Politics or Not, Cash-Strapped HAL Struggles For Survival

HAL is sitting on a dwindling order book.

View of the assembly line of the Rafale jet fighter in the factory of French aircraft manufacturer Dassault Aviation, in Merignac near Bordeaux, southwestern France.

Photo: Reuters

In a first in many years, cash-strapped Hindustan Aeronautics Limited (HAL) has been forced to borrow money to pay its employees.

This is even as the politics over Rafale has been brewing in Parliament for hours during the ongoing Winter Session. Congress President Rahul Gandhi on Friday, 4 January, reiterated that the Modi government “snatched” opportunities for growth away from HAL by influencing Dassault to select Reliance Defence as an offset partner instead of them. Defence Minister Nirmala Sitharaman, on the other hand, accused the Congress of shedding “crocodile tears” after doing nothing to invigorate the company while the UPA was in power.

With no funds to make fresh purchases or pay existing vendors, HAL is under threat of having operations slow down considerably by April.

The acquisition of the Dassault Rafale fighter aircraft might be in the eye of a political storm in the country, but for HAL, the deal was beyond politics. It was a matter of survival. With their existing orders ending by as early as 2020, the offset from Rafale was one of the hopes for this Public Sector Undertaking (PSU) to better their kitty of orders.

The Departing Cash Cows

In September last year, former HAL chairperson TS Raju had called HAL’s order book of Rs 41,000 crore ‘very very low for aeronautical industry’. Even after a year, things haven’t changed much for HAL, and the order book of the 78-year-old Public Sector Undertaking (PSU) doesn’t look promising.

HAL’s Su-30MKI production line in Nashik Photo: HAL 

The main cash flow for this public sector company comes from the production of Su-30 MKI fighter planes for the Indian Air Force (IAF), and this order to produce 30-35 fighters will come to an end by 2020.

“There are other orders for Light Combat Aircraft (LCA), Advance Light Helicopters, Hawk trainers and Jaguar fighter planes. But even they will be handed over by 2020. HAL needs fresh orders,” said a senior HAL official on condition of anonymity.

An Under-Performing IPO

Earlier this year, the company had launched Initial Public Offering (IPO), but it was not popular. The dwindling order book is considered a reason for the bad performance of the IPO. The first meeting of the shareholders of the company’s IPO is expected by the end of the month, and the failure to win the Rafale offset deal is expected to be a big topic of discussion.

With a large chunk of the approximately Rs 30,000 crore Rafale offset going to Reliance, HAL is left with no options but to depend on two potential orders – IAF’s order for 40 more Su-30 MKI planes and 83 advanced versions of the LCA. However, the IAF is yet to respond to HAL’s offer.

In short, whether or not the political battle between the Congress and BJP over Rafale reach a logical conclusion, losing the offset contract in the Rafale deal has put HAL in a difficult position.