HAL’s Ineptitude: A Damaging Blow to India’s Defence Exports

OPED By Girish Linganna

In a concerning economic development, India witnessed a sharp decline of over 12.7% in its net exports, plummeting to $34.66 billion this April. This marks one of the most substantial drops in the country’s export levels in the past three years, potentially posing significant challenges to its already struggling growth trajectory.

Despite the government’s increased focus on capital expenditure to stimulate private investment in crucial sectors like infrastructure and real estate, the manufacturing sector, a key contributor to exports and private investment growth, has faced persistent challenges in gaining momentum.

Critics argue that the prevailing economic policy landscape, under the current administration, appears to be grappling with intellectual bankruptcy. This perceived deficiency is believed to be negatively impacting macroeconomic policy formulation and the effective implementation of governance mechanisms.

Observers note a lack of concerted efforts to comprehensively understand and address macro-level economic dynamics. Moreover, there seems to be a notable absence of a clear and well-defined medium-to-long term trade policy in the government’s approach, raising concerns about the overall economic direction of the nation.

In the pursuit of joining the exclusive league of countries capable of building and exporting fighter jets, India is making determined strides, fueled by aspirations to ascend as a global power. This elite group, which includes China and Brazil as the sole developing nation, signifies a hallmark of advanced nations.

Exporting fighter aircraft extends beyond mere business transactions; it not only injects substantial revenue into the exporting country due to the high-value nature of these deals but also lays the groundwork for forging strategic alliances with the purchasing nations. Large defence contracts often play a pivotal role in shaping broader strategic relationships. India, keen on ascending to a prominent position in the global arena, has been actively promoting its indigenously developed light-combat aircraft, Tejas, crafted by the state-owned Hindustan Aeronautics Limited (HAL). Despite the ongoing efforts, securing customers for Tejas has proven elusive thus far.

While India has historically been among the world’s leading importers of defence equipment, its influence in the global arms export market has not matched its potential. Prime Minister Narendra Modi has set ambitious targets, aiming to more than triple the annual value of defence exports to $5 billion within the next two years. The government’s diplomatic endeavours are focused on positioning Tejas as a key player in international defence markets, reflecting India’s strategic intent to strengthen ties and consolidate its standing within the Global South.

The Business So Far

Tejas garnered significant attention last year when it emerged as a contender for Malaysia’s plan to replace its ageing fighter jet fleet. Despite facing formidable competition from China’s JF-17, Russia’s Mig-35, and Yak-130, Tejas made it to Malaysia’s shortlist. However, the ultimate choice was South Korea’s FA-50, leaving Tejas out of the running.

While the Chinese JF-17 presented a more economical option, it fell short in meeting the technical benchmarks set by Tejas. In an effort to sweeten the deal, India extended an offer to establish a Maintenance, Repair, and Overhaul (MRO) facility in Malaysia specifically for its Russian-origin Su-30 fighter fleet. This proposition aimed to address challenges in procuring spares from Russia due to western sanctions against Moscow.

Undeterred by the setback, India is actively promoting Tejas to other nations. Recently, Defence Minister Rajnath Singh inaugurated the regional office of Hindustan Aeronautics Limited (HAL) in Kuala Lumpur. This strategic move not only aims to facilitate closer defence industrial collaboration between India and Malaysia but also positions the HAL’s regional office as a hub for engaging with the broader South-East Asian region. Despite the Malaysian setback, India remains committed to expanding its defence collaboration and export efforts, showcasing Tejas as a key player in the global fighter jet market.

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Where Does HAL Contribute to Loss In The Export Market?

Recent incidents of accidents have once again thrust the state-owned Hindustan Aeronautics Limited (HAL) into the spotlight, triggering scrutiny of its questionable track record in military aircraft safety. The company’s history, marred by several accidents, particularly with the Advanced Light Helicopter (ALH), has significantly impacted its standing in the export market, leading to substantial losses in orders.

The ALH has been involved in nearly a dozen major accidents, and a similar trend is observed with other aircraft developed and serviced by HAL. According to senior military officials, technical defects in products designed and manufactured by HAL are a major contributing factor to these accidents. Production challenges and issues related to reliability and quality control have been consistent factors in accidents involving indigenously-built aircraft.

In response to these concerns, HAL has pledged to conduct “precautionary checks” and suspend operations until investigators determine the cause of the incidents. The company has assured customers of its commitment to ensuring the full operational capability of its fleet.

Despite these safety concerns, HAL’s prominent role in the Indian defence and aerospace sector seems unaffected. The company, often deemed “too big to fail,” secured a substantial order from the Indian Air Force just four days after a Navy ALH helicopter crash. Highlighting the company’s robustness, Chairman and Managing Director CB Ananthakrishnan proudly emphasised during Aero India 2023 that HAL boasts a substantial order book, currently standing at Rs 84,000 crore, and an additional Rs 50,000 crore in the pipeline.

HAL’s stock prices have remained stable, but investors are closely monitoring developments. Despite calls for swift action to regain trust, the company’s influence appears to be a significant obstacle to implementing rapid reforms. As demands for accountability grow, HAL’s ability to navigate these challenges while maintaining its pivotal position in the defence sector remains a subject of scrutiny.

The Trigger Points

The significance of Hindustan Aeronautics Limited (HAL) extends beyond merely bolstering the combat capabilities of the Indian military; it plays a pivotal role in propelling the entire aerospace industry forward. Failure to ensure the success of HAL and its diverse projects could potentially consign India to a perpetual state of technological backwardness, reliant on foreign imports for aeronautical advancements.

The Department of Defense Production & Supply, entrusted with overseeing HAL’s endeavours, has been criticised for a lackadaisical approach, allowing the organisation to expand in size without a commensurate growth in skills, technology, or capability. A closer examination of HAL’s history reveals a concerning trend. Some argue that a significant challenge lies in the government’s dual role as both a major stakeholder in HAL and the primary procurer, often in situations where alternative vendors are scarce. To elevate HAL’s performance to the standards set by private industry, there is a growing call for contemplating the privatisation of the company.

Given that the Indian military is HAL’s largest customer and a substantial revenue source, the country is heavily dependent on the PSU for product support. However, a pervasive lack of confidence in HAL persists for several valid reasons:

• Employee Productivity: Unionised employees at HAL are often criticised for a lackadaisical approach, resulting in low productivity and delayed deliveries, undermining the organisation’s overall efficiency.
• Production-Engineering Standards: Poor production-engineering standards within HAL impede maintenance processes and hinder fleet standardisation, posing challenges for the effective management of aircraft.
• Quality Control Measures: Inadequate quality control measures contribute to component failures, increasing the risk of accidents and underscoring the need for stringent quality assurance protocols.
• Product Support: HAL’s responsiveness in product support has been called into question, leaving customers without adequate assistance when facing issues and highlighting the need for more timely and effective support.

Beyond the reports

Hindustan Aeronautics Ltd (HAL) is gearing up to establish a new business division aimed at boosting its exports, particularly in the domain of fighter jets and helicopters. The move is part of HAL’s strategy to explore opportunities for selling its Light Combat Aircraft (LCA) Mk-1A and Advanced Light Helicopter (ALH) to various countries, including Argentina, Nigeria, Egypt, and the Philippines. The proposed vertical will operate under a CEO-ranked officer, directly reporting to the company’s chairman.

Acknowledging the need for improvement, HAL’s Chairman and Managing Director, CB Ananthakrishnan, highlighted the organisation’s intent to address shortcomings and enhance its competitiveness in the global market. While the company has garnered interest from potential customers worldwide, converting these leads into concrete orders has proven challenging.

HAL faced a near miss in securing a $920 million contract to supply 18 fighter jets to Malaysia, losing out to Korea Aerospace Industries earlier in the year. Nevertheless, HAL sees potential in markets like Argentina, Nigeria, Egypt, and the Philippines, with varying interests in LCA Mk-1A and ALH. Argentina, for instance, is a prospective customer for both aircraft, while Nigeria and Egypt are considering LCA Mk-1A. The Philippines has expressed interest in ALH.

Despite possessing commendable products such as LCA and ALH, HAL has struggled to achieve success in the international export arena. Air Marshal Anil Chopra (Retd), Director General at the Centre for Air Power Studies, acknowledges this challenge, emphasising that while HAL has quality offerings, achieving export success has proven elusive. The restructuring and renewed focus on exports signal HAL’s commitment to overcoming these hurdles and establishing a stronger presence in the global aerospace market.

A recent report from the Comptroller and Auditor General (CAG) sheds light on Hindustan Aeronautics Limited’s (HAL) challenges in obtaining European Aviation Safety Agency (EASA) certification for Helicopter 1. According to the report, HAL applied for EASA certification in 2009 with the aim of boosting export potential to European countries. However, the company allegedly failed to anticipate the stringent requirements set by EASA, resulting in prolonged compliance timelines and additional costs.

The CAG report reveals that HAL did not identify technical experts to seek consultancy services for timely compliance with EASA requirements. The lack of preparedness and oversight led to an expenditure of Rs 108.24 crore being deemed impaired.

In addition to the EASA certification issues, the audit highlighted shortcomings in the design and development (D&D) processes at HAL. Feasibility studies, project definition phase reports, and detailed project reports were reportedly not adequately prepared. The absence of Technology Gap Analysis and reliance on customer inputs without thorough analysis were noted as deficiencies in the D&D projects. The scheduled meetings of the Committee of Institutions Network under the Research and Development (R&D) Policy were reportedly not conducted as mandated.

Furthermore, the report pointed out that HAL did not foresee the risks associated with Project 1, leading to the initiation of several unplanned activities. For Project 3, the D&D commenced without obtaining specific requirements from potential customers or users, raising concerns about the project’s direction and alignment with user needs.

These findings underscore the need for HAL to enhance its planning, compliance management, and risk assessment processes to ensure the efficient execution of projects and compliance with international standards, ultimately safeguarding the organisation’s reputation and export prospects.

Also Read, Indian Defence Exports: Prospects and Challenges

The Bottom Line

Hindustan Aeronautics Limited’s (HAL) contribution to the loss of export orders for India’s defence and aerospace industry stands as a glaring indictment of the company’s inadequacies. The failure to anticipate and meet stringent requirements for European Aviation Safety Agency (EASA) certification, as highlighted in the recent Comptroller and Auditor General (CAG) report, reflects a staggering lack of foresight and strategic planning.

HAL’s inability to identify technical experts for consultancy services, coupled with a disregard for technology gap analysis and a reliance on customer inputs without thorough analysis, has not only jeopardised its own projects but has also cast a dark shadow over the reputation of India’s defence and aerospace sector on the global stage. The absence of proper risk assessment mechanisms, as evidenced in unplanned activities and the initiation of Project 3 without specific customer requirements, underscores a pattern of negligence and mismanagement.

This critical examination of HAL’s practices reveals a systemic failure in project execution, compliance management, and strategic foresight, severely compromising India’s position in the competitive global market. HAL’s shortcomings have not only cost the nation valuable export orders but have also eroded trust and confidence in the capabilities of Indian defence and aerospace offerings. Urgent and comprehensive reforms are imperative to salvage the industry’s reputation and ensure that HAL’s shortcomings no longer act as a hindrance to India’s aspirations in the international defence and aerospace arena.

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(The author of this article is a Defence, Aerospace & Political Analyst based in Bengaluru. He is also Director of ADD Engineering Components, India, Pvt. Ltd, a subsidiary of ADD Engineering GmbH, Germany. You can reach out to him at: girishlinganna@gmail.com)