RK Tyagi, who retired as chairman of Hindustan Aeronautics Ltd (HAL) on Jan 31, talks to Ajai Shukla
Q. Many say HAL should transform from an agency that builds aircraft under licence, to a full-fledged platform developer?
Over the last two years, HAL has acted like a technology company, aggressively pursuing R&D (research and development). We are using company money for this; earlier, we would wait until the MoD sanctioned a project and money. In 2012 we had six patents filed. Today we own 1,072 patents.
Today one-tenth of HAL’s profit is being converted into an R&D corpus. This will fund development of specific technologies by private industry.
For example, we are developing two aero engines for our future helicopters. Our board approved Rs 400 crore, of which we have already spent Rs 100 crore. Similarly, we decided to fund development of the HTT-40 basic trainer since MoD funding is delayed. To expedite the Light Combat Helicopter (LCH) project, we funded the building of two prototypes to speed up flight-testing.
Since the aircraft industry badly needs skilled workers, we have partnered the National Skills Development Council (NSDC) in sponsoring a National Aerospace Skills Development Council. NSDC has contributed Rs 4.9 crore, we have put in Rs 25 lakhs.
Last month we registered a society for setting up an Aeronautical University. So we are going into R&D, technological collaboration and upgrading skills. We have converted a manufacturing company into an engineering company.
Q. Many believe HAL needs to be leaner with better manpower?
There was a long-held belief that HAL needs to be self-sufficient, rather than dependent upon the private sector. I have replaced this with the analogy of a train. HAL is the engine, while the private sector is like the bogeys. The engine alone delivers nothing, while the bogeys alone get nowhere. Today we connect with 2,400 Indian private vendors, mostly MSMEs.
HAL’s strategy is to develop intellectual property and hold the IPR, but outsource to private industry wherever possible. Our high-volume helicopter projects --- the Light Utility Helicopter (LuH) and Light Combat Helicopter (LCH) --- will be built using this model.
Q. How would you see the emergence of a private sector rival to HAL?
Aerospace is opening up and the government has adopted enabling policies. Private sector will inevitably enter and we are ready for competition. We are improving our systems, reducing costs and focusing on quality. Competition will make HAL leaner and better. But I can confidently say that, given our 75 years of experience, HAL is in competition only with HAL. If we can deliver on time, no one can touch us.
We have the ability to do this. For example, an order for 12 Dornier aircraft has been under process for over a year. Instead of waiting for the formal order, we decided to start manufacturing in anticipation. A week from now, when I get the order, I will deliver 6 Dorniers immediately.
Q. Why is this pro-activeness not evident on the Tejas fighter production line, where capacity needs expansion, but awaits orders from the IAF.
The Tejas’ initial operational clearance (IOC) was received in December 2013. I cannot start building until I receive the IOC standards. Within 10 months we have produced the first Tejas; the second will be ready in March.
Meanwhile, the IAF needs to form the squadrons; train manpower; prepare manuals and systems. So far only test pilots have flown the Tejas; now regular line pilots would be flying it. While the IAF does this, we will gradually increase production from two Tejas this year to six, then eight.
Meanwhile, we have approached the MoD to augment production capacity to 16 aircraft annually. Departing from past funding models, we proposed that HAL would invest 50 per cent of the Rs 1,300 crore needed. The IAF and navy have agreed to split the remaining cost between them.
Q. Is there a plan to productively utilize HAL’s enviable cash reserves?
We have cash reserves of about Rs 5,000 crore. The media has reported figures of up to Rs 20,000 crore, but that include advances from customers against orders placed. Our free reserves are just Rs 5,000 crore.
Over the last two years, our Board has approved investments of Rs 7,000 crore. This includes the investment for manufacturing the LUH and LCH. We want to augment production capacity for the Dhruv Advanced Light Helicopter (ALH). We have earmarked land and other systems for building the Rafale fighter. I have mentioned the Tejas assembly line. In three years, we will start overhauling about thirty Sukhoi-30s each year, so I need to create that capacity too. In HAL Lucknow, the machines that we manufacture accessories on need to be replaced. We plan to spend our reserves on modernization.
Q. When will HAL’s disinvestment offer be made?
Disinvestment is a call taken by the owner of the company, which is the MOD. HAL, as a company, is ready for it. However, being in the defence sector, there will be confidential information that is not shared with the market and the lead managers.
My customers (the military) would not want to keep classified details of the equipment we make, and its quantities. The draft prospectus is ready and has been sent to the services. Once we receive their comments, maybe we’ll take a further call on this.
Q. Any indications on pricing?
HAL shares will be priced very suitably; and that means very high. Whoever is allotted HAL shares will own an outstanding investment. HAL is the only Indian defence company with a plan for the next 15 years, a future leadership pipeline, investment in modernization, and massive orders given India’s estimated requirement of 1,500 helicopters in the next five years. We have an order book of Rs 60,000 crore. We also have two A class airports: Nashik and Bengaluru.
Two days back, there was a meeting called to review the disinvestment process. Our company secretary had participated. We are awaiting clarification on certain issues, such as the number of independent directors on HAL’s board. Once those are sorted out, maybe the beginning of the next financial year could be the right time for disinvestment.