Tata-Airbus C-295 Contract: A Cause for Celebration

The C-295 deal proves that India matters, irrespective of its regulatory flaws and sluggish decision making process. The unique contract breaks many a myth, creates a new and simpler paradigm for future deals, and provides invaluable lessons for the Indian aerospace sector to embark on an upward trajectory and position itself as an important manufacturing hub, well integrated with the global supply chain

By Amit Cowshish

Editor Opinion

After a decade of dithering, the ministry of defence (MoD) signed the contract with Airbus Defence and Space S.A., Spain on September 25 for acquisition of 56 C-295MW medium transport aircraft. This over Rs 21,000 contract will enable the Indian Air Force (IAF) to replace its aged ‘Avro’ fleet of Hawker Siddeley 748 transport aircraft it has been operating for the past six decades.

 

The contract requires Airbus to supply 16 C-295MW aircraft in a fly-away condition within four years and manufacturing another 40 aircraft in India within ten years. These aircraft will be manufactured in India in collaboration with the Tata Consortium. There are indications that more aircraft may be acquired for the Coast Guard later.

Besides plugging an operational void, this deal will generate direct and indirect employment -around 25,000 by some estimates- and give a fillip to the private sector in India. The latter spin-off is significant, considering that aircraft manufacturing has so far been the monopoly of the state-owned Hindustan Aeronautics Limited (HAL).

 

Designed in 1990s, the C-295 aircraft can carry up to 9 tonnes of payload, 71 personnel, or 50 paratroopers and operate from short or unprepared surfaces, making it possible for the IAF to reach the locations which cannot be accessed by the heavier transport aircraft it presently operates. The aircraft can also be used for logistic and tactical missions, cargo drops, medical evacuation, maritime patrol, and civil aviation.

The deal is a befitting reward for the Airbus’s remarkable perseverance since 2013 when the Request for Proposal (RfP) was issued for acquisition of medium transport aircraft. It is also a big boost for the Tata Advanced Systems Limited (TASL) which will emerge in due course as the only private sector company in India to have assembled an aircraft of any denomination

The deal is a befitting reward for the Airbus’s remarkable perseverance since 2013 when the Request for Proposal (RfP) was issued for acquisition of medium transport aircraft. It is also a big boost for the Tata Advanced Systems Limited (TASL) which will emerge in due course as the only private sector company in India to have assembled an aircraft of any denomination. The experience gained by TASL will hopefully equip it to undertake more ambitious aircraft manufacturing projects in future.

 

The time it has taken for the contract to be inked is mortifying but, considering the circumstances in which this project was conceived and the headwinds it faced on several occasions, it is no mean achievement that the deal has eventually seen the light of the day. This unique contract breaks many a myth, creates a new and simpler paradigm for future deals, and provides invaluable lessons.

First, it breaks the myth that the MoD is comfortable dealing only with the public sector companies which prevents the private companies from performing to its full potential in the defence production sector. In the present case, the Hindustan Aeronautics Limited (HAL), which would have been the first, and perhaps the only, choice for building the aircraft in India, was consciously kept out of the project by the MoD. Subsequent objections by a cabinet minister regarding HAL’s exclusion and several other internal hurdles were boldly overruled by the MoD, albeit after much dawdling.

It also breaks the myth that the MoD is uncomfortable with the single-vendor situations. This perception has persisted despite there being no absolute bar on single-source procurement in the successive procurement manuals

It also breaks the myth that the MoD is uncomfortable with the single-vendor situations. This perception has persisted despite there being no absolute bar on single-source procurement in the successive procurement manuals. In the present case, there was only one response to the RfP from Airbus which initially did cause some hesitation, but to the MoD’s credit, all misgivings on this count were later overcome.

Second, it demonstrates that a make-in-India project does not become infeasible only because the number of platforms or equipment to be manufactured locally is small. The IAF had this very apprehension which is why initially it proposed outright purchase of 56 aircraft under the Buy (Global) category. Everyone sort of assumed that it would be commercially unviable to seek transfer of technology for manufacturing just 40 aircraft in India.

During subsequent discussions, however, it was realised that besides the possibility of the MoD’s requirement going up beyond 56, the local and foreign civil aviation markets also offered good prospects for such an aircraft. Consequently, the procurement category was changed to ‘Buy and Make’, which entails outright purchase of a limited number of platforms from a foreign manufacturer, followed by local manufacturing of the remaining numbers by a MoD-nominated Indian Production Partner (IPP).

Both local industry and the foreign manufacturers evinced great interest in the project when a sub-committee formed by the MoD interacted with them while the proposal was being processed for approval. It, therefore, came as a surprise when only Airbus responded to the RfP issued by the MoD. Some contemporaneous media reports also pooh-poohed the project as being commercially unviable but, as mentioned earlier, Airbus did not dither and has now been rewarded for its perseverance.

the decision to permit the foreign vendors to tie up with the Indian private sector companies of their own choice to manufacture the aircraft in India was the result of collective out-of-box thinking by the MoD and IAF. This bold decision helped, as the MoD had no internal guidelines to select and nominate an IPP from the private sector, which is what the prevalent procedure required it to do

It demonstrates that even if the MoD’s requirement is insubstantial, the foreign equipment manufacturers may still be interested in setting up a manufacturing base in India-on their own or in collaboration with the Indian industry-if the project entails good commercial prospects in the military and civil markets in India and abroad.

Third, the trust reposed by Airbus in TASL as the IPP should inspire confidence among other foreign manufacturers, some of which continue to harbour reservations about the capacity of the local private sector to absorb technology and undertake complex manufacturing. It is also often argued that control over the management of the local production agency is essential for a foreign manufacturer to deliver quality products. The collaboration between Airbus and the Tata Advanced Systems Limited (TASL) proves that there is no basis for such apprehensions and that it is possible to work out a mutually acceptable arrangement.

Fourth, the decision to permit the foreign vendors to tie up with the Indian private sector companies of their own choice to manufacture the aircraft in India was the result of collective out-of-box thinking by the MoD and IAF. This bold decision helped, as the MoD had no internal guidelines to select and nominate an IPP from the private sector, which is what the prevalent procedure required it to do.

The inevitable conclusion is simple and straightforward. While every procurement project throws up unique challenges, it is possible to overcome them by out-of-box thinking and boldness in decision-making, which are sine qua non for ensuring that every project fructifies within the prescribed timeframe, provided sufficient funds are available for procurement.

– The author is Ex-Financial Advisor (Acquisition), Ministry of Defence. The views expressed are personal and do not necessarily reflect the views of Raksha Anirveda