Air Force at war with Hindustan Aeronautics; wants to import, not build, a trainer

In a letter to defence minister, IAF chief criticizes HAL’s proposal to design and build aircraft for rookie pilots

By Ajai Shukla

Business Standard, 29th July 13

Indian Air Force (IAF) chief, Air Chief Marshal NAK Browne, has assailed Hindustan Aeronautics Ltd (HAL), which builds most of the fighter aircraft that the IAF flies. Writing directly to Defence Minister AK Antony in the first week of July, Browne has savaged HAL’s proposal to design and build a basic trainer aircraft (BTA) for rookie IAF pilots. Rejecting the HAL proposal, Browne has urged Antony to import 106 PC-7 Mark II trainers from Swiss company, Pilatus. These will be over and above the 75 trainers already contracted for US $640 million (Rs 3,780 crore).

Business Standard has a copy of Browne’s five-page letter to Antony. Contacted for comments, the IAF and HAL have both chosen to remain silent on the issue.

At stake is an estimated $800 million (Rs 4,750) for Pilatus, if Antony accepts Browne’s recommendation to give the Swiss company, rather than HAL, the 106-aircraft order.

On Sep 29, 2009, the ministry of defence (MoD) had cleared the acquisition of 181 BTAs for the IAF. 75 were to be procured internationally, a contract that Pilatus controversially won. Meanwhile, HAL was to design and develop 106 BTA in India.

Now the air chief has requested Antony, “To meet the immediate flying training requirements of the IAF, the ‘Option Clause’ be exercised to procure 38 PC-7 Mk II from M/s Pilatus Aircraft Ltd, as directed by [the MoD] on 29 September 2009. The subsequent requirement of 68 BTA could be met through Repeat Procurement.”

Repeat Procurement is the simplified, swift procurement of equipment that is already in Indian military service. User trials are dispensed with.

Browne argues that HAL, in its detailed project report to the MoD, has underpriced the HTT-40. Rubbishing HAL’s projected cost of Rs 32.70 crore per aircraft, Browne says the HTT-40 will actually cost Rs 43.59 crore at 2011 prices.

The extra cost per aircraft, according to Browne, includes Rs 1.81 crore as the cost of production; and Rs 7.11 crore as the cost of design & development, of which the IAF must pay 80 per cent. A 16 per cent rise in the cost of the dollar will add another Rs 1.97 crore per aircraft, taking the price up to Rs 43.59 crore.

Then Browne adds 4.5 per cent annual inflation to these prices, which are on a 2011 base. That raises the HTT-40’s per unit cost to Rs 59.31 crore in 2018 (when the HTT-40 would start being delivered) and Rs 64.77 crore in 2020.

In contrast to this gloomy forecast, Browne paints a rosy picture for the PC-7 Mk II, stating that Pilatus costs just Rs 30 crore per aircraft, a price that will apply also to the “options clause” for another 38 PC-7 Mk II. “Hence the HTT-40 will be more expensive to the IAF when compared to the PC-7 Mk II by over 89% from 2018 onwards,” writes the IAF chief.

In fact, the Pilatus contract freezes the price only for the next 38 trainers under the “options clause”, but the final tranche of 68 aircraft would be negotiated afresh, subject to inflation and forex variations. Furthermore, since the forex component of the PC-7 Mk II is 100 per cent, compared to just 30 per cent for the HTT-40 (Browne’s figures), any adverse change in exchange rates would escalate Pilatus’ cost far more than HAL’s.

Surprising experts also is the IAF chief’s inexplicable oversight in omitting any mention of decades of heavy payout to Pilatus for maintenance, overhauls, spares and upgrades. With the MiG-21, MiG-27, MiG-29 and the Mirage 2000, these cost up to ten times as much as the initial purchase cost of the aircraft.

Amit Cowshish, former Financial Advisor (Acquisition) & Additional Secretary with the MoD says, “Over the service life of a foreign aircraft, its spares, maintenance, overhaul and upgrade from abroad could cost several times more than the basic cost of the aircraft, as we saw with many IAF fighters. It is impossible to contractually bind a vendor down to fixed prices for spares, upgrades and overhauls over the entire life cycle of the platform, which might stretch over decades. The actual cost incurred over years could be much more than what was anticipated at the time of purchase.”

Nor does Browne’s letter put a price on the design and manufacturing expertise that the HTT-40 would generate in India, and on the eco-system of vendors and sub-vendors that would be created, generating high-tech jobs and expertise.

HAL, usually on the defensive against the IAF, has reacted defiantly. Business Standard learns that work is underway on the HTT-40, financed by Rs 150 crore that HAL’s board has committed from internal funds. HAL says that foreign buyers would be interested in the trainer even if the IAF is not. So too would the navy and army, whose expanding aviation wings would lead to them training their own pilots instead of continuing to rely on the IAF.

HAL designers also claim that the HTT-40 will be far more capable and versatile than the PC-7 Mk II, which is a de-rated version of the PC-9 trainer. The HTT-40 will be a weaponised trainer that is also a light attack aircraft. For political reasons, Pilatus removed the weapons hard points from the PC-7 Mk II trainers that they sold the South African air force. The same is true for the BTAs sold to India.

The air chief’s letter cites HAL’s record of delays, specifically mentioning the Light Combat Helicopter and the Light Utility Helicopter. Browne charges, “HAL routinely seeks approval for a small project completion period… without achieving it.”

The IAF chief cites the MoD’s ruling in 2010 that more Pilatus trainers would be bought if the HTT-40 had not yet flown by the time the first Pilatus trainers were delivered to the IAF. Today, 14 Pilatus trainers have already been delivered, and Browne claims that Pilatus will deliver 30 trainers per year to the IAF.

On July 8, the first IAF batch of trainee pilots began learning to fly on the Pilatus PC-7 Mark II at the IAF Academy at Dindigul, near Hyderabad.