83 LCAs Order: HAL may finally agree to lower price

Staring at a depleting order book, defence PUS Hindustan Aeronautics Limited (HAL) — negotiating price for the 83 Light Combat Aircraft (LCA) Tejas aircraft order — is likely to agree to a price that is significantly lower than its quotation. According to sources privy to the negotiations, HAL quoted Rs 450 crore per aircraft as the basic price. “MoD and IAF (customers) are firm that this price is not competitive and are negotiating for a price that is less than Rs 300 crore per aircraft. Negotiations are nearly complete and final price is likely to be in the range of Rs 250 crore and Rs 275 crore,” a source said.

If the price is Rs 275 crore, then the value of 83 LCAs would be about Rs 22,825 crore compared to Rs 37,350 crore if it was Rs 450 crore. This value would be excluding maintenance and other aspects of the overall deal. It’s noteworthy that former defence minister Nirmala Sitharaman had pegged the total value of LCA order at Rs 50,000 crore in January.

“HAL really has no choice. If we need to sustain our production lines and the employees, we need fresh orders, and this is one of the bigger orders which will go on for at least five years,” a source said.At present HAL has orders worth only Rs 45,000 crore, with a major concern brewing in its plant in Nasik, which has orders to sustain only until March 2020. According to MoD, HAL has orders for 48 fixed wing aircraft—only 12 of these for Nasik plant—67 helicopters, 80 engines and 26 sets of rocket structures placed by Isro (See graphic).

One source claimed: “The Gripen, which has features similar to LCA, was costing less than Rs 300 crore per plane and that HAL must become competitive and be able to offer similar price.” Gripen is manufactured by Swedish firm SAAB. Another source said that this would benefit HAL in the long run to increase efficiency to reduce costs. Eventually, the aim is to export LCAs and HAL has already expressed an interest in supplying them to Malaysia. If it wants to export, it needs to price aircraft in the same range as others.

“Why would anybody pay Rs 450 crore for Tejas if they can buy Gripens for cheaper,” the source argued, adding: “Also, HAL quoted 2.5 lakh man hours to build one aircraft and the customers want it to be 1.5 lakh hours,” a source said.

HAL Order Book:

Source:- ET