NEW DELHI — India’s monopoly military aircraft manufacturer — Hindustan Aeronautics Ltd. (HAL) — plans to offload 10 percent of its 100 percent government-owned equity in the market to garner resources for expansion and better management.
However, analysts and users of the aircraft say the plan doesn’t go far enough. A complete restructuring is needed, they say, and merely selling a small stake in equity will not help it revamp itself. HAL, with an annual sales figure of about $3 billion, has an order book of more than $10 billion. That number is poised to balloon when HAL begins license production of the $11 billion Medium Multirole Combat Aircraft (MMRCA) and the $20 billion Fifth Generation Fighter Aircraft (FGFA) programs.
HAL will need to spend $4 billion in the next five to seven years to build additional capital and human infrastructure to support the aircraft programs. The 10 percent of the $22.72 million, which is $2.27 million in equity capital, is likely to fetch around $2 billion from the initial public offering (IPO) early in the next fiscal year, which starts in April, a HAL executive said.
A senior Indian Defence Ministry official said the disinvestments will take at least six months to kick-start. Without elaborating, the official said the disinvestment will initially be 10 percent, and based on the IPO response, the government might increase the percentage. HAL spokesman Gopal Sutar said board management will not comment on the matter and added that the company’s disinvestments are the government’s prerogative.
HAL’s 10 percent disinvestment, which the government cleared this month, is unlikely to change the way business is conducted in the manufacturer, said analysts and Indian Air Force officials.
“HAL is [a] public behemoth and what is needed is to break it up into SBUs [strategic business units] with their own [profit and loss] responsibility. For each of these SBUs, a private partner should be chosen, and this would help drive efficiencies. If nothing else, the complete apathy and lack of accountability that rests in HAL’s employees and management will be suitably taken care of. [A] certain minimum level of exports should be made mandatory. This would ensure a competitive spirit, as well as the introduction of global best practices,” said an independent defense industry consultant who asked not to be quoted. A HAL official refuted the remarks.
Deba Mohanty, chairman and CEO of Indicia Research & Advisory, welcomed the disinvestment move but said a number of administrative changes are required to overhaul the company.
“The disinvestment of 10 percent of HAL’s entire government ownership is a step in the right direction, as this will achieve three important objectives: A, it will help HAL generate public money for expansion and modernization purposes; B, it will bring HAL into the competitive market dynamics; and C, it will test HAL’s competence levels,” he said. “HAL management will now have to cater to market expectations and demands, which will make it more efficient in the long run. However, it may not be a smooth process, as HAL will have to undergo a long overhauling process, as well as administrative procedures.”
An Indian Air Force official said HAL’s monopoly needs to be broken, and another aviation manufacturer should be built, especially in the private sector. The official said the work culture at HAL is not “businesslike,” and said delays and cost overruns are rampant. The HAL official would not comment on the criticism.
A U.S. diplomatic cable, leaked by WikiLeaks last year from then-U.S. ambassador to India Timothy Roemer, expressed doubts over HAL’s ability to manufacture the aircraft under the MMRCA program.
Whereas there is unanimity of views that HAL needs revamping, analysts are divided whether another aviation manufacturer should be built.
“In the long run, India may find it difficult to have two aircraft companies side by side,” said Laxman Kumar Behera, research fellow at the Institute for Defence Studies and Analyses. “A country like China with much bigger defense spending has also consolidated aircraft manufacturing into one holding company.
“It would be ideal for India to have one truly modern, dynamic and efficient aircraft manufacturing company,” Behera added. “For that, HAL has to be restructured keeping the above in mind.”