With no Indian orders, BAE Systems starts shutdown of M777 gun factory

An M777 gun crew readies their gun for airlifting by a Chinook helicopter in Afghanistan

By Ajai Shukla

Business Standard, 18th Oct 13

The ministry of defence (MoD) today moved closer to paying thousands of crore rupees extra for artillery guns for its mountain divisions. BAE Systems, which is supplying M777 155 millimetre (mm)/39 calibre ultra-light howitzers, today initiated the shutting down of its production line in the UK, in the absence of any order or commitment from New Delhi.

Announcing the mandatory “consultation with trade unions” at its facility at Barrow-on-Furness, UK, which could cut 200 jobs, the company stated that the move “comes about because of on-going delays in the US Government Foreign Military Sale of 145 M777 howitzers to the Government of India. After months of company investment, and with production on existing orders nearing completion, the Company can no longer continue to maintain the current staffing levels.”

The production line at Barrow-on-Furness produces core components like titanium forgings and fabrications, which make the M777 light enough to be lifted by helicopters to high-altitude deployment areas. The gun is finally assembled at BAE Systems’ Hattiesburg facility in the US. For that reason, India has pursued this procurement through the US Department of Defence (Pentagon) under the Foreign Military Sales (FMS) programme. This means that India buys the gun from the Pentagon, which negotiates terms with BAE Systems.

There have been clear warning signals that MoD delay would result in a higher price for the M777. Business Standard had reported (Aug 20, “MoD delays raise light artillery cost by thousands of crore”) that, on Aug 7, the Pentagon notified the US Congress that it was raising the maximum price of the sale to India from US $647 million, which had been notified in Jan 2010, to $885 million.

That escalation and the rupee depreciation could almost double the contract price from Rs 2,960 crore in Jan 2010, to Rs 5,610 crore today.

Industry sources say that BAE Systems, which has supplied over a thousand M777 guns to several armies but now has no orders in hand, has already spent $50 million in keeping the production line open in anticipation of an order from New Delhi.

Contacted for a comment, an MoD spokesperson said today that the BAE Systems decision was “an internal matter of the company” and that New Delhi had nothing to say.

While some cost escalation seems inevitable for India, BAE Systems indicated today that an early decision could limit the damage. “There could be some mitigation of the proposed suspension in production and potential reductions, if a formal agreement for the M777 howitzer sale to India was reached in the near future. However, the company has reached the point where it has to begin this consultation process (with the employees that could be laid off),” the statement said.

Says Dean McCumiskey, who heads BAE Systems in India: “BAE Systems stands ready to continue to support any discussions between the two Governments to bring this case to conclusion, and remains committed to equip the Indian Army with next generation technology to meet their urgent operational requirements."

Indian Army officers say the M777 is crucially required, especially for the new mountain divisions that have recently been raised for the Sino-Indian border. The initial order for 145 guns could rise significantly, since the army’s 220 artillery regiments have received no new artillery since the 1980s, when the FH-77B, 155 mm/39 calibre Bofors gun was bought. Mired in controversy, eventually only 400 Bofors guns were delivered.

An indigenous effort by the Ordnance Factory Board (OFB) to build a 155 mm/45 calibre gun has run into trouble, with a gun barrel bursting during trial firing recently. Separately, the Defence R&D Organisation (DRDO) is partnering the private sector in developing a 155 mm/52 calibre artillery gun.