Defence

Tejas Resurgent: Mk-1A Cost Is Under $62 Million After Taxes

By ORF Online

On 13 January 2021, the Cabinet Committee on Security finally cleared the long-pending acquisition of 73 improved TEJAS Light Combat Aircraft Mk.1A fighters along with ten TEJAS MK-1 trainers. This INR 45,696 crore (US$ 6.25 billion) program marks a rare high point for the beleaguered thirty-year programme, which has suffered through significant development and production delays, and seen no new orders since the Indian Air Force committed to inducting forty aircraft back in 2005.

The TEJAS MK-1A variant dates back to 2015, when the IAF, unhappy with the state of the programme, agreed to an upgraded Tejas that would improve on the TEJAS MK-1 that had just achieved Initial Operating Capability (IOC), by adding a new electronically-scanned active array radar, updated avionics, electronic warfare capability, all accompanied by only minor structural changes.

This would, at least on paper, be delivered more quickly and cheaply than a comprehensive redesign around a new engine and aerodynamic configuration, which would result in effectively an all-new jet (the TEJAS MK-2).

The MK-1A program was given formal sanction by the MoD’s Defence Acquisition Council (DAC) in November 2016 at a projected cost of INR 50,000 crore, the essential first step toward an actual contract. After the TEJAS MK-1 achieved Final Operating Capability (FOC), albeit with certain waivers in 2019, the procurement of the improved Mk.1A became all but certain. In March 2020, the DAC approved a revised figure of INR 37,000 crore (US$ 5.05 billion) for 83 TEJAS MK-1A.

Death By Taxes

One of the discrepancies immediately highlighted after the MoD’s announcement was the approximately INR 8,600 crore (US$ 1.17 billion) difference between what the CCS cleared and the figure approved by the DAC last year. The headline price immediately led to a chorus of disbelief about what appeared to be an average cost of INR 548 crore (US$ 75 million) per aircraft, resulting in unwarranted comparisons with more capable aircraft such as the Su-30MKI. Lack of transparency in defence spending only damages institutional credibility, in addition to hurting the sales prospects of the TEJAS beyond its domestic customer.

What should have been made clear up front was that the contract also includes a large fixed cost component, including development expenditures as well as a Performance Based Logistics (PBL) arrangement. The unit price of the TEJAS MK-1A under the present deal is some INR 384 crore (US$ 52.5 million). The escalation from the March 2020 figure is accounted for mainly by variations in foreign currency exchange rates, as well as 18 percent in taxes.

What should have been made clear up front was that the contract also includes a large fixed cost component, including development expenditures as well as a Performance Based Logistics arrangement.

HAL’s Game To Lose

In its announcement, the Defence Ministry was keen to highlight that this is the first procurement under the ‘Buy (Indian-Indigenously Designed, Developed and Manufactured)’ category, starting at an indigenous content of 50 percent, with a plan to increase that to 60 percent by the end of the programme. Beyond the obvious fillip to the fortunes of state-owned Hindustan Aeronautics Limited (HAL), the MoD also played up benefits to “about 500 Indian companies, including MSMEs” that are part of the industrial ecosystem for the TEJAS MK-1A.

After years of insinuation, some subtle and some not, that the IAF was lacking in commitment to the indigenous TEJAS program, this order, the largest single procurement of modern combat aircraft in the last thirty years (by value as well as quantity) firmly inverts the conversation.

Even the Su-30MKI, presently the most numerous in-service fighter with a total of 272 aircraft ordered over the years, was contracted in small batches of 30-40 aircraft at a time.

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