Sunday, 30 November 2014

Purchase of Pilatus trainer aircraft deferred, future in limbo

Pilatus tells HAL to negotiate directly with sub-vendors for licences to use and maintain equipment

By Ajai Shukla
Business Standard, 30th Nov 2014

Last Saturday, the ministry of defence (MoD) postponed a decision on buying 106 PC-7 Mark II basic trainer aircraft from Swiss vendor, Pilatus, to supplement the fleet of 75 trainers already contracted for Swiss Francs 577 million (Rs 3,727 crore).

The defence ministry was not convinced by the IAF’s reasons for abandoning a 2009 decision to buy 75 trainers from the international market in the “Buy Global” category; while Hindustan Aeronautics Ltd (HAL) built 106 in the “Make Indian” category.

Now more reasons are emerging for being cautious about buying additional Pilatus trainers. It is unclear whether the IAF has informed the MoD of these.

With 53 PC-7 Mark II trainers already delivered and more on the way, Business Standard has learnt that Pilatus is shrugging off direct responsibility for their maintenance, repair and overhaul (MRO).

This after Pilatus charged the MoD 80.25 million Swiss Francs (Rs 515 crore) for maintenance knowhow to HAL in the contract signed on May 24, 2012. This so-called “Maintenance Transfer of Technology” (MToT) was to be formalised in a separate contract within three years.

With just six months left for that deadline, there is no contract in sight, only uncertainty about how the PC-7 Mark II trainers will operate over decades.

Pilatus has told HAL --- which will eventually maintain the PC-7 Mark II fleet through its service life after receiving maintenance technology --- to negotiate directly with sub-vendors for licenses to use and maintain their equipment.

Pilatus only assembles and integrates the trainer, using sub-systems bought from global vendors. That means HAL will now have to seek licenses from sub-vendors that include Pratt & Whitney; Honeywell Aerospace; Rockwell Collins; Claverham and Ontic.

Pilatus has flatly refused to be even a signatory to those licensing agreements.

According to Pilatus, the PC-7 Mark II has 159 sub-assemblies, which are called “line replaceable units” or LRUs (e.g. the engine supplied by Pratt & Whitney). The MToT contract drafted by Pilatus covers just 65 LRUs. Pilatus says 72 LRUs are non-repairable, which should just be thrown away when they go bad. Seven more LRUs are the responsibility of the IAF; while the remaining 15 items are on various countries’ “export control lists” and would have to be stocked in advance.

Pilatus wants HAL to negotiate individually with 29 global vendors that provide the 65 replaceable items. There is no telling what price they will demand. When Pilatus charged Swiss Francs 80.25 million for MToT, it did nothing to bind the sub-vendors to conform to this price.

With foreign vendors confident that the IAF has nowhere else to go, they are negotiating for fees much higher than had been budgeted.

Contacted for comments, Pilatus cited a confidentiality agreement with the MoD, but stated that, “suffice it to say that we are working on this diligently to achieve an acceptable outcome for the GOI and IAF. As Pilatus does not hold authority over the individual companies regarding licensing of other vendor IP rights, it is using its best endeavors to mediate between each company and HAL to reach an acceptable position.”

A key vendor, Honeywell, admits it is in “active discussion with HAL on this program” for a “licensing arrangement”. Another vendor, Rockwell Collins, declined to comment.

When the main contract was being negotiated, HAL had alerted the IAF to clearly list Pilatus’ maintenance responsibilities. However, with the IAF eager to seal the contract, Pilatus’s obligations remained vague.

Now the IAF itself is passing the buck to HAL. In emailed comments, the IAF stated, “The MToT of Pilatus was negotiated at contract negotiation stage by a team of HAL specialists headed by a GM level officer…  It will be a prudent to ask HAL as to why they have not signed the MToT contract with Pilatus.”

Within six months of the contract, Pilatus made it clear it would assume minimal responsibilities. On November 30, 2012, a draft contract from Pilatus proposed to confine MToT to facilities set up by HAL.

Pilatus repudiated responsibility for renewing original equipment manufacturer (OEM) licences, updating technical documents, software upgrades and maintenance of special tools and test equipment --- which are standard MToT components. For these India would require separate contracts at extra cost, over and above the 80.25 million Swiss Francs the main contract specified for MToT.

Under Pilatus’ draft contract, India will have to pay for establishing maintenance facilities like the Engine Test Bed. Pilatus would only provide the design.

According to established norms, aircraft acquisition contracts include aspects of maintenance, including details of initial repair kits, base spares, and licensing and escalation mechanisms for 30 years.

(This is the concluding part of a two-part series on the Pilatus trainer)


NIKHIL said...

Nice incisive writeup, Ajai.

Anonymous said...

This is why we need to be independent. It is easy to blame HAL. Question is why does IAF have no design support directorate like Navy. This need to be command that us pre requisite fir everyone wanting to be Air Chief.
About Rafake, it is Shame fir Air chief to say there us no Plan B . He needs to be ordered to make one.

Anonymous said...

Ha Ha Ha .. I think the IAF has ended with the egg on its face with the entire Pilatus deal.

IAF wanted to give HAL a message that it cannot design even a basic aircraft - so IAF pulled a fast one by buying something off the shelf. IAF did not give two hoots about the long term implication and the overall future of the aircraft.

I wont be surprised if in 10 yrs these a/c are sitting on the tarmac as the Swiss have told IAF and HAL to take a hike.

Maybe the Base repair depots of IAF will open a production line for those spares ..

Haste makes waste..

Anonymous said...

Excellent... Life Cycle cost... murky pocket deals... will come... fore...

Anonymous said...

Several nations has been able to purchase and operate Aircraft from Pilatus and be satisfied with the terms. Why would India be any different?

Anonymous said...

Even if the maintenance contracts end up costing 2 to 3 times of 80.25 million Swiss Francs Pilatus charged for MToT its still peanuts given the implications of waiting 10 years for HAL to deliver something usable.
Nobody said international quality was cheap. No point crying now when we(HAL) should have woken up 10 years ago.

Anonymous said...

Kick the ass of NAK Browne, but he is now Indian Ambassador to Norway, great!!

Anonymous said...

why was Pilatus ordered when the korean KT-1 was a cheaper option in a long run and was better on the specifications, and that too after KAI offering to work with HAL in developing the HTT-40??? was it to shut down the development of HTT-40. Why was pilatus brought even after knowing the mess that we have to deal with in regards to LRU's??? who got paid and how much???

Anonymous said...

What a load of gibberish. And this is how one’s credibility erodes.

1.‘Now more reasons are emerging for being cautious about buying additional Pilatus trainers. It is unclear whether the IAF has informed the MoD of these.’

Logically, if you, my friend, have reasoned this out, then so can MoD and therefore there is no need for IAF to inform MoD. If the reasons have emerged naturally and you can see them then so can MoD. On the other had if you have been drip-fed this information, guess what MoD has a full blown intelligence apparatus to-gather ‘these’ information.
So pleases stop trying to play MoD against IAF.

2.‘With just six months left for that deadline, there is no contract in sight, only uncertainty about how the PC-7 Mark II trainers will operate over decades.’

First you try to induce panic among your readers by using words like ‘uncertainty’ then you meekly present the fact quoting IAF that HAL is responsible for MToT.

If anything, logic commands that the parties negotiating MToT are solely responsible for hashing out the differences. If there was a problem with the maintenance of the PC-7 airplanes then why didn’t HAL flag it up before the purchase?

3.Col. Shukla, at the end of the day you have to realise that HAL is in direct competition with Pilatus over BAT for IAF and therefore there is an inherent conflict of interest between the two parties. HAL will do everything it can to undermine Pilatus and Pilatus will do everything it can to undercut HAL. HAL is no angel-with-wings (pun not intended), it will try its best to malign Pilatus.

As an agency that is taking up the maintenance HAL should have acted well in advance if there were guanine reasons for concern. Since these are coming out only now, and through you, timing and channel both are suspects here.

And one last thing my dear friend, if I may, by now you must start realising where HAL’s core competency lies, it is not in designing a world beating fighter jet nor is it in manufacturing the best helicopter for its users but it is in politicking endlessly at the cost of national interest.

Ram Bharadwaj said...

Shocking and surprising to know how IAF and MOD can do this blunder. I think this MRO and spares issue is with all major imported platforms be it Su-30MKI, Hawk AJT, Mirage-2k, the entire Mig Family or our frigates and tanks.

OEM's always want to over charge on MRO and spares. It is the result of not encouraging our industry in areas of electronics, precision engineering, etc.

HAL HTT-40 is also a cocktail of imported components.

Tough days ahead for Indian Armed Forces

Anonymous said...

I think Ajai your assessment is biased.
First of all for signing of any contract MoD is equally responsible. Joint secy level officer heads the CNc and he is fully aware of all nitty gritties.
Secondly , was HAL so naïve that it couldnot see through MToT reqms at Contract negotiation stage of main contract. It clearly reflects lack of professionalism with HAL.
Thirdly IAF is user force, putting blame squarely on them is not correct.
I think you have been fed with this article from HAL sources . It exposes inadequacy of professionalism in HAL for sure

Anonymous said...

If pilatus has any sense, they would resolve this dispute with the concerned authorities,not only they will loose a very good buyer, but put doubts in other buyers mind also because this will not be there last product which they will be manufacturing

Yash Thakur said...

One should ask why is the IAF so keen to become a maintenance garage even after 70 years of independence...why does it need to keep BRDs alive with a productivity of 3 hours per day per person...does any one know whats the cost analyses of the man hours at IAF and no of personnel involved? when was the last time we saw iaf speaking of slimming down???

Anonymous said...

Mr Anonymous...

you are defending the IAF making 106 aircraft at a cost of Rs 8700 crores in total and backing the IAFs wise decision as well..

can anybody explain how the Rs 30 crore cheap trainer become a 80- crore swiss piece now....

I should commend you Ajay for being honest and different from the other so called parrot faced Defence continue to serve the uniform and after that as well... kudos...

Roy said...

What the IAF has been doing is criminal. Half a decade ago it was decided to go for the buy route for the immediate requirement and take the development route to meet the rest of the required 180, with HAL.How is the MOD even allowing the IAF to think about buying out more PC7 mk2 when the indigenous development should be supported earnestly. On one side the prime minister is trying to promote 'make in india' and the same country's air force wants to bat for more made in swiss trainers. In my opinion, the IAF should do more to support indigenous design & developement instead of lobbying to buy more PC7s

Roy said...

The swiss chaps won't be content until they have milked the maximum out of the basic trainer deal. When the videshis sell you something, they have long term plans, very long term!

Anonymous said...

Ajay have been following your blog for past 2 years and i should admit the one of the few journos who fight for indegenous facts....

very well covered and non biased...
shame that men in blue uniform want everything imported and want to put a cloak of make in India by asking pvt players to merely assemble it...

Thanks Ajay,..