Mr Amit Cowshish is a former Financial Advisor (Acquisition), Ministry of Defence and former Distinguished Fellow, Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for Detailed Profile
Some recent media reports indicate that questions have been raised about exclusion of the Hindustan Aeronautics Limited (HAL), a Defence Public Sector Undertaking, from the Avro replacement programme of the Indian Air Force (IAF). This news comes on the heels of the earlier press reports writing off the project as a non-starter soon after the Request for Proposal (RFP) was issued by the Ministry of Defence (MoD) in the month of May this year.
This will not be music to the ears of those who hammered out this game-changing model for acquisition-cum-indigenous production of a high value platform. But it may be too early to write a requiem for the project.
The RFP was issued to eight foreign Original Equipment Manufacturers (OEMs) and they were given five months to respond. On their request, the deadline for submission of the bids has been extended by another two months. The bids are now due sometime in the month of December 2013. This shows that despite all the criticism about the viability of the project, both the foreign OEMs and their potential Indian Production Partners (IPPs) continue to see some promise in the project. A policy flip-flop at this stage could, however, make this silver lining vanish.
The Hawker Siddeley 748M Avro aircraft, inducted in 1960s, have been exploited by the Indian Air Force for close to half-a-century for transportation and other purposes. These have become obsolete and need to be replaced, particularly in view of the rising difficulties in maintaining the existing fleet.
The initial idea was to buy 56 aircraft under the Buy (Global) category as no one manufactures these aircraft in India. The option of asking HAL to manufacture the aircraft did not seem workable considering the urgency of replacing the existing fleet of the Avro aircraft and the heavy commitment of the HAL to a large number of programmes: manufacture of Su-30 MI, Hawk, Dornier-228, ALH Mk III, ALH Mk IV, Cheetal Helicopters and upgrade of Jaguars – just to name a few.
The preliminary discussions between the Air Headquarters (Air HQ) and the Ministry of Defence (MoD), however, led to the realization that this programme had the potential of creating additional indigenous capability in the private sector in the field of aircraft manufacturing. This approach was perceived as being consistent with the policy of promoting indigenization through involvement of the private sector in defence manufacturing.
But the idea of categorizing the project as Buy and Make (Indian) with transfer of technology (ToT) to the Indian Production Agency (IPA) soon ran into a roadblock. The Defence Production Procedure provides for selection of the IPA from any of the public or private sector company. Such selection is required to be approved by the Defence Acquisition Council (DAC) based on inputs from the Department of Defence Production (DDP) and the Defence Research & Development Organization (DRDO).
The process of selection never posed much of a problem as long as the selected agency was a public sector undertaking but no guidelines existed for selection of a private agency. The fact that there is no aircraft manufacturing company in India in the private sector complicated this situation further.
The idea to categorise the project as Buy and Make, with ToT to an IPA to be selected by the OEM, germinated in these circumstances. It, however, involved a deviation from the existing procedure in that instead of the IPA being nominated by the MoD, it was to be selected by the OEM.
The proposal went through several rounds of iterations in the Services Capital Acquisition Categorization Committee (SCAPCC), Services Capital Acquisition Categorization Higher Committee (SCAPCHC), Defence Procurement Board (DPB) and the Defence Acquisition Council (DAC). All stakeholders, including the Department of Defence Production (DDP) which is the administrative department for HAL, participated in the deliberations in all these committees.
The proposal to buy 16 aircraft in a fly-away condition and to have the remaining numbers manufactured in India is based on a number of considerations. First, it would meet the immediate requirement of the IAF by procuring 16 aircraft in a fly-away condition. Two, indigenous manufacture of the remaining 40 aircraft would create additional capability in the private sector, which could build upon the capability gained in the process and participate in more complex aircraft manufacturing programmes in future. Three, the programme envisages value addition in the manufacture by the IPA to increase gradually from 30% to 60% by the end of the programme. The IPA is also required to obtain the ToT for Maintenance (MToT) which will enable the IPA to provide life time product support and maintenance. Four, although the number of aircraft required by the IAF is small, it is expected that there will be a substantial demand for this aircraft by the para-military forces and even the civil aerospace sector, making the project commercially viable. (With slight modification, this aircraft can be used in the civil sector.) Five, being a transport aircraft, there is a great potential for its export. Most importantly, there will be no division of responsibility as the contract for the initial sale and subsequent manufacturing in India will be with the OEM only.
It is not as if the proposal was approved in a great hurry. The proposal was examined first by a committee headed by the Scientific Advisor to the Defence Minister, in which all stake holders, including the DDP, were represented. As a part of the deliberations of this committee, a sub-committee interacted with the prospective OEMs and the IPAs and the feedback from this sub-committee was taken into account by the main committee while endorsing the proposal. The proposal was subsequently examined by a committee headed by the Additional Secretary in the Department of Defence Production.
It was only after considering the reports of these committees that the proposal was approved by the DAC, headed by the Defence Minister, with all the Service Chiefs, Secretaries in the MoD, Scientific Advisor and the Financial Advisor being its members. The entire process took almost two years.
The concerns now being expressed about exclusion of HAL from the process, apart from being misplaced, call in question the collective wisdom of the highest level functionaries in the defence establishment. The RFP permits setting up of a Joint Venture (JV), Special Purpose Vehicle (SPV) or Consortium for undertaking the manufacture in India. It was a conscious decision to rope in the private sector in this programme rather than saddling HAL with it. But it does not preclude HAL from the programme altogether. The provision in the RFP for setting up of JV, SPV or a Consortium leaves a window of opportunity open for HAL as well.
The concerns of the private sector, as reported in some press reports, are baffling. These concerns basically relate to the enormous cost and time involved in establishing a green field aircraft production unit, non-availability of airfield and control tower to carry out the trials on the aircraft built in India, certification of the aircraft and the quality control in respect of the components. There is also a concern that the foreign vendors may not be keen on establishing a production unit in India which would inevitably offer competition to the home production unit.
The Avro-replacement programme is not a design and development programme which will involve extensive use of the airfields for test flights. It is an aircraft that is already flying and, therefore, it does not require to be certified again. The aircraft will be built as per the OEM’s specifications. All that is required is quality check of the components that will go into manufacture of the aircraft in India. Such checks are normally carried out by the Quality Assurance Directorate of the Service concerned (Director General of Aeronautical Quality Assurance in the case of the IAF). For the purpose of validation trials of the aircraft manufactured in India, the IPA could take on lease one of the many unused airfields or purchase a small parcel of land for developing a small airfield adjacent to any functional airport in India.
In any case, these are not insurmountable difficulties. Where there is a will there is a way. It is important to persevere with this project as approved by the Defence Acquisition Council. This could do for India what Embraer did for Brazil.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
Avro replacement Programme on the Cusp of Hope and Despair
More from the author
Some recent media reports indicate that questions have been raised about exclusion of the Hindustan Aeronautics Limited (HAL), a Defence Public Sector Undertaking, from the Avro replacement programme of the Indian Air Force (IAF). This news comes on the heels of the earlier press reports writing off the project as a non-starter soon after the Request for Proposal (RFP) was issued by the Ministry of Defence (MoD) in the month of May this year.
This will not be music to the ears of those who hammered out this game-changing model for acquisition-cum-indigenous production of a high value platform. But it may be too early to write a requiem for the project.
The RFP was issued to eight foreign Original Equipment Manufacturers (OEMs) and they were given five months to respond. On their request, the deadline for submission of the bids has been extended by another two months. The bids are now due sometime in the month of December 2013. This shows that despite all the criticism about the viability of the project, both the foreign OEMs and their potential Indian Production Partners (IPPs) continue to see some promise in the project. A policy flip-flop at this stage could, however, make this silver lining vanish.
The Hawker Siddeley 748M Avro aircraft, inducted in 1960s, have been exploited by the Indian Air Force for close to half-a-century for transportation and other purposes. These have become obsolete and need to be replaced, particularly in view of the rising difficulties in maintaining the existing fleet.
The initial idea was to buy 56 aircraft under the Buy (Global) category as no one manufactures these aircraft in India. The option of asking HAL to manufacture the aircraft did not seem workable considering the urgency of replacing the existing fleet of the Avro aircraft and the heavy commitment of the HAL to a large number of programmes: manufacture of Su-30 MI, Hawk, Dornier-228, ALH Mk III, ALH Mk IV, Cheetal Helicopters and upgrade of Jaguars – just to name a few.
The preliminary discussions between the Air Headquarters (Air HQ) and the Ministry of Defence (MoD), however, led to the realization that this programme had the potential of creating additional indigenous capability in the private sector in the field of aircraft manufacturing. This approach was perceived as being consistent with the policy of promoting indigenization through involvement of the private sector in defence manufacturing.
But the idea of categorizing the project as Buy and Make (Indian) with transfer of technology (ToT) to the Indian Production Agency (IPA) soon ran into a roadblock. The Defence Production Procedure provides for selection of the IPA from any of the public or private sector company. Such selection is required to be approved by the Defence Acquisition Council (DAC) based on inputs from the Department of Defence Production (DDP) and the Defence Research & Development Organization (DRDO).
The process of selection never posed much of a problem as long as the selected agency was a public sector undertaking but no guidelines existed for selection of a private agency. The fact that there is no aircraft manufacturing company in India in the private sector complicated this situation further.
The idea to categorise the project as Buy and Make, with ToT to an IPA to be selected by the OEM, germinated in these circumstances. It, however, involved a deviation from the existing procedure in that instead of the IPA being nominated by the MoD, it was to be selected by the OEM.
The proposal went through several rounds of iterations in the Services Capital Acquisition Categorization Committee (SCAPCC), Services Capital Acquisition Categorization Higher Committee (SCAPCHC), Defence Procurement Board (DPB) and the Defence Acquisition Council (DAC). All stakeholders, including the Department of Defence Production (DDP) which is the administrative department for HAL, participated in the deliberations in all these committees.
The proposal to buy 16 aircraft in a fly-away condition and to have the remaining numbers manufactured in India is based on a number of considerations. First, it would meet the immediate requirement of the IAF by procuring 16 aircraft in a fly-away condition. Two, indigenous manufacture of the remaining 40 aircraft would create additional capability in the private sector, which could build upon the capability gained in the process and participate in more complex aircraft manufacturing programmes in future. Three, the programme envisages value addition in the manufacture by the IPA to increase gradually from 30% to 60% by the end of the programme. The IPA is also required to obtain the ToT for Maintenance (MToT) which will enable the IPA to provide life time product support and maintenance. Four, although the number of aircraft required by the IAF is small, it is expected that there will be a substantial demand for this aircraft by the para-military forces and even the civil aerospace sector, making the project commercially viable. (With slight modification, this aircraft can be used in the civil sector.) Five, being a transport aircraft, there is a great potential for its export. Most importantly, there will be no division of responsibility as the contract for the initial sale and subsequent manufacturing in India will be with the OEM only.
It is not as if the proposal was approved in a great hurry. The proposal was examined first by a committee headed by the Scientific Advisor to the Defence Minister, in which all stake holders, including the DDP, were represented. As a part of the deliberations of this committee, a sub-committee interacted with the prospective OEMs and the IPAs and the feedback from this sub-committee was taken into account by the main committee while endorsing the proposal. The proposal was subsequently examined by a committee headed by the Additional Secretary in the Department of Defence Production.
It was only after considering the reports of these committees that the proposal was approved by the DAC, headed by the Defence Minister, with all the Service Chiefs, Secretaries in the MoD, Scientific Advisor and the Financial Advisor being its members. The entire process took almost two years.
The concerns now being expressed about exclusion of HAL from the process, apart from being misplaced, call in question the collective wisdom of the highest level functionaries in the defence establishment. The RFP permits setting up of a Joint Venture (JV), Special Purpose Vehicle (SPV) or Consortium for undertaking the manufacture in India. It was a conscious decision to rope in the private sector in this programme rather than saddling HAL with it. But it does not preclude HAL from the programme altogether. The provision in the RFP for setting up of JV, SPV or a Consortium leaves a window of opportunity open for HAL as well.
The concerns of the private sector, as reported in some press reports, are baffling. These concerns basically relate to the enormous cost and time involved in establishing a green field aircraft production unit, non-availability of airfield and control tower to carry out the trials on the aircraft built in India, certification of the aircraft and the quality control in respect of the components. There is also a concern that the foreign vendors may not be keen on establishing a production unit in India which would inevitably offer competition to the home production unit.
The Avro-replacement programme is not a design and development programme which will involve extensive use of the airfields for test flights. It is an aircraft that is already flying and, therefore, it does not require to be certified again. The aircraft will be built as per the OEM’s specifications. All that is required is quality check of the components that will go into manufacture of the aircraft in India. Such checks are normally carried out by the Quality Assurance Directorate of the Service concerned (Director General of Aeronautical Quality Assurance in the case of the IAF). For the purpose of validation trials of the aircraft manufactured in India, the IPA could take on lease one of the many unused airfields or purchase a small parcel of land for developing a small airfield adjacent to any functional airport in India.
In any case, these are not insurmountable difficulties. Where there is a will there is a way. It is important to persevere with this project as approved by the Defence Acquisition Council. This could do for India what Embraer did for Brazil.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
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