Amid Rafale dogfight, Defence Ministry audit finds HAL-made jets costlier 

The review document has found that the HAL-made Su-30 MKI of the Indian Air Force, is about Rs 150 crore costlier than its Russian counterparts, produced by the JSC Sukhoi Company.
Indian Air Force Sukhoi. (Image for representational purpose|EPS)
Indian Air Force Sukhoi. (Image for representational purpose|EPS)

Fighter jets produced by the Bengaluru-based Hindustan Aeronautics Limited (HAL) under foreign licences are costlier than the same aircraft made by the Original Equipment Manufacturer (OEM), a recent Ministry of Defence (MoD) review has found.

The development comes amid the Modi government and Opposition slugfest on the state-owned company being excluded from the Rs 7.87-billion euro Rafale fighter jet deal under which Dassault Aviation will supply Indian Air Force (IAF) 36 units of the fourth-generation, twin-engine, all-weather, multi-role fighter jet under fly away condition. Anil Ambani's Reliance Group will be the offset partner in the pact. 

The department of defence production is studying the document, said an anonymous Ministry source to the Hindustan Times.

The review document has found that the HAL-made Su-30 MKI of the Indian Air Force is about Rs 150 crore costlier than its Russian counterparts produced by the JSC Sukhoi Company. The Russian versions cost Rs 269.77 crore, whereas the same jets produced under Russian license in India, come at a price range of Rs 417.69 crore.

“The aircraft produced at HAL comes at a significantly higher cost when compared to direct purchase from the OEM,” the document added.

The audit also found a huge cost difference between the British-made Hawk trainer aircrafts and the ones made in India. 24 of these 62 jets, bought in 2004, were acquired in a fly-away condition, whereas the remaining were to be manufactured by HAL.

While the British-made Hawks would cost Rs 78 crore, the HAL-made ones would come under the price range of Rs 88 crore per unit. The manufacturing costs in India shot up to Rs 98 crore and Rs 153 crores respectively, during 2010 and 2016.

The report also cited factors like lesser efficiency and exorbitant man hour rates behind the price rise. 

On the other hand, the state-run defence firm is running on a continuous depleting order book, as per A Times of India report,

The company's fixed-wing aircraft division in Bengaluru, with about 3,000 employees is running idle, after completing the Jaguar and Mirage fighter Jets' upgradation projects. 

Since the government had decided to buy only 36 Rafales through flyaway condition, the company, which ramped up its production facility to make the remaining 108 French fighter jets (as per the scrapped UPA-era deal), will now be looking to divert some of its employees to the LCA Tejas division, where already 2000 are working.

The Tejas project is also in troubled waters. Although the Defence Acquisition Council (DAC) has approved the procurement of 83 of the indigenous fighter jets, the IAF has not placed the actual order yet. There are also complaints about the project's high cost.

The Sukhoi complex in Nashik too facing a similar problem, as they have to deliver only the last 23 of the original order of 222 Su-30 MK-I jets. The proposed Fifth-Generation Fighter Aircraft (FGFA) programme with Russia hasn't taken off so far.

It's the orders of 73 Advanced Light Helicopters (ALH), along with other projects like Light Combat Helicopters (LCH), joint Kamov chopper deal with Russia and Light Utility Helicopter (LUH) to keep the PSU's helicopter division going.

It is interesting to note that while Congress chief Rahul Gandhi has blamed PM Narendra Modi and the NDA government in Centre multiple times for keeping out HAL out of the Rafale deal, it was his party-led UPA government, which scrapped the previous deal of buying 126 Rafale fighters from the French Defence manufacturing giant Dassault (108 would have been assembled in India, while 18 would be bought under fly-away clause) because of HAL's reportedly high man-hour cost, as the state-owned firm would have required 2.7 times more such hours than their French counterpart.

While responding to the HT, a HAL spokesperson said, “Cost escalation from 2005 (for the Hawk jet) is normal. We also need to take into account the life-cycle cost of each product against off the shelf purchase from overseas. The indigenous benefits, the ecosystem HAL creates for the larger benefit of the country should be factored in also. Importantly, staggered or small orders deny economies of scale to HAL.” 

The official also pointed to supply chain issues adding to cost. 

“Given that multiple agencies get involved in our manufacturing process, kit cost from OEMs and other delays like raw material and spare part supply issues, which are also endemic to the aerospace industry in India, the increase in cost must be evaluated in the right spirit,” the source added.

The deal became the thorn in the flesh for the Modi government, as a French investigative journal claimed they had a document showing that Dassault considered its alliance with Reliance as "imperative and mandatory" to bag the fighter jet contract.

The French aviation giant, in turn, clarified that it freely chose the Anil Ambani's firm as its partner to fulfil the offset requirements.

IAF boss Air Chief Marshal BS Dhanoa too, while defending the deal, had said that his force was consulted at appropriate levels before Centre finalizing the deal. He also remarked that neither Modi government nor IAF had any say in Dassault's choice for offset partner.

Reliance, on the other hand, denied receiving any contract from the Defence Ministry and said that incorrect allegations were deliberately made to mislead people and cloud the issue.

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