Wednesday, 31 July 2013

Admissions, obfuscations in Indian Air Force explanation on Business Standard reports



The IAF has issued a verbose "clarification" that is full of evasions and outright falsehoods

By Ajai Shukla
Business Standard, 31st July 13

Two news reports in Business Standard on Monday and Tuesday have elicited a “clarification” from the Indian Air Force (IAF).

The two articles (July 29, “Indian Air Force at war with Hindustan Aeronautics; wants to import, not build, a trainer”; and July 30, IAF diluted at least 12 benchmarks for trainer aircraft) reported on a letter from Indian Air Force (IAF) chief, Air Chief Marshal NAK Browne, to Defence Minister AK Antony, requesting that a contract for 106 trainer aircraft be awarded to Swiss company, Pilatus. Hindustan Aeronautics Ltd (HAL), which is currently developing the trainer, should be stripped of the contract, says Browne.

The news reports are based on documents available with Business Standard.

They report Browne’s unprecedented assault on HAL, which he has accused of misrepresenting the cost of their trainer --- called the Hindustan Turbo Trainer–40 (HTT-40) --- and of being incapable of delivering it on time to the IAF.

Browne has written to Antony that the HTT-40 would cost Rs 43.59 crore apiece at 2011 prices and, after factoring in forex escalation and inflation, would cost Rs 59.31 crore in 2018 and Rs 64.77 crore in 2020.

The IAF chief contrasts this with the cost of the Pilatus PC-7 Mark II, which he claims costs just Rs 30 crore apiece.

That figure of Rs 30 crore is incorrect. The cost of the PC-7 Mark II is derived from the IAF’s contract for 75 PC-7 Mark II trainers, signed on May 24, 2012 for Swiss Franc 557 million (Rs 3,606 crore). The contract specifies that each trainer would cost Swiss Francs 6.09 million. Since payment is linked to delivery, the cost of each PC-7 Mark II is touching Rs 40 crore today.

The news reports also reveal that at least 12 changes were made to performance benchmarks for the basic trainer the month after it was decided to buy 75 out of the IAF’s overall requirement of 181 trainers from the global market, while HAL developed the remaining 106.

Surprisingly, the performance benchmarks that were imposed on HAL (in a March 2009 document called the Preliminary Staff Qualitative Requirements, or PSQR) were exceptionally stringent. These were subsequently diluted, the month after it was decided to buy abroad, and issued in Oct 2009 in a document called the Air Staff Qualitative Requirements (ASQR).

In a happy coincidence, the diluted ASQR allowed the PC-7 Mark II to qualify (it did not meet the PSQR requirement, which had been imposed on HAL). Without that dilution, Pilatus would have had to field the PC-21, a costlier trainer that would have been unlikely to be the lowest bidder. Making the PC-7 Mark II technically compliant by lowering the specifications brought a low-cost trainer into contention.

Meanwhile the other trainers that qualified --- the Korean Aerospace KT-1; and the American Hawker-Beechcraft T-6C Texan-II --- were qualitatively better (meeting the PSQR requirements), but also more expensive. The PC-7 Mark II won the contract as the cheapest trainer that met the (lowered) specifications.

Comments were sought from the IAF before each news report, but it chose to remain silent. Today, the IAF has responded with a lengthy “clarification”.

The IAF’s first response is that the stringent benchmarks in the PSQR that was imposed on HAL in Mar 2009 were only “Desirable” parameters for the trainer, not “Essential” parameters. In lengthy citations of the Defence Procurement Policy, the IAF tries to suggest that there was no dilution of QRs, only a legitimate paring of “Desirable” parameters.

This is not a valid argument. The PSQR, of which Business Standard has a copy, does not differentiate between “Essential” and “Desirable” parameters. All parameters are listed together, with no differentiation.

HAL officials, speaking anonymously, confirm that, until the parameters were diluted in the ASQR issued in Oct 2009, the HTT-40 was being built to meet all the parameters in the PSQR.

The IAF also suggests that no rules were broken, since the PSQR was revised downwards along with the ASQR, after benchmarks were lowered in Oct 2009. “The amended ‘PSQR’ after ratification by (the MoD) on 01 December 2009 were issued to HAL… Therefore, as on date, PSQR and ASQR are similar.

That neatly sidesteps the essential point of the news report --- which was that performance benchmarks were irregularly lowered when it came to a global buy. The PSQR was lowered, as was the ASQR. It matters little that they are similar today. In that respect, the IAF confirms a key point made by Business Standard.

The IAF seeks to validate the selection of the PC-7 Mark II by stating, “It needs to be noted that the (tender) for BTA received maximum responses generating the largest competition in aircraft procurement in recent history, wherein M/s Pilatus was one of the three vendors who met all ASQR and… emerged as the L1 (lowest bid) vendor on the basis of their commercial offer.”

This evades the point that lowered benchmarks appear to have allowed the PC-7 Mark II to meet the specifications, introducing a low-cost aircraft into the contest.

The deal was held up for almost a year after the Korean defence minister wrote personally to Antony requesting him to intercede. An internal MoD investigation eventually gave a go-ahead.

The IAF also suggests that the compromise made in crucial safety specifications, by removing the need for a “zero-zero” ejection seat (which allows the pilot to bail out even while the aircraft is stationary on the ground) was done because “retaining the ASQR of 0-0 ejection seat would have narrowed the competition to only two vendors.” Lowering the specifications “ensured that more than seven vendors remained in the competition.”

On the one hand, this argument accepts that specifications in even “Essential” parameters were lowered. However, the Defence Procurement Procedure (DPP) nowhere states that important safety compromises can be made to generate competition. And the fact is that the PC-7 Mark II does not have a “zero-zero” ejection seat.

The IAF also tries to justify its dilution of multiple criteria reported by Business Standard by responding that “both the ASQR and current PSQR” do not stipulate requirements for parameters like cockpit pressurization; external vision criteria; in-flight simulation (for simulating failures); take off within 1000 metres; and maximum speed of 450 kmph.

That the ASQR and current PSQR have identical benchmarks does not exonerate the improper dilution of benchmarks in the “current PSQR” after taking a decision to buy the basic trainer from the global market.

In other respects --- as evident from the Pilatus PC-7 Mark II webpage on the internet --- the IAF “clarification” contains outright falsehoods. It claims that “the maximum speed of the PC-7 Mk Il is 555 kmph and not 448 kmph as falsely stated in the news article.”

In fact, as is well known, the maximum speed of an aircraft is calculated in level flight at sea level and the Pilatus website (http://www.pilatus-aircraft.com/#46) states that this is 448 kmph.

The IAF “clarification” admits that the IAF chief gave out false figures in his letter to the RM, since the current exchange rate was not factored in. The IAF now says the PC-7 Mark II would cost Rs 38.3 crore. And it now says the HTT-40 would be 25 per cent more expensive than the PC-7 Mark II.

Browne’s letter to Antony had stated, “As per the contract, the unit price of PC-7 Mk II is INR 30 Cr for the mean delivery year of 2014. The aircraft would be supplied at the same cost up to 2017 under the “Option Clause”. Hence the HTT-40 will be more expensive to the IAF when compared with the PC-7 Mk II by over 89% from 2018 onwards.”

“It is unprecedented for a service chief to present incorrect figures to the Raksha Mantri,” says a senior MoD official anonymously. “And what makes this doubly damning is that the air chief is using incorrect figures to make a case for a foreign vendor.”

Tuesday, 30 July 2013

Air Force diluted at least twelve benchmarks for trainer aircraft, allowing Pilatus into the contract



Air Chief Marshal NAK Browne, first as Deputy Chief and now as IAF Chief, has been surprisingly nice to Pilatus

By Ajai Shukla
Business Standard, 30th July 13

Former Indian Air Force (IAF) head, Air Chief Marshal SC Tyagi, faces a CBI charge sheet for allegedly diluting a single specification of the VVIP helicopter that India was buying. In the so-called Air Staff Qualitative Requirements (ASQR), the helicopter’s service ceiling was lowered from 6,000 to 4,500 metres. This made the AW-101 helicopter eligible and its Anglo-Italian manufacturer, AgustaWestland, bagged the Euro 556 million (Rs 4,377 crore) IAF contract for 12 helicopters.

That violation, now under investigation, is dwarfed in the IAF’s purchase of the Pilatus PC-7 Mark II basic trainer aircraft (BTA), where at least 12 benchmarks were changed between March and October 2009, including some relating to pilot safety. But they allowed the PC-7 Mark II, fielded by Swiss company Pilatus, to qualify and win an IAF order worth US $640 million (Rs 3,780 crore) for 75 BTA.

Business Standard is in possession of the documents relating to this case. Contacted for comments, the IAF has chosen not to respond.

The documents reveal that, up to Sep 29, 2009, Hindustan Aeronautics Ltd (HAL) was indigenously developing 181 BTA for the IAF, dubbed the Hindustan Turbo Trainer–40 (HTT–40). On Mar 5, 2009, the IAF laid down stringent performance benchmarks --- dubbed “Preliminary Air Staff Qualitative Requirements”, or PSQR.

But these began getting diluted in Sept 2009, when the MoD permitted the IAF to import 75 BTA through a global tender. Within days, the IAF issued relaxed criteria, termed “Air Staff Qualitative Requirements”, or ASQR, in a document numbered ASQR 18/09. While the Pilatus PC-7 Mark II would not have met the earlier PSQR that were formulated for HAL, the new ASQR seems almost to be tailored for Pilatus.

Amongst the twelve dilutions that Business Standard has identified, the most worrisome is doing away with the requirement for a “zero-zero ejection seat.” This allows pilots to eject even from a stationary aircraft on the ground (zero altitude, zero speed). The Oct 2009 ASQR does not require a zero-zero ejection seat. Since the PC-7 Mk II has “zero-sixty” ejection seats, i.e. the aircraft must be moving at sixty knots (110 kmph), dropping the requirement for zero-zero ejection seats made it eligible for the IAF contract.

The PSQR of Mar 2009 required the BTA to have a pressurized cockpit, letting the trainee fly at altitudes above 15-20,000 feet. But the ASQR of Oct 2009 dispensed with this requirement. The PC-7 Mark II has an unpressurized cockpit.

Also diluted was the requirement for good external vision from the instructor’s rear cockpit, a crucial attribute in a BTA. The PSQR of Mar 2009 mandated a field of view of “minus 8 degree vision” for the rear cockpit. But the ASQR of Oct 2009 dispensed with that, specifying only that, “the rear cockpit should be sufficiently raised to allow safe flight instruction.” The PC-7 Mark II, which does not meet the 8-degree specification, became eligible.

“Glide ratio” is another important attribute for a light, single-engine aircraft. The glide ratio of 12:1, specified in the Mar 2008 PSQR, meant that the trainer could glide, in the event of an engine failure or shutdown, a distance of 12 kilometres for every one kilometre of altitude that it lost. That would enable a BTA that was flying at an altitude of 5 kilometres to glide for 60 kilometres, landing safely at any airport within that distance. But the Oct 2009 ASQR relaxed the glide-ratio requirement to 10:1. That is precisely the glide-ratio of the Pilatus PC-7 Mark II.

The ASQR of Oct 2009 also relaxed the requirement for “in-flight simulation”. This permits the instructor in the rear cockpit to electronically simulate instrument failures, training the rookie pilot to handle an emergency. The PSQR of Mar 2009 required “in-flight simulation” facilities; and the HTT-40 currently being developed by HAL also has these. But the PC-7 Mark II does not, and the relaxation of this condition made it eligible for the IAF tender.

Other relaxations that made the Pilatus trainer eligible include: increasing the take-off distance from 700 to 1000 metres; and reducing maximum speed from 475 kmph to 400 kmph.

On Monday, this newspaper had reported (“Indian Air Force at war with Hindustan Aeronautics; wants to import, not build, a trainer) about a personal letter earlier this month from Air Chief Marshal NAK Browne, the IAF chief, to Defence Minister AK Antony, asking for HAL’s trainer project to be scrapped and another 106 PC-7 Mark II trainers be imported from Pilatus, a purchase that will benefit the Swiss company by an estimated $800 million (Rs 4,750 crore).

Browne’s involvement with the basic trainer dates back several years. From Mar 2007 to May 2009, he was Deputy Chief of Air Staff (DCAS) at IAF headquarters, handling all IAF acquisitions. Four months after he handed over to Air Marshal NV Tyagi (not to be confused with the former IAF chief, SC Tyagi), the IAF issued the ASQR, with the relaxations that benefited Pilatus.

Contacted for comments, NV Tyagi told Business Standard that the PSQR of Mar 2009 set unrealistically high standards for HAL to meet, but those were lowered in the Oct 2009 ASQR because the IAF was going in for global procurement. Lower standards would bring in more vendors and generate competition.

Says Tyagi, "The earlier PSQRs matched the performance of the Embraer Super Tucano, which many IAF officers considered a good trainer. But the IAF didn't believe that HAL could build such a trainer quickly. After a series of HPT-32 crashes [then the IAF’s basic trainer] it was decided in September 2009 to buy 75 basic trainers from the global market. Fresh QRs were framed in order to bring as many vendors as possible into the tender."

It remains unclear why exacting standards set for a HAL-built trainer were lowered when it came to an international purchase.

Monday, 29 July 2013

Air Force at war with Hindustan Aeronautics; wants to import, not build, a trainer




In a letter to defence minister, IAF chief criticizes HAL’s proposal to design and build aircraft for rookie pilots

By Ajai Shukla
Business Standard, 29th July 13

Indian Air Force (IAF) chief, Air Chief Marshal NAK Browne, has assailed Hindustan Aeronautics Ltd (HAL), which builds most of the fighter aircraft that the IAF flies. Writing directly to Defence Minister AK Antony in the first week of July, Browne has savaged HAL’s proposal to design and build a basic trainer aircraft (BTA) for rookie IAF pilots. Rejecting the HAL proposal, Browne has urged Antony to import 106 PC-7 Mark II trainers from Swiss company, Pilatus. These will be over and above the 75 trainers already contracted for US $640 million (Rs 3,780 crore).

Business Standard has a copy of Browne’s five-page letter to Antony. Contacted for comments, the IAF and HAL have both chosen to remain silent on the issue.

At stake is an estimated $800 million (Rs 4,750) for Pilatus, if Antony accepts Browne’s recommendation to give the Swiss company, rather than HAL, the 106-aircraft order.

On Sep 29, 2009, the ministry of defence (MoD) had cleared the acquisition of 181 BTAs for the IAF. 75 were to be procured internationally, a contract that Pilatus controversially won. Meanwhile, HAL was to design and develop 106 BTA in India.

Now the air chief has requested Antony, “To meet the immediate flying training requirements of the IAF, the ‘Option Clause’ be exercised to procure 38 PC-7 Mk II from M/s Pilatus Aircraft Ltd, as directed by [the MoD] on 29 September 2009. The subsequent requirement of 68 BTA could be met through Repeat Procurement.”

Repeat Procurement is the simplified, swift procurement of equipment that is already in Indian military service. User trials are dispensed with.

Browne argues that HAL, in its detailed project report to the MoD, has underpriced the HTT-40. Rubbishing HAL’s projected cost of Rs 32.70 crore per aircraft, Browne says the HTT-40 will actually cost Rs 43.59 crore at 2011 prices.

The extra cost per aircraft, according to Browne, includes Rs 1.81 crore as the cost of production; and Rs 7.11 crore as the cost of design & development, of which the IAF must pay 80 per cent. A 16 per cent rise in the cost of the dollar will add another Rs 1.97 crore per aircraft, taking the price up to Rs 43.59 crore.

Then Browne adds 4.5 per cent annual inflation to these prices, which are on a 2011 base. That raises the HTT-40’s per unit cost to Rs 59.31 crore in 2018 (when the HTT-40 would start being delivered) and Rs 64.77 crore in 2020.

In contrast to this gloomy forecast, Browne paints a rosy picture for the PC-7 Mk II, stating that Pilatus costs just Rs 30 crore per aircraft, a price that will apply also to the “options clause” for another 38 PC-7 Mk II. “Hence the HTT-40 will be more expensive to the IAF when compared to the PC-7 Mk II by over 89% from 2018 onwards,” writes the IAF chief.

In fact, the Pilatus contract freezes the price only for the next 38 trainers under the “options clause”, but the final tranche of 68 aircraft would be negotiated afresh, subject to inflation and forex variations. Furthermore, since the forex component of the PC-7 Mk II is 100 per cent, compared to just 30 per cent for the HTT-40 (Browne’s figures), any adverse change in exchange rates would escalate Pilatus’ cost far more than HAL’s.

Surprising experts also is the IAF chief’s inexplicable oversight in omitting any mention of decades of heavy payout to Pilatus for maintenance, overhauls, spares and upgrades. With the MiG-21, MiG-27, MiG-29 and the Mirage 2000, these cost up to ten times as much as the initial purchase cost of the aircraft.

Amit Cowshish, former Financial Advisor (Acquisition) & Additional Secretary with the MoD says, “Over the service life of a foreign aircraft, its spares, maintenance, overhaul and upgrade from abroad could cost several times more than the basic cost of the aircraft, as we saw with many IAF fighters. It is impossible to contractually bind a vendor down to fixed prices for spares, upgrades and overhauls over the entire life cycle of the platform, which might stretch over decades. The actual cost incurred over years could be much more than what was anticipated at the time of purchase.”

Nor does Browne’s letter put a price on the design and manufacturing expertise that the HTT-40 would generate in India, and on the eco-system of vendors and sub-vendors that would be created, generating high-tech jobs and expertise.

HAL, usually on the defensive against the IAF, has reacted defiantly. Business Standard learns that work is underway on the HTT-40, financed by Rs 150 crore that HAL’s board has committed from internal funds. HAL says that foreign buyers would be interested in the trainer even if the IAF is not. So too would the navy and army, whose expanding aviation wings would lead to them training their own pilots instead of continuing to rely on the IAF.

HAL designers also claim that the HTT-40 will be far more capable and versatile than the PC-7 Mk II, which is a de-rated version of the PC-9 trainer. The HTT-40 will be a weaponised trainer that is also a light attack aircraft. For political reasons, Pilatus removed the weapons hard points from the PC-7 Mk II trainers that they sold the South African air force. The same is true for the BTAs sold to India.

The air chief’s letter cites HAL’s record of delays, specifically mentioning the Light Combat Helicopter and the Light Utility Helicopter. Browne charges, “HAL routinely seeks approval for a small project completion period… without achieving it.”

The IAF chief cites the MoD’s ruling in 2010 that more Pilatus trainers would be bought if the HTT-40 had not yet flown by the time the first Pilatus trainers were delivered to the IAF. Today, 14 Pilatus trainers have already been delivered, and Browne claims that Pilatus will deliver 30 trainers per year to the IAF.

On July 8, the first IAF batch of trainee pilots began learning to fly on the Pilatus PC-7 Mark II at the IAF Academy at Dindigul, near Hyderabad.

Saturday, 27 July 2013

France treads carefully on Rafale, high stakes for Dassault


Defence Minister AK Antony with his French counterpart, Jean-Yvonne Le Drian in New Delhi on Friday, 26th June

By Ajai Shukla
Business Standard, 27th July 13

A day after the chief of French aerospace giant, Dassault Aviation, emphasized the criticality of an early Rafale contract with India, French Defence Minister Jean-Yves Le Drian on Friday highlighted the hard strategic decisions imposed by his country’s declining defence budget --- which made India’s early purchase of the Rafale so crucial for Dassault.

Le Drian, on a two-day visit to India, was speaking in New Delhi on the French White Paper on Defence and National Security, issued by Paris two months ago.

The 2013 White Paper recognizes that France has neither the means, nor the strategic will after Afghanistan, to exert influence across the globe. Defence spending has been cut to well below the NATO-recommended level of 2 per cent of GDP, potentially irking France’s NATO allies. The 2,80,000 strong military will be slashed by 34,000 personnel.

Rather than a fringe role in the US “Pivot to Asia”, Paris is adopting a “Euro-Atlantic-African Pivot”, focusing military attention on Europe, West Asia and the African Sahel, its old colonial stomping ground just south of the Sahara.

No major weapons programmes have been cancelled, but several have been pared down, including the French fighter force. Instead of 300 Rafale and Mirage 2000-D fighters envisioned in the 2008 White Paper, France must make do with just 225 fighters. For Dassault, this means fewer orders for the Rafale. The fleet of 294 Rafales originally planned is now a distant memory. The French army and navy have actually ordered only 180 Rafales, of which about 120 have been delivered.

The French government says it will not order more Rafales and that Dassault’s manufacturing line would continues running only if foreign orders came in. For Dassault, the challenge is to bag at least one big foreign contract --- India would be ideal --- before the line shuts down on completion of the French order.

Paris has obliged Dassault by accepting just 11 Rafales per year, which is the minimum number needed to keep the production line rolling. In 2009, production was cut from 14 Rafales per year to just 11, to keep the line open for longer.

Paris knows that the survival of France’s defence industry --- some 4000 companies --- increasingly depends on exports, given declining defence budgets. Rafale export orders are crucial for giants Dassault, Thales and Snecma and for 500 smaller sub-contractors. The Rafale generates 7000 French jobs, directly or indirectly.

Besides 126 fighters to India, Dassault hopes to sell Brazil 36 Rafales, Kuwait 28, Qatar 24-36, and the UAE 60 fighters. The company has lost procurement contests in Algeria, Greece, Morocco, The Netherlands, Norway, Oman, Saudi Arabia, Singapore, South Korea, Switzerland and the UAE (where it could still win a subsequent order).

Some of these buyers are watching India’s decision-making keenly. Dassault believes that an Indian contract would precipitate orders from others.

But nobody knows better than Dassault that the future of the Rafale is not indefinite. The company is leading an international consortium to develop an unmanned combat aerial vehicle (UCAV) called the nEUROn. As UCAVs become technologically viable, they will increasingly replace manned fighters in procurement calculations.

Given the high stakes for Paris, and for Dassault, in the IAF’s Rafale purchase, Le Drian responded in a measured manner to questions about the delay in concluding a contract. “We have to abide by the procedures of the Indian state. It deserves time to explore, check, ensure that things are rightly done so that two years down you don’t face a blockage or impasse,” he said.

On Saturday, Le Drian will travel to Gwalior to visit the IAF’s three squadrons that fly the Mirage 2000 fighter. In 2011, French company, Thales, bagged a US $2.4 billion contract to upgrade India’s Mirage 2000 fleet, a contract that is currently being executed.