What ails our aviation industry- Problems
By Ravi Kumar Gupta
Rafale controversy, though not new to high profile defence procurements, has generated unprecedented and avoidable acrimony and bitterness among various stakeholders, be it political parties or different wings of the same Government! later is far more damaging for the nation; while politicians are what they are and will be politicians, any persistent disharmony within various wings of the government can have far-reaching and damaging consequences for the nation! Before attempting to find a solution, it is pertinent to analyse and understand the problem.
Self-reliance in the defence sector since 1947 has remained elusive because efforts in this direction have largely had decorative value for the politicians. The policies have been far from being conducive for building self-reliance which is evident from the fact that even seven decades after independence, Bharat (India) has remained the world's largest importer of defence products!
A simple example of such policies with massive impact has been the prohibition of our own country's private sector industries from making military systems (though the bulk of imports have been originating private sector industries abroad) combined with the near prohibition of any exports. So far as procurement from indigenous sources is concerned, essentially a monopoly market (producer, seller and buyer) was forced upon the nation. Thus, only one company each for producing Combat Aircrafts (Hindustan Aeronautics Limited - HAL), Missiles (BDL), Armoured vehicles (HVF Avadi), Electronic Systems and Radars (BEL), Electro-optics (OLF) and so on, with each one among these having one and only one customer, the respective force among the Indian Armed Forces.
Without exception, all these have been either directly controlled by the Ministry of Defence (MoD) or are DPSUs (Defence Public Sector Undertaking) owned and controlled by the MoD and have been doing essentially an assembling job rather than any research and development or design of their own, largely under licence from foreign companies with some items developed by the Defence Research and Development Organisation (DRDO), part of MoD, which similarly, has been the only organisation in the country engaged in developing defence technologies and designing systems based on such technologies.
Soon after 1947, defence procurements had emerged as the safest gateway of opportunities for corruption, mainly due to the shroud of secrecy associated with military affairs. Imports further promoted corruption, facilitating parking of associated moolah in safe havens abroad. No wonder the history of defence procurement has been flooded with scams accompanied by ‘nobody killed Jessica’ syndrome', beginning with the Jeep scandal of the 1950s.
So, where does our defence sector stand today? Over the past 71 years, it has been primarily the Government doing the trade - the Government buying the defence equipment from itself. Isn’t this well known that the governance takes a back seat and is sure to become breeding ground for corruption when a government turns into trader!
Discussion on the entire defence sector will be too large a subject. Let's limit the discussion to the defence aeronautics sector that has been in the eye of the storm, this time involving the Medium Multi-Role Combat Aircraft (MMRCA). Notably, the in principle approval for import of MMRCA was given in 2001 under the pretext of panicking immediate requirements. About 18 years later the aircraft has just begun to trickle.
Indian Air Force (IAF), the monopoly customer complains that its aircraft strength has been depleting over the past three or four decades because HAL, the sole producer has failed to keep pace with IAF’s needs and its quality requirements. HAL has been facing condemnation of worst kind especially after the recent crash of an aircraft upgraded by HAL. The unfortunate incident has prompted a spurt in debates and articles with the chorus even raising voices for the closure of HAL. Nearly every kind of problem typically finding mention in management textbooks pertaining to less than optimally performing industries is being attributed to HAL.
On the other hand, HAL complains of shifting goalposts, a charge either denied by IAF or justified in the name altered requirements and so on! A matter of fact is that in such blame games, the nation is the prime loser while arms lobbies are the prime gainers. Who is HAL? A single individual, or the buildings and machinery, or the 30,000 or so human resource, or the Chairman or…..who is being blamed and is thus responsible and accountable for lapses? Won’t it be the owner in case of any private industry? The government of India held 100 per cent and 89.97 per cent of equity shares till the beginning and end of the financial year 2017-18 respectively.
Some of the reasons cited for HAL’s state of affairs seem apparently justified. Let’s examine.
HAL is said to be too large to be manageable in terms of ‘business in hand’ and manpower. HAL’s turnover could barely reach ₹18,284 crore in FY 2017-18 while its human strength was a little less than 30,000. Out of profit before tax of ₹3,323 crores the company was made to pay back to the owners ₹1253 crore as tax and windfall dividend at the rate of 321.7 per cent. Not a new phenomenon and is in tune with the tradition set over the decades for all public sector companies, paying for the inefficiencies of the owner in its main task of governance! But that, in fact, is yet another issue. The point here is “Is HAL really too large? Compared with global companies manufacturing combat aircraft, HAL is a baby.
Another diagnosis made by some experts has been that HAL has been biting more than it can chew, is tied up with the manufacture of a very wide range of aircraft besides carrying out jobs for many other organisations like Indian Space Research Organisation. The real issue is once again missed out. No company in the world makes just one type of aircraft. Every global player in the business of making combat aircraft has been making a wide spectrum of aircraft. Albeit HAL has been manufacturing, rather assembling such aircraft in very very small numbers. Indeed wisdom of manufacturing aircraft sourced from so many different companies of the world that themselves are competitors, by a single company is in itself questionable and conflict of commercial interests leading to serious problems cannot be ruled out! But then, is this a fault of HAL or that of the monopoly customer or that of the owner?
Yet another issue often raised is that of huge manpower. If you look at numbers alone, that is not really true. Boeing, like HAL making a wide spectrum of civil and military aerospace products and a service provider of aftermarket support, for example, has over 1.5 lakh total employees with about 36,700 engaged in the defence sector. similarly, Lockheed Martin has more than 1,00,000 employees. What matters is the quality and composition of human resource and its harmonisation with a turnover. Here again, this is a universal problem with all the public sector undertakings. The induction, especially at a non-executive level, has been based on political interests rather than the actual requirements. Obviously, the political interference and politicisation of trade unions has been creating serious problems and adversely affecting performance.
There are many factors that differentiate HAL from the efficiently functioning Aircraft manufacturing companies across the globe?
Professionalism in decision making
In the case of high performing companies, not just decision taking but decision making too is in the hands of professionals and both processes are governed by market needs. The professionals involved are stakeholders whose own success depends on the success of the company. The market for them is global with few restrictions from the Governments of the respective countries. HAL, in contrast, has to carry the burden of political whims and compulsions as well as that of bureaucratic processes. The sole customer is bound to carry the similar burden imposed by the same ecosystem, although the two are made to look independent entities. The genesis of nearly all other problems that have been plaguing functioning of HAL can be traced to the above, which can be summed up as “adverse government policies and unprofessional controls” over the functioning of the company as well as other stakeholders in the development of aeronautics sector!
There is a big big difference between design, development and production of a combat aircraft along with generation of indigenous ‘know why’ and ‘know how’, as compared to just assembling them. HAL, until recently had been largely doing assembly job for the reasons already discussed above. The former however requires availability of a complete ecosystem that includes:
A. Capabilities of carrying out in-depth research and development into each and every aspect and evolving the required technologies on a long term sustained basis with an eye on future and evolving technologies. DRDO has been the main organisation in the country carrying out this function.
B. Expertise and experience in translating the technologies into specific products ranging from small components to the entire aircraft and its arsenal.
C. Availability of industries with the capability to absorb these technologies and deliver products with the highest standards of quality control. An aircraft is a mega-system of systems, no industry in the world in any sector, aeronautics, automobiles etc, manufactures each and every part or component itself. The aircraft manufacturer depends on ‘tier 1’ industries that manufacture and supply finished and tested modules that straightaway goes into the integration of aircraft. ‘Tier 1’ industries, in turn, rely on ‘tier 2’ vendors supplying sub-systems and components to produce such modules. ‘Tier 2’ manufacturers source the raw materials and supplies from ‘Tier 3’ industries. Efficient and effective management of the entire supply chain holds the key to the successful and smooth production of aircraft in numbers at a competitive cost and with acceptable quality. Any weak link in the supply chain has the potential to disrupt the entire process.
D. Capability and expertise in testing, evaluating and certifying for airworthiness the individual modules, sub-systems and components, as well as the entire aircraft and every payload that is intended to be carried on the platform. Over the years, this capability has been built from level zero with CEMILAC under the Department of Defence R&D playing a pivotal role.
The handful of countries in the world that have the capability to design development and manufacture of combat aircraft, either have the complete ecosystem available within the country or have access to a required ecosystem in friendly countries on mutual sharing basis. Indian companies had none of the two! A damaging outcome of repeated invasions and foreign rule over a period of about 1000 years was the absolute absence of the required ecosystem in Bharat at the time of its independence. On one hand, it had missed the industrial revolution whereas its own knowledge base, industrial infrastructure and skills were systematically destroyed by the tormentors. Faulty government policies have been primarily responsible for the extremely slow pace of development of ecosystem conducive to indigenous development and manufacture of even simple products and it took nearly 60 years to begin producing indigenous automobiles. On the other hand, well aware and scared of Bharat’s great potential of rising again and emerging as a tough competitor in global markets, the developed nations joined hands in denying Bharat any access to their ecosystem by setting up denial regimes such as MTCR.
Market to sustain production and Government Support
No ecosystem can evolve and sustain without adequate and economically viable demand for the specific product. Defence industries being strategically important for a country, the governments of most countries not only ensure adequate demand within the country, some like the US as a matter of policy, do not import any major defence systems like combat aircraft. In contrast, the extent to which the governments in some countries push export of defence products for sustaining their domestic defence industry is well known. The world during the past century or so has witnessed many conflicts emerging across the globe whose origin can be traced to the need for sustaining markets for defence products. Thus the genesis of many problems faced by our defence industry in general and aeronautics industry, in particular, can be found to be rooted in the country is the world's largest importer of defence products.
It is obvious that the problems faced by our defence industries and the overall scenario in our country are in many ways different from industrially developed countries. Trying to resolve such problems using typical universally applicable principles are likely to remain futile unless these unique issues are resolved. Part 2 of the discussion will focus on likely solutions.
* Former Scientist G & Director Public Interface, DRDO, Ministry of Defence, India