HAL Faces Growing Competition in Home Market

Neelam Mathews
july 17, 2018
#FAI18

As the Indian aerospace and defense manufacturing ecosystem slowly moves towards the "Make in India" initiative along with policy changes to support it, the landscape is likely to prove challenging to government-owned manufacturers such as Hindustan Aeronautics Ltd (HAL, Chalet K7). Private industry is bringing competition and manufacturing capabilities are being enhanced, presenting growth opportunities for Indian defense manufactures such as Tata Group, Mahindra Defense Systems, Dynamatic Technologies, and Larsen & Toubro.

HAL continues to be the market leader as India relies on imports to meet 70 percent of its defense requirements, with the remaining 30 percent met by domestic companies. Although India has sought to diversify its procurement sources, with a recent focus on the U.S., Russia continues to dominate Indian defense equipment spares imports, given that around 65 percent of its defense equipment is Russian (and maintained by HAL).

According to HAL's recent annual report, “Combat aircraft [and] helicopters in the light and medium weight categories offer excellent opportunities in the near future. The company has infrastructure and expertise and these will have an edge over competition in the short term.”

HAL said it is working on collaboration with OEMs, research laboratories, and academic institutions to enhance the company’s future product portfolio, including projects like the advance light helicopter weaponized version, light combat helicopter, and light utility helicopter. In addition, the basic trainer aircraft, Hindustan turbofan engine, UAVs, Jaguar Darin III upgrade, and Mirage 2000 upgrade “are moving closer to fruitfulness, and these projects are expected to lead the company to expand its business horizon over a period of the next 10 to 15 years,” the company added.

Recently, HAL completed the first green helicopter for the Indian Coast Guard, including the installation of basic systems. HAL's contract with the coast guard includes performance-based logistics support for five years. Deliveries of 16 fixed-landing gear helicopters to boost low-intensity maritime operations and coast security capabilities are scheduled to start in 2020.

Civil Inroads

HAL claims to have “made significant progress towards diversification into the civil segment” to leverage the growth prospects of India’s civil aviation sector, which is growing at 16 percent per year. The progress of the regional connectivity scheme that connects remote and underserved airports to larger cities has driven HAL to offer its Dornier Do-228 civil variant, a 20-seat light transport for short-haul flights. Recently, a HAL built Do-228 was delivered to the president of the Republic of Seychelles to assist in policing its economic zone. The aircraft is fitted with 360-degree surveillance radar, forward-looking infrared system, satcom, traffic alert and collision avoidance system, enhanced ground proximity warning system, and other customer-specified sensors.    

A SWOT (strengths, weaknesses, opportunities, threats) analysis carried out by HAL identified potential focus areas in the external environment of the organization. While its strengths include a long credible history, manufacturing and MRO services, and four decades of experience in life-cycle support, limitations remain. R.K. Tyagi, president of the Aeronautical Society of India and former chairman of HAL, recently called for more emphasis to be placed on meeting the emerging human-resource challenges in aviation and aerospace, in view of the growth potential of the sector during the coming decades. Tyagi said there will be a need for one million professionals in the aviation sector in the next decade. 

HAL has acknowledged that “dependence on Indian defense customers and on foreign suppliers for critical technologies and raw materials, a weak supply chain system, and a lack of diversified product portfolio” are a constraint to growth. Opportunities are being tapped to serve a fast-growing civil aviation market, with an emphasis on manufacturing, the export market for light helicopters, and HAL being a “single-window solution provider, an OEM of major platforms.”