Why the Tejas cost is high

There has been some public handwringing over the unit cost of the Tejas LCA.  Most of it motivated, from the same quarters that had repeatedly doubted whether the aircraft would be other than a paper plane and, as the project progressed and began passing technical milestones, whether it would ever match up to specs and, when it began proving its druthers as a fighting platform, whether it would ever be an operationally fit aircraft — recall the then  CAS ACM PV Naik’s contemptuous dismissal of this home-grown fighter not that many years ago as “a three-legged cheetah”? — to now when there’s little doubt about the warplane’s bonafides — as it is a damn good combat aircraft that can give any import a run for India’s money. So these import-lovers and skeptics are toggling at the  comparative cost angle, per chance, to derail any which way  the LCA-variants-AMCA procurement programme, and get the IAF back to the good old way of doing business — buying aircraft abroad.

A recent Indian Express story (June 27) on the topic revealed that HAL charges Rs 463 crore for the Tejas Mk-1A  versus Rs 363 crore for the original LCA, and  Rs 415 crore for the Su-30MKI built at Nashik (compared to Rs 330 crore if sourced from Russia). The figures for foreign aircraft on offer are Rs 544 crore for the Swedish Gripen, and Rs 380 crore for the US’ F-16 Block 70. And one can be certain that once the race hots up the Sukhoi Bureau will bring the costs of the Su-35 also in the race, below that of any of these aircraft. So, where’s this cost-based argument headed? You guessed it — right up Saab’s, Lockheed Martin’s, Sukhoi’s and, now that the race has been thrown open to all comers and not restricted to single engine aircraft, Dassault’s,  doors (for additional French Rafale).

Rs 463 figure seems inflated, but won’t quibble over the numbers in this post. This is high. But why?

Ever since erstwhile defence minister Manohar Parrikar rightly decreed that HAL would, like Boeing, Lockheed, EADS, Saab, and Dassault, be the prime integrator for the Tejas and not its manufacturer, the work along with the production modules were transferred  to various private sector entities. Thus, the LCA’s composite wing structure and assembly is done by L&T at its plant in Coimbatore, VEM Hyderabad, outputs the fuselage, Tata Advanced Materials  is responsible for the fin and rudder assembly, and so on. This is a wonderful production schemata and the reason why I have been advocating that ADA also transfer the know-why — the source codes of the Tejas, the operational algorithms et al to competent  private sector companies so that they can begin designing combat and other aircraft, and right now open whole new Tejas production lines — in addition to the two at HAL, so the LCA can be mass produced for accelerated induction into the IAF. The fact that Tejas are not coming out fast enough out of the factories is used  to argue for importing planes to meet “urgent” needs. With many companies producing the Tejas and its follow-on variants and the successor 5th gen fighter plane, AMCA,  for the IAF and for exports, it will ensure economies of scale, bring down the unit price, and send the Indian defence industry as a whole rocketing.

But what is at issue presently  is the price that HAL charges the IAF for each Tejas. Here HAL resorts to its standard pricing trick to ensure that it makes “profit” and maintains a healthy financial bottom line, and keeps in check those in and out of government baying for privatizing loss-making DPSUs. Like the other ‘nav ratna’ DPSUs, HAL adds 30% to the price charged by the private company for the out-sourced work.  To the cost and profit charged by each of the firms with the Tejas production modules, HAL adds 30%. So the price escalates.

MOD can challenge this rentier attitude of the HAL and cap HAL’s margins at 5%-10% on the total cost of the Tejas and bar this DPSU from marking-up the cost by 30% for each of the aircraft’s major assemblies — the reason why HAL is staying financially afloat considering it is not cost-competitive with the private sector defence industrial firms. If this is done — and HAL’s margin thus contained then, voila!, you have a price that no imported aircraft can ever match, and why the Tejas can be a runaway bestseller in the developing world that desires an economical but advanced fighter plane, and which is being taken to the cleaners as India has been and still is, by foreign aviation companies.

What chance that the 5%-10% recommendation as maximum overall HAL margin is accepted by the MOD  committee that’s been set up to scrutinize the Tejas price line and suggest ways of paring it? Zero.

Because such extortionist costing schemes are at the heart of the effort to keep alive the DPSU sector and is supported by the department of defence production in MOD — the guardian of the DPSU interests. This department doesn’t care what’s good for the country, it cares only about its remit which is to ensure, by any and all means,  that the DPSUs and OFB keep their heads above water, to the detriment of economic good sense and the national interest.

So, now you know why the price tag for the Tejas is Rs 463 crore.

 

 

 

 

 

 

 

Source:- Bharat karnad