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Indebtedness of the Indian Air Force to Hindustan Aeronautics Limited
By the end of the current fiscal year [March 31, 2019], the Indian Air Force’s indebtedness to the Indian state aircraft-building association Hindustan Aeronautics Limited (HAL) will be 200 billion rupees (about 2.8 billion dollars), including 70 billion rupees (about 992 million dollars) transferred from the previous year, writes Ajai Shukla in an article for the Indian publication Business Standard, referring to HAL Chairman of the Board Sri R. Madhavan.
Despite the fact that the Air Force delayed payments to HAL, payments by the Air Force to foreign suppliers were made in accordance with the schedule. Sources in the Ministry of Defense of India say that the French company Dassault Aerospace received about 200 billion rupees (2.8 billion dollars) as part of a contract for the supply of 36 Rafale fighter jets, signed in 2016. Smaller amounts in the region of 20 billion rupees ($ 283 million) were paid annually to Boeing under contracts signed in 2015 for Apache AN-64E Apache helicopters and CH-47F Chinook heavy military transport helicopters.
Deliveries of Rafale fighters by Dassault should begin this year. The same goes for Boeing supplies. On the other hand, as Mr. Madhavan notes: “The Indian Air Force must pay HAL money for airplanes, helicopters and services that we have already provided. Today, debt obligations amount to 157 billion rupees (2.2 billion dollars) and by March 31 they will increase to 200 billion (2.8 billion dollars). ”
In the absence of payments, the negative HAL balance at the end of the year reached an unprecedented value. The 29,000 employees of the company, who had already suffered from the statement by the Minister of Defense Nirmala Sitkharaman in September 2018 that HAL was unable to produce Rafale fighters, celebrated the New 2019 without December salaries.
Consequently, in order to ensure a monthly payroll of 3.58 billion rupees ($ 50.7 million) and maintain the production lines, for which 13-14 billion rupees (184-198 million dollars) per month is required, the company for the first time in its history, took a bank loan of 7.8 billion rupees (110.6 million dollars).
HAL, the company traditionally rich in cash, stably transferred to the government 110 billion rupees (1.6 billion dollars) from its reserves. In 2015–2016, the Indian Ministry of Justice launched a “share repurchase program”, according to which HAL was supposed to transfer Rs 63.9 billion ($ 905.8 million) to the government. The company made payments in two tranches - in 2015–2016 and in 2017–2018 FY.
In addition, over the past five years, HAL has paid dividends and taxes in the amount of 46.3 billion rupees ($ 656 million) to the government.
According to Madhavan, he intends to appeal to the Minister of Defense with a request to influence the Air Force and demand the immediate payment of at least part of their debts. The Indian Army and Navy always paid on time.
The delay in payments by the Air Force clearly demonstrates how foreign purchases led to financial stress. Despite receiving the lion's share of funds from the defense budget this year - 357.6 billion rupees (5 billion dollars) compared with 267 billion rupees (about 3.8 billion dollars) for the army and 208 billion rupees for the Navy (2, $ 9 billion.) - Payments to foreign suppliers, in particular Dassault, left the Air Force without funds to pay off the debt to HAL for the equipment received. This includes the Su-30MKI and Tejas fighters, the modernization of the Mirage 2000 and Jaguar fighter fleets, as well as large deliveries of the nationally developed Dhruv and Rudra helicopters.
Not placing great hopes on receiving payments in the near future, HAL introduced austerity measures. The letter of the company's CFO states the following: “The current situation with the company's cash flow is critical. Despite the fact that our budget needs in fiscal 2018–2019 are 193.3 billion rupees (2.7 billion dollars), at the moment the amount of funds raised has reached only 64.1 billion rupees (909 million dollars) ... This led the need to attract additional bank funds - 7.8 billion rupees (110.6 million dollars) as of December 31, 2017. ”
“During the discussions that took place last week with the Ministry of Defense, it also became clear that further allocation of funds from the budget of the Air Force and other defense customers may not occur until March 31, 2019. This will result in a deficit of about 60 billion rupees ($ 850 million), even after consideration of the postponement of major items of expenditure, including certain purchases. In addition, the company's current order book is uncomfortable for long-term sustainable development. ”
Representatives of the Ministry of Defense and the Indian Air Force did not respond to a request from journalists.
HAL's chairman of the board recognizes that the inability of the Air Force to pay its bills will affect the price of the company's stock — today it is 814 rupees ($ 11.5) per share, which is 30 percent lower than the annual maximum of 1184 rupees ($ 16.8). ).
“In essence, HAL shareholders take a hit on stock prices because the government does not pay their bills,” an anonymously high-ranking spokesman for HAL said.
Even more disturbing is the impact on HAL of the lack of targeted funds. “We support the efficiency of the Air Force fleet, but next year this area of work may suffer greatly. If we are not able to pay for raw materials and spare parts, how will we maintain the functioning of the park? ”Mr. Madhavan asks.
There will also be damage to a number of HAL funded projects. The increase in production capacity for Tejas fighters from 8 to 16 cars per year requires HAL and the Air Force to split the costs in the amount of 13.8 billion rupees ($ 195.7 million). There will be no money for this.
In addition, HAL allocates 5 billion rupees ($ 70.8 million) to develop the HTT-40 turboprop training aircraft, which is close to completion, but may be suspended. HAL is also investing 2 billion rupees ($ 28 million) to develop a light attack helicopter LCH (Light Combat Helicopter) until the Air Force places an order. The extremely important project of a light multipurpose helicopter LUH (Light Utility Helicopter) also requires funding for HAL.
The key question is how a listed company with seven independent directors found itself in such a difficult financial situation without any explicit protest from the board of directors.
The Business Standard Publication appealed to seven independent directors on the HAL board asking if they had expressed their concern about the deterioration in the company's financial position. None of them responded to emails.
On January 4, 2019, Indian Defense Minister Nirmala Sitharaman stated in parliament that HAL already has orders for 1 trillion rupees ($ 14.1 billion). Despite the fact that the company has already refuted this statement, information about non-payments by the Air Force suggests that the current crisis is not only due to a shortage of orders, but even more so with a delay in payments for already received and fully completed orders.
Source: bmpd.livejournal.com
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