace the ageing fleet of Hawker Siddeley 748M Avro aircraft. Part of this fleet had been acquired from the UK in the 1960s and later manufactured under licence at Kanpur by the Indian aerospace major the Hindustan Aeronautics Limited (HAL).

The recipients of the RFP included Embraer, Lockheed Martin, Airbus, Ilyushin, Antonov, Casa, Saab and Alenia Aeronautica, all heavy-weights in the global aerospace industry. Estimates of the value of the contract vary from Rs. 12,000 crore to Rs. 28,000 crore. The RFP stipulated that the first 16 aircraft would be bought offthe-shelf in a ‘fly away’ and the remaining 40 would have to be manufactured in India in collaboration with an Indian company only in the private sector. The indigenous content of the aircraft manufactured in India would have to be progressively enhanced. It would be the responsibility of the foreign vendor bagging the contract to identify the Indian partner and formulate detailed production plans and sharing of responsibilities. Media reports indicate that Reliance, Mahindra Defence Systems, Larsen & Toubro and the Tata Group could be keen to partner in the project. The potential bidders have been given five months time as against the normal time frame of three months to submit technocommercial proposals after finalising partnership arrangement with an Indian company.

However, the criterion for selection of an Indian company to partner with the foreign vendor appears somewhat stringent. To be eligible, the prospective partner must necessarily be a public limited company that has been registered for a minimum of ten years with foreign holding at a maximum of 26 per cent. It must have capital assets in India of Rs. 100 crore or more and a minimum annual turnover of Rs. 1,000 crore during the last three years. Thus, the small and medium companies and even those that are large but not consistently profitable would be automatically excluded. Only the large Indian business houses with respectable record of financial performance would be eligible to participate.

A notable aspect of the project is that HAL has been left out not through oversight but because the industrial capacity of the Indian aerospace major has already been overstretched with mega projects such as the production of Sukhoi-30MKI and Tejas combat aircraft, intermediate and advanced jet trainers, different versions of the advanced light helicopter, development of the light combat helicopter and the light utility helicopter, upgrade of the MiG-29 and Mirage 2000 fleets and possibly the $20-billion mega deal for the Rafale. But perhaps the overriding consideration was the purposeful intent of giving the Indian industry in the private sector an opportunity to develop manufacturing capability in the aerospace sector, a privilege denied for long.

The response from foreign vendors is expected in the near future but it appears that there are some uncertainties. While the Indian private sector has developed expertise in the manufacture of components and aero structures, even the leading Indian companies are unsure of their capability to undertake assembly and systems integration of complete aircraft, especially in the category of medium- or large-size platforms. Besides, the quantum of the firm order being just a miniscule 40, it does not provide for economy of scale or the returns to justify the sizeable investments required to set up the elaborate infrastructure required. The fact that the Indian private sector is not overtly enthusiastic to participate in this project, ought to not therefore be surprising.

A more viable option possibly would have been to simultaneously target the civil aviation market for the demand of regional aviation aircraft and the product suitably adapted for military application including for special missions. This incidentally was the case when the HS-748 Avro was licence produced by HAL for both the military and civil aviation market. There is no reason why such a model cannot be adopted again. Unfortunately, there appears to be a chasm between the private and public sector segments of the Indian aerospace industry.

While the insipid response from the private sector in all likelihood would be a setback for the plans of the IAF to breathe new life into the Indian aerospace industry in the private sector, it will certainly be welcome news for HAL. However, unless such issues that have a national dimension are steered by the highest echelons of the government, the Indian aerospace industry as a whole will continue to be afflicted by disconcerting lack of coherence and direction.