The Rafale connection
SAMTEL HAL Systems was incorporated in 2007 as a joint venture between the Delhi-based SAMTEL group and HAL, with the later holding 40 per cent. The venture received its first order in February 2008 to build multi-functional five- and six-inch colour displays for the Sukhoi 30 MKI aircraft of the Indian Air Force. French aircraft maker Dassault had also mentioned SAMTEL as one of its other vendors in the Rafale deal inked with India. By 2011, the order books of the joint venture had touched almost Rs 41 crore.
However, the initial good days seem to have run their course, with the joint venture having lost its net worth. In 2017-18, it posted a loss of a little over Rs one crore on revenues of Rs 12 crore.
HALBIT Avionics was set up in 2007 as a joint venture between HAL, Israeli defence firm Elbit and a Bengaluru-based company called Merlinhawk Aerospace, which itself was incorporated in 2002. HAL held half the shares in this venture for building aircraft simulators for clients in India and abroad. For the Indian Air Force, the venture incorporated in 2007, was to build simulators for the Mirage 2000 aircraft which had been in operation with IAF since 1985. In 2017-18, the company had a negative cash flow in addition to losing its net worth, and had revenues of just around Rs four crore. The company’s auditors expressed their doubts on whether this venture could carry on business operations. Its continuance, according to HAL’s filings, depends on payments by some parties it had entered into supply contracts with.
HATSOFF Helicopters Training was incorporated a year later in 2008 as a partnership between HAL and Canada-based CAE Inc. This joint venture set up simulators in Bengaluru to train military and civilian helicopter pilots, which were operationalised in 2009. A 50-50 JV, the company posted revenues of almost Rs five crore in 2011-12, a couple of years into operations. It posted a loss of almost Rs 18 crore that year. This joint venture has managed to turn around its fortunes but has eroded its net worth through large borrowings. In fact, HAL stated in its filings, that HATSOFF Helicopters Training has defaulted on an external loan, it is in talks to restructure the loan with borrowers that may help the venture restore its financial health. Despite that, its performance last year was impressive, with the company earning a profit of Rs nine crore on revenues of Rs 42 crore.
HAL Edgewood, incorporated in 2007 with a US-based contractor, is the only company with negative net worth which is in the process of being wound up. The venture started operations sometime in 2009 by making hardware for the Open Architecture Mission Computer (OMAC) used in Jaguar aircraft of the Indian Air Force. A transfer of technology agreement was signed with a French company and revenue generation was expected to begin the very next year. By 2011, its order books had touched Rs 13 crore. However its product failed to get certification and the venture suffered losses. In 2017-18, the company is still awaiting purchase orders for 154 OSMAC units made by it for the upgraded Jaguars. But with the venture now being dissolved, it seems unlikely the Indian Air Force would be inclined to buy the equipment from it.
Of transport aircraft & failed partnerships
Tata HAL Technologies, which posted a loss of a little above Rs one crore in 2017-18 on revenues of Rs six crore, started off quite promisingly when it commenced operations in 2008. It bagged the first contract from the Tata group’s engineering business, Tata Technologies, the same year. In subsequent years, the company, which was started to design and build aero structures, also received letters of intent from Tata’s defence company, Tata Advanced Systems, and Italy’s Piaggio Aerospace. However, the promising contracts with one of India’s biggest and Italy’s oldest industrial houses failed to translate into success. By 2014, the company’s turnover was below Rs 10 crore and it was suffering losses. In 2017-18, regulatory filings show that the venture struggled to bag contracts with its net worth having eroded substantially. In September 2017, HAL’s board of directors finally decided to shut shop.
A similar fate awaited Multirole Transport Aircraft – an Indo-Russian joint venture formed in 2010 to develop a 15-20-tonne military transport aircraft. Though the venture was formed in 2010, an inter-governmental agreement for development of the aircraft was inked in 2007. By 2011, a 60-member strong design team was formed by HAL and trained in Russian language to work with engineers in Russia to develop the aircraft. By the beginning of 2014, the Indians and Russians were able to complete the joint technical preliminary design phase. The process of finalising contracts for detailed design, prototype fabrication and ground and flight testing was also started that year. However, the project went off the radar soon after. Finally in September 2017, in the same meeting in which the HAL board decided to wind up Tata HAL Technologies, it also decided to close Multirole Transport Aircraft. HAL has requested the government to call off the inter-governmental agreement with Russia so that it can go ahead with formally closing down the joint venture.
Infotech HAL was the only joint venture formed with a Singapore based company by HAL. Incorporated in 2007, this venture was to “undertake design services in the field of Aero-Thermo and mechanical design besides engineering, after market engineering and support for aero-engines” in addition to engineering design under “offset programmes.” By 2011, its order books hadn’t even crossed the Rs 50 lakh mark. By 2014, though its turnover had almost touched Rs three crore, the venture was yet to turn profitable for want of enough contracts. As of 2017-18, its net worth was just about Rs four crore and the venture earned less than Rs one crore in profits on an average over the last two years.
The strong performers
While many of HAL’s partnerships haven’t met with much success, there are others that are still going strong. One of them is BAE-HAL Software incorporated in 1993 – the oldest of the existing joint ventures. The other is Indo-Russian Aviation which was formed a year later in 1994. HAL, which presently owns a 49 per cent stake in BAE HAL Software has consistently earned dividends from this venture. The venture primarily develops software for applications in defence and it ran up losses of almost Rs four crore in 2017-18 on revenues of Rs 96 crore. Its revenues have almost doubled over the last decade. A similar story of strong financial performance and consistent dividends unfolds with Indo-Russian Aviation. Indo Russian Aviation which was incorporated in 1994 to maintain Soviet era aircraft after the breakup of the Soviet Union which includes maintaining India’s rapidly ageing MiG aircraft and its variants. For as long Russian aircraft continue to be in service with the Indian Air Force, its maintenance would continue to drive the venture’s bottom line. The ventures revenue was the same as BAE-HAL Software in 2017-18, but it earned a profit of Rs 96 crore on its revenues in contrast to the Indo-British joint venture.
Then there is Snecma HAL Aerospace, a 50-50 joint venture between HAL and France’s leading aircraft engine maker Safran (previously known as Snecma). Incorporated in 2005, the company’s main business was to manufacture engine parts. It commenced manufacturing engine parts in October 2006 and achieved break even within a couple of years. By 2012, its turnover had touched Rs 35 crore. Safran manufactures the M88 engines which are used in the Rafale fighter jet whose procurement has been finalised by India in an inter-governmental agreement with France.
The strongest joint venture of HAL is International Aerospace Manufacturing – a partnership UK’s Rolls Royce. It clocked revenues of Rs 170 crore in 2017-18 and earned a profit of almost Rs nine crore on it. Incorporated in 2010 to manufacture shrouds and casings for aircraft engines, HAL paid almost Rs 47 crore as an initial investment for a 50 per cent stake in the joint venture. It started production December 2012 and clocked a turnover of Rs 54 crore by 2014.
Under Modi: from manufacturing to academics
Under the Modi government, HAL has been more conservative in venturing into pure manufacturing. Instead HAL has been thrust into a more academic role with the formation of two joint ventures. One of them is Aerospace & Aviation Sector Skill Council (AASC) formed in 2014. In addition to HAL, the Bangalore Chamber of Industries & Commerce in addition to Society of India Aerospace, Technologies and Industries are the other promoters. Among other things AASC through its curriculum and training will “develop skill imparting delivery mechanisms, accreditation of training bodies leading to certifying of fresh trainees and retraining in order to ensure mobility into the latest technology of aerospace and aviation industry.” Then in 2016, a joint venture named Helicopter Engines MRO was formed with French engine maker Safran. The JV maintains and repairs helicopter engines in Bengaluru. Detailed financial information on this venture could not be obtained.
In 2017, another joint venture named Defence Innovation Organisation (DIO) was set-up with equal contributions from HAL and Bharat Electronics Limited (BEL). While both of them are military equipment makers with BEL even manufacturing Electronic Voting Machines (EVMs), the new venture will “implement the scheme of defence innovation fund by creation of an ecosystem to foster innovation and technology development in defence.”