HAL to be third defence PSU to see divestment

The defence ministry has cleared the sale of 10 per cent equity in state-owned Hindustan Aeronautics Ltd (HAL), in order to infuse funds for the much-needed upgrade of the military aircraft manufacturer's capabilities. (See: MoD clears 10 per cent stake sale in HAL)

HAL will become the third defence undertaking after Bharat Electricals Ltd and BEML to see disinvestment, with the need for funds overcoming government's reluctance to dilute its holding in the strategically important company.

Founded in 1964, HAL is one of Asia's largest aerospace companies, involved in manufacturing and assembling aircraft, navigation and related communication equipment, as well as operating airports.

The decision comes on the back of a finance ministry directive asking all ministries, including the ministry of defence, to disinvest in profit-making PSUs.

Reports said the valuation of HAL is being worked out. The company has an annual sales turnover of Rs13,000 crore.

After an evaluation of HAL, the proposal will go the department of disinvestment, which will prepare a note for the final nod by the cabinet committee on economic affairs.

The disinvestment will "reduce the government burden'' for the proposed Rs20,000 crore modernisation of plants of the Bangalore-headquartered HAL over the next decade, with the PSU slated to handle new programmes worth billions of dollars with foreign collaborators in the near future.

While the government had earlier gone in for 34 per cent and 25 per cent disinvestment respectively in BEML - which makes missile systems components - and BEL, which makes radars and sonars, it was till now hesitant about diluting its 100 per cent equity in the strategic HAL.

HAL is handling crucial ongoing projects like the ones for the Tejas light combat aircraft, Dhruv advanced light helicopters, and indigenous production of the Russian-origin Sukhoi-30MKI fighters, all of which are running well behind schedule.

New projects on the anvil range from the medium multi-role combat aircraft (MMRCA) and fifth-generation fighter aircraft (FGFA) to light utility helicopters and multi-role transport aircraft (MTA).

The over $10.4 billion MMRCA project to acquire 126 fighters is all set to be sealed by early next year, with only two contenders now left in contention – the Eurofighter Typhoon and French Rafale. The project will see only the first 18 jets come in "fly-away condition', while the rest will be manufactured by HAL after transfer of technology.

An even bigger project will be the joint development of the stealth FGFA with Russia, with a $295 million preliminary design contract inked last December for the futuristic fighter.

The cost of designing, infrastructure build-up, prototype development and flight testing of FGFA is pegged at $11 billion, with India and Russia chipping in with $5.5 billion each.

Moreover, each of the 250-300 FGFA India hopes to begin inducting from 2020 onwards will cost around $100 million. Consequently, the country will spend upwards of $35 billion over the next two decades on the FGFA.