A second Tejas assembly line

By Ajai Shukla

Business Standard, 13th Oct 15

As this newspaper has reported, there has been a major breakthrough in one of India’s most ambitious and expensive weapons development projects --- the Tejas Light Combat Aircraft (LCA) --- with the Indian Air Force (IAF) now willing to accept 100 improved fighters. The Tejas Mark IA, as some call the improved version, will have air-to-air refuelling, improved radar, missiles to strike enemy aircraft beyond visual range and electronic jammers to blind enemy radar. For Hindustan Aeronautics Ltd (HAL), which is struggling to build even the first 20 fighters, the IAF’s acceptance constitutes an embarrassment of riches. Going by HAL’s current rate of assembly, delivering 120 Tejas fighters will take a decade.

The real Tejas numbers will, in fact, be well above 120. Given that the IAF has finally accepted the Tejas Mark 1A as a capable replacement for its 13 squadrons of MiG-21s and MiG-27s, it will need at least 250 Tejas fighters before the end of the decade, when the obsolescent MiGs must be retired. Furthermore, the IAF requires another 20 more Tejas Mark 1A for training. The navy, meanwhile, has declared it needs at least 56 Tejas Mark II (with more powerful engines) for its two indigenous aircraft carriers. That adds up to well above 300 Tejas fighters.

It should be obvious to planners in South Block that the Tejas cannot possibly be built in these numbers, in an acceptable time-frame, without establishing another assembly line to double the efforts of HAL’s current Tejas line in Bengaluru. This is the golden opportunity the defence ministry has been seeking for nurturing a private sector competitor to HAL. The ministry must select a private company, transfer to it the technology needed to build the Tejas, and order 150 fighters in short order.

The ministry is already attempting to build up a private sector aerospace manufacturer, but in a misconceived project. A Tata-Airbus consortium has been asked to build 56 transport aircraft to replace the IAF’s venerable Avro fleet. There are many problems with this proposal: It does not envisage building an indigenous aircraft; it makes no economic sense to set up full-scale production infrastructure, including an airfield, for just 56 aircraft; a multinational giant (Airbus) will hold disproportionate clout in the partnership, and most crucially, the Avro has never had an operational role beyond ferrying air marshals around the country. Neither will its replacement.

In contrast, a parallel Tejas production line would be a perfect launch pad for a private aerospace corporation. Unlike HAL, which has an aerospace empire sprawling across the country, a private sector aerospace entrant would per force have to develop a network of vendors and sub-vendors, upon which it would rely for systems, sub-systems and components, while reserving for itself only final integration --- assembling the parts and rolling out, inspecting and testing full-built Tejas fighters. In contrast, HAL avoids sub-vendors, keeping profits within the company by farming out manufacture to its own numerous divisions.

A parallel private sector production line would also create competition to make the Tejas cheaper. For this, the private company must be encouraged to partner an established western corporation like Saab, Eurofighter, Lockheed Martin or Dassault. Many have signalled interest in partnering India; Saab had even put forward a full-scale proposal that was largely ignored in New Delhi. The chosen foreign vendor should be incentivised to bring in contemporary aerospace manufacturing technologies and best practices.

While HAL’s single production line would not meet even the IAF’s requirements, adding a parallel line would open up exports. So far, with the IAF itself unwilling to accept the Tejas, there has been little prospect of exporting this excellent fighter --- buyers usually reason, “If the home air force is not interested, why should we be?” But, with the IAF now inducting the fighter in numbers, the Tejas can establish a presence in the global light fighter market. Even at its current cost of Rs 240 crore ($40 million), which includes the aircraft, ground equipment, test equipment and spares, it is reasonably priced, given its fourth-generation configuration --- a fly-by-wire fighter, built of composite materials.

The Tejas’ current price can be lowered, given that it is currently planned and built in the most uneconomical manner possible --- with little outsourcing, an inadequate assembly line and orders placed in penny-packets, which eliminates economy of scale. Instead of this, working on an assured order of 100-150 aircraft, with a vendor chain developed deliberately, and the incorporation of international best practices in assembly, would lower the Tejas’ cost substantially. This would boost the prospect of export, especially when backed by an international vendor’s marketing expertise and global marketing chains. This prospect of global export would be an added attraction for international vendors.

In sum, bringing in a private sector company to establish a parallel production line for the Tejas would do more than just create an aerospace alternative. It would also ensure the Tejas is inducted into IAF service at least twice as fast, filling up a worrying operational gap. Second, global standards and best practices would come into domestic aerospace manufacture. Third, modern assembly lines and competition would drive down the cost of the Tejas, benefiting the IAF as well as export prospects. Finally, the entry of the private sector into aerospace would spread dynamism and flexibility across the industry.

There are difficulties too, and the first is to select a private company that would benefit enormously from government largesse --- including access to airfield infrastructure, since demanding that the company establishes its own would raise the cost of entry unrealistically. Given the cutthroat competition between private sector aspirants in defence, the ministry would need a clear and transparent formula for selecting a winner, one that could withstand inevitably bitter scrutiny from the losers. This would naturally involve assessments of financial health, track records in manufacture, core areas of expertise, and past delivery records. Competition will be intense, given that the ministry would be giving the winner a leg-up into the ranks of global aerospace manufacturers, just as it spent taxpayer billions to make HAL what it is today. A clear public rationale will have to justify the decision.

A sceptical HAL unsurprisingly scoffs at the notion of a rival private sector assembly line. Senior executives point to what happened three months ago when HAL, already preoccupied with three simultaneous helicopter programmes (the light combat helicopter, light utility helicopter and weaponised Dhruv), issued a proposal offering the private sector full technology transfer to build the Dhruv advanced light helicopter in India. HAL officials say not a single private vendor accepted the challenge.

HAL also points out that the private sector Tejas line would run for, say, a decade, but the company would have to logistically support the fighter for the next thirty years. This is true, even if it betrays an unreasonable suspicion of the private sector that has a reasonable record of supporting products. What is true, though, is that if the private sector fails to respond to an invitation to build the Tejas, or does not support the fighter through its service life, this would be a black mark forever.