Thursday, February 14, 2013

India's defence ambitions hinge on 'over-extended' firm Hindustan Aeronautics Limited

India wants to throw off the tag of world's biggest arms importer and produce its own top-class weaponry, but its ambitions hinge on a state-run group renowned for its inefficiencies.

HAL, or Hindustan Aeronautics Limited, has a near-monopoly in the country's aerospace industry and its presence was unmissable at this year's India air show, which wrapped up in Bangalore on Sunday.

Its huge stand and ubiquitous branding underlined the scale of a company that already produces under licence the British-supplied Hawk trainer aircraft, Russia's SU-30 multi-role fighter jets, and European helicopters among others.

It is also the crucial player in the world's biggest arms deal for 126 Rafale fighter planes, the first of which will be made in France by Dassault Aviation with the remaining 108 to be assembled by HAL in India until 2018.

The government is forcing foreign arms suppliers to share their technology with HAL in the hope that it can one day manufacture its own products of the same calibre. 

But an Indian industrialist, speaking to AFP on condition of anonymity, was scathing in describing the management culture of the heavily unionised public sector giant and its 35,000 employees.

"What could be done in 10 minutes may take 10 months. Nobody takes responsibility," he said.

Unrealistic expectations? 

James Hardy, an analyst at the defence consultancy IHS Jane's, says that HAL is "overextended", expressing an opinion largely shared by observers at home and abroad.

The group posted sales of 142 billion rupees ($2.6 billion) last year but is aiming to almost quadruple this to $10 billion in the next seven years, chief executive R.K. Tyagi told reporters at Aero India.

Tyagi, who took up the job in March 2012, detailed new plans for the company to expand into airport infrastructure, as well as plane and drone maintenance.

But Dipankar Banerjeee, a retired army general who founded the New Delhi-based Institute of Peace and Conflict Studies (IPCS), says HAL's "deliveries are too slow and indigenous development has been less than satisfactory.

"The Indian public and Indian armed forces are not very happy with HAL," he says.

India's reliance on foreign weapons is due to the inadequacy of its own sector, which comprises HAL, the state-run Defence Research and Development Organisation (DRDO), its affiliates and a few smaller private players.

One notoriously late and over-budget project was for home-grown light combat aircraft called Tejas, which have taken more than 25 years to develop and are still several years away from being inducted by the airforce. 

HAL's helicopters are also seen as inferior to foreign products, leading India to negotiate with European, American and Russian manufacturers for hundreds of new choppers.

The only show in town 

But the group represents the doorway into the huge Indian market and foreign groups queuing for business for New Delhi know they must embrace it.

"It's a client and a partner which cannot be ignored, with very significant volumes," said Eric Lenseigne, the head of Indian operations for French group Thales which has been in India for the past 60 years.

Eurocopter, which sold its helicopter licences to HAL in the 1960s, praised the group. "If you have a happy marriage, why would you divorce?" said chief executive Lutz Bertling. 

The heads of the Indian armed forces are known for their more frank assessments.

"Unfortunately there is no other big aircraft company," said IPCS's Banerjee, who hopes that private companies will play a bigger part in future.

"The armed forces are very keen that the private sector takes a bigger role in research, development and production in collaboration with foreign firms," he said. 

The chief executive of Dassault Aviation, Eric Trappier, has signed a partnership with one of India's biggest private companies, Reliance, which despite having no prior experience will be brought into the Rafale deal.

Its role is set to be defined in the ongoing negotiations for the sale, which Dassault is striving to sign this year after several delays since the company was chosen as preferred bidder in early 2012.

The purchase and amount of technology that will be transferred to India in the deal are issues set to be taken up by French President Francois Hollande during a trip to India on Thursday and Friday.