The Ministry of Defence (MoD) seems all set to award the $2.5 billion contract for 56 EADS CASA C-295 transport aircraft to Airbus Defence and Space of Spain. These aircraft will replace the Siddeley (HS) Avro-748 transport aircraft that have been in service with the Indian Air Force (IAF) since the 1960s and are overdue for retirement. The exact stage at which the proposal is poised is unclear, but some media reports, quoting unnamed officials, indicate that the contract is awaiting financial approval and will be signed very soon.
The contract would require 16 aircraft to be delivered in a fly-away condition by Airbus within two years of its signing. The remaining 40 will be made in India by Tata Advanced Systems Limited (TASL) in collaboration with, and with technology transfer from, Airbus and delivered to the IAF over the following eight years. There is a possibility of the Indian Coast Guard’s requirement of six aircraft being clubbed with the 40 aircraft to be made in India.
For Airbus it would be a bittersweet end to years of ambivalence on MoD’s part, not least because it has had little success in winning defence contracts in India in recent years. Even the C-295 deal has gone through many crests and troughs. In 2014, the Defence Acquisition Council (DAC) – the highest decision-making body in the MoD on acquisition matters, headed by the defence minister – even questioned the need for acquiring the aircraft for which the tenders had been floated only the previous year after extensive deliberations. This was not the only turbulence faced by the project.
In October 2013, Praful Patel, then the Minister of Heavy Industries and Public Enterprises in the UPA government, had unsuccessfully questioned the MoD’s decision to keep the state-owned Hindustan Aeronautics Limited (HAL) out of the project. The project ran into difficulty again when Airbus emerged as the sole bidder much to the MoD’s discomfort. Some media reports even questioned the commercial viability of the project, ignoring the fact that the tender had been floated after the industry expressed a great enthusiasm for the project during pre-bid consultations with the IAF.
These hurdles were overcome in July 2014 when the late Arun Jaitley, then heading the DAC while holding the additional portfolio of defence, gave the go-ahead to proceed with the single bid that had been received from Airbus. It is a sad commentary on India’s acquisition procedures that the project took another six years to reach the present stage. Be that as it may, the award of this contract will be a significant development for a variety of reasons.
First, keeping HAL out of contention for the project was an uncharacteristically bold decision on the MoD’s part. The objective of this decision that later came to be known as the ‘Avro-model’ was to create a parallel capacity in the private sector to manufacture aircraft. The Strategic Partnership Model (SPM) adopted by the MoD in 2017 has a similar objective, but its procedural complexity, and the government’s decision to rope in the public sector undertakings for some of the flagship projects, has steered the SPM away from its basic objective. The C-295 project scores over the SPM in this regard by letting in the private sector in a major acquisition-cum-manufacturing project under the ‘Buy and Make’ category.
Second, it is an affordable project with the expenditure being spread over 10 years or more. The returns on this investment cannot be measured only in terms of the much-needed capability it will deliver to the IAF. Going by some reports, the indigenous content in the aircraft manufactured in India is expected to go up to 60%, which will benefit the smaller Indian companies in the project’s supply chain, apart from the invaluable manufacturing capability TASL, as the Indian Production Agency (IPA), would acquire in the process.
Third, the initial numbers may be small but as Airbus Chief Executive Dirk Hoke said last November, IAF’s requirement could eventually grow up to ‘at least 150 and beyond’ and the prospect of the aircraft being exported from India looked bright. Considering that only 179 aircraft are currently in service in 15 countries, the claim may sound a bit ambitious, but it cannot be dismissed as fanciful.
It is ‘a new-generation tactical airlifter in the light and medium segment’, with a range of 2,000 nautical miles (with 6.0 tonnes of payload) and capability to remain airborne for 11 hours. It has a load capacity of 71 troops, 50 paratroopers and five pallets. These features make it a strong contender for replacing the IAF’s fleet of 132 Russian AN-32 transport aircraft in due course.
The C-295 aircraft can also be used for VIP transport, medical evacuation, and other humanitarian missions. Some experts believe that Airbus and TASL could jointly design a variant of the aircraft customised for transportation and tourism. Ultimately, it is the versatility and affordability of the aircraft that not only opens opportunities for it in India but also provides it a competitive edge in the export market. This should help the MoD achieve the ambitious export targets it has set for the Indian defence industry.
Lastly, this was the first case – and probably the only one so far – under the ‘Buy and Make’ category in which the foreign vendors were allowed to select an IPA of their own choice from the private sector, subject to some bare minimum conditions being met. This was a sharp departure from the practice of the IPA being nominated by the MoD. Although the procurement procedure did not prevent a private sector IPA being nominated, the MoD never gathered sufficient courage to do so, opting instead to nominate one or the other defence public sector undertaking as the IPA in ‘Buy and Make’ cases to avoid any controversy.
Letting the foreign vendor select the IPA relieves the MoD of the arduous task of nominating an entity to undertake indigenous production. It also allows the vendors to choose their partners on commercial considerations rather than being forced into a tie-up they may not be comfortable with. Though the provision allowing the foreign vendors to choose the IPAs was included in the Defence Procurement Procedure 2016 and is also a part of the Defence Acquisition Procedure 2020, it is intriguing why the MoD has not made it the default option in ‘Buy and Make’ cases.
Looking back, the C-295 acquisition project was a path-breaking move. It was affordable, ensured private sector participation in a big project, allowed flexibility to the foreign vendor in selection of the IPA, had export potential, and, above all, met the IAF’s requirement. Hopefully, there will be no further impediments.
– The author is Ex-Financial Advisor (Acquisition), Ministry of Defence
