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The lowdown on HAL’s order book

What is it?

The Defence Public Sector Undertaking and the country’s only manufacturer of aircraft, Hindustan Aeronautics Limited (HAL), has been caught in the political slugfest over the Rafale deal on the offset issue. But over the last couple of weeks, it has been in the news for its order book and financial situation. HAL makes a range of aircraft — including fighter jets and trainers — and helicopters, both indigenously developed and under licence from foreign original equipment manufacturers (OEMs). For the year ended March 2018, HAL posted a turnover of ₹18,284 crore. But HAL is facing a financial crunch owing to non-payment of dues and lack of new firm contracts. In fact, last week HAL said it had taken an overdraft of ₹962 crore for salaries and running costs. In Parliament last week, Defence Minister Nirmala Sitharaman said HAL had orders worth ₹1 lakh crore, later explaining that it includes deals worth ₹26,570.8 crore signed between 2014 and 2018 and contracts worth ₹73,000 crore in the pipeline. Those in the pipeline include 83 Light Combat Aircraft (LCA) Tejas Mk-1A jets worth ₹50,000 crore, 200 helicopters under a joint venture with Russia worth ₹20,000 crore, and 15 indigenous Light Combat Helicopters (LCH) worth ₹3,000 crore.

How did it come about?

The current situation of HAL is due to a combination of factors — primarily the non-payment of dues by the Indian Air Force (IAF) for orders executed and under way, most of the existing orders coming to an end and a delay in finalisation of new contracts. HAL also has several development programmes which need funding till the services accept them and pitch in with their share. HAL Chairman R. Madhavan recently said the IAF owed HAL money for aircraft, helicopters and services that it had already delivered with current dues pegged at ₹15,700 crore, which will rise to ₹20,000 crore by March 31. In addition, over the years HAL has paid large amounts to the government as part of equity buy-back and dividends which also depleted its coffers.

On the contrary, the IAF has been paying foreign OEMs for committed liabilities which otherwise attract penalties. For instance, it paid ₹20,000 crore to Dassault Aviation of France for the 36 Rafale jets contracted and to Boeing for Apache and Chinook helicopters, among others.

Why does it matter?

The weak financial situation can affect future programmes and hamper regular maintenance activities that HAL undertakes for the IAF. The country’s indigenous fighter programme LCA is at a critical stage with the final operational clearance nearing and the advanced variant Mk1A making delayed progress. HAL is setting up another assembly line to ramp up LCA production and is developing the HTT-40 basic trainer and a Light Utility Helicopter (LCU) on its own, based on the demands of the services. The fund crunch affects salaries and running costs. Also as contracts come to an end, the work force will have to be benched. For instance, HAL’s biggest contract, the licence manufacture of Su-30 jets from Russia, is nearing completion. Additionally, the delay in finalisation of new orders affects timely planning and supply chain management.

What lies ahead?

After the recent developments, the Defence Ministry has made some moves to address the issue. Officials said the Ministry has sought funds from the Finance Ministry to help HAL. Earlier this week, HAL officials met Ms. Sitharaman and the three services chiefs. HAL has also stated that with anticipated collections up to March, the cash position is expected to improve and in terms of future orders, final contracts for 83 LCA Mk1A and 15 LCH are in advanced stages. Nonetheless, the developments are a matter of serious concern for the country and warrant immediate government attention to set things in order.

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Printable version | Feb 24, 2020 8:44:00 AM |

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