Private sector objects to HAL’s tenders for naval utility helicopters

HAL’s double bid in the Naval helicopter tender lets it offer either the Kamov 226T (above), or the Dhruv ALH

By Ajai Shukla

Business Standard, 2nd May 19

Hindustan Aeronautics Ltd (HAL) has thrown its hat in the ring by submitting two separate responses to the navy’s Expression of Interest (EoI) in identifying an Indian strategic partner (SP) to build 111 Naval Utility Helicopters (NUHs) for an estimated Rs 21,738 crore.

The SP model, under which the NUH is being procured, envisages the indigenous manufacture of major defence platforms by Indian firms (SPs), in collaboration with a foreign original equipment manufacturer (OEM) for technologies and production expertise.

HAL’s entry has fluttered the dovecotes of Indian private defence manufacturers, who the ministry of defence (MoD) has led to believe would not face competition from defence public sector units (DPSUs) and ordnance factories (OFs) in SP category procurements.

The controversy arose on April 26, the last day for Indian firms to submit their responses to the MoD’s EoI for building the NUH. HAL submitted two responses: one proposal to participate as a DPSU; and, alongside that, a second proposal from the HAL-led joint venture, Indo-Russian Helicopters Ltd (IRHL), which was set up to manufacture the Kamov 226T helicopter for the air force in India.

That exposes private Indian firms, who have little experience in chopper manufacture and none at all in designing and developing (D&D) helicopters to competition from HAL, which has manufactured and developed the successful Dhruv light helicopter and others.

Private firms say this is unfair, given that the SP policy, detailed in the Defence Procurement Policy of 2016 (DPP-2016), specifically mentions: “Strategic Partnerships seek to enhance indigenous defence manufacturing capabilities through the private sector over and above the existing production base.”

One vendor points out that HAL constitutes the existing production base, built up with government support over decades. The vendor says the whole aim of the SP policy is to identify and develop a private sector alternative to HAL.

Furthermore, the EoI specifically mentions that respondents “Should be a private sector company.”

HAL officials, speaking off the record, argue that the SP policy does not rule out public sector participation. They admit the policy seeks to develop the private sector, but it also states: “MoD may consider the role of DPSUs/OFB at the appropriate stage(s) keeping in view the order book position, capacity and price competitiveness.”

The HAL officials point out that their order book position for helicopters is weak, with current orders existing only for 73 Dhruv helicopters and 10 Cheetal light helicopters. They argue that giving the NUH order to a private firm would leave the DPSU’s existing facilities under-utilised.

In case this is not accepted, HAL’s second response, through IRHL, opens the door for it to participate as a private sector entity. IRHL is currently a public sector firm, with HAL holding 50.5 per cent of its equity, while Russian Helicopters (42 per cent) and Rosoboronexport (7.5 per cent) hold the rest. However, IRHL would cease to be a public sector company, were HAL to divest a share of its holding to an Indian private sector firm.

HAL has argued in a letter to the MoD last August that it has already developed the key technologies needed to manufacture light helicopters in the 5-tonne class; and choppers in this category need not be imported any longer. It points to the success of the in-service Dhruv and Rudra helicopters, and the Light Combat Helicopter and Light Utility Helicopter, which are completing their flight-testing.

“The NUH’s specifications are almost identical to the Dhruv. If we develop “tail boom folding” to enable the Dhruv to fit into a warship hangar, the navy’s requirements will be met. The technology already resides in India. Why do we want to import a chopper, pay Rs 1,000 crore for technology, and further huge sums for maintenance, overhaul and upgrade through the NUH’s life cycle? We can do it here”, says a senior HAL officer.

HAL would take three-four years to develop “tail boom folding”, but its executives point out that it would take at least that long to identify an SP and OEM, negotiate a contract and commence delivery. 

(Part II: Private firms argue: “Retain SP projects for private sector”)