Development Risks Hinder Private Investment in AMCA Project

India's quest to develop a technologically advanced indigenous fighter jet through the Advanced Medium Combat Aircraft (AMCA) program faces a significant challenge: attracting robust private sector participation.

While the AMCA holds the promise of boosting India's defence capabilities and technological prowess, private companies remain hesitant due to substantial development risks.

Understanding the Risk Factor​

At the heart of private sector reluctance lies a fundamental concern: risk sharing. Companies make investment decisions based on a thorough assessment of potential returns against the risks involved.

In the AMCA's case, the development risk – the possibility of delays, cost overruns, and the aircraft not meeting its ambitious technological goals – looms large. This risk is amplified due to the project's structure, spearheaded by the Aeronautical Development Agency (ADA) and Hindustan Aeronautics Limited (HAL).

This setup means private companies would have limited influence over critical aspects of the development process, making it harder for them to control and mitigate these risks. For profit-driven entities, this uncertainty can significantly undermine the investment's attractiveness.

Unpacking the Development Risk​

The development risk associated with the AMCA project has several dimensions:

• Timeline Slippage: Delays are a common occurrence in complex defence projects. For private companies, delays directly translate into a reduced return on investment (ROI) as costs remain fixed or increase while revenue generation is pushed further into the future.
• Cost Overruns: If a project's budget spirals out of control, it directly impacts the bottom line of private investors. The aerospace sector, particularly the development of cutting-edge military platforms, is notorious for cost overruns.
• Technological Shortcomings: The AMCA is envisioned as a fifth-generation-plus aircraft with advanced features. If it falls short of these performance targets, it could result in lower demand, further diminishing potential returns for private players.

Navigating the Risk Landscape​

Given these risk factors, it's understandable why private companies might be more comfortable entering the AMCA program as suppliers of specific components or subsystems.

This role allows for focused expertise and more predictable revenue streams while minimizing exposure to the larger development uncertainties.

The Ministry of Defence (MoD) aims to implement a Special Purpose Vehicle (SPV) model for AMCA's long-term manufacturing, envisioning greater private sector involvement. However, the success of this model hinges on the government's ability to address risk-related concerns.

Potential Solutions and Future Outlook​

To pave the way for robust private sector partnership in AMCA, India's MoD and project leaders may need to explore:

• Risk Sharing Mechanisms: Develop equitable risk-sharing agreements where the government and private entities shoulder a portion of the development risk, making the project more financially viable for the private sector.
• Clearly Defined Milestones: Establish a detailed roadmap with well-defined, achievable milestones to minimize delays and inspire confidence.
• Transparent Cost Management: Implement rigorous and transparent cost management protocols to prevent overruns and provide accountability.
• Incentivization: Consider offering incentives, such as tax breaks or preferential procurement, to encourage private sector investment.

By addressing these concerns, India has the potential to unlock the expertise and resources of the private sector, potentially accelerating AMCA's development and ensuring the success of this crucial national program.

 

[Kira]

This issue will cease to exist if HAL alongside other PSUs are privatised.

 

[sanket]

Pvt Players Only wants Return Nothing Else , HAL is doing Good Job whatever IAF demand they do in Minimum Charge.Moral of the story Pvt players are More interested in Pure Screw Driver Tech.where profit is sure shot. They dont want R&D work Just Become Vendor and Supply that component.

 

[Deepak Hegde]

Just shows how DRDO and HAL have been operating in development, without having or giving clear estimation of technology involved, without clear milestones, opaque cost management, timelines slippages. The taxpayer has had to pay continuously for all this. No sane private player will want to engage on such terms without any assurance!

 

[Deepak Hegde]

Pvt Players Only wants Return Nothing Else , HAL is doing Good Job whatever IAF demand they do in Minimum Charge.Moral of the story Pvt players are More interested in Pure Screw Driver Tech.where profit is sure shot. They dont want R&D work Just Become Vendor and Supply that component.

The only good job HAL has been doing is fooling MOD and taxpayers. The returns from HAL are a pittance of the funds embezzled by them to fuel their inefficiency!

 

[sanket]

Just shows how DRDO and HAL have been operating in development, without having or giving clear estimation of technology involved, without clear milestones, opaque cost management, timelines slippages. The taxpayer has had to pay continuously for all this. No sane private player will want to engage on such terms without any assurance!

Just shows how DRDO & HAL have been operating in development. compare to other world class established players . development cost of AMCA stealth Fightr plane to other steath Fighter projects. Both DRDO & HAL are saving Funds by developing Tech with minimun Funds compared to other world Experience & Established players.

 

[charminar_waale_ismail_bhai]

Finally an article which has the gall to say that king has no clothes on.

No private player would want to share risk with ADA/HAL knowing their work culture and total disregard for accountability.

But, if the Government is so hell-bent on soothing DPSU's (Union's) underbeyy, they they should seriously consider a multi SPV approach towards the AMCA project. Instead of one vendor leading the project, let there be a team led by DPSUs and another consortium led by Private contractors and then have both team utilize the SPV to come out with their respective product prototypes. Ultimately let IAF evaluate both prototypes and the projects and select the winning contender.

We will get to see if our desi babus have any creativity left on managing such critical nation-building projects in future.

 

[charminar_waale_ismail_bhai]

Both DRDO & HAL are saving Funds by developing Tech with minimun Funds

Can't say the same for DRDO which actually develops some promising stuff, HAL for sure is not saving any money by developing products after excruciating delays compared to other world Experience & Established players.

 

[Apocalypse gupta]

Finally an article which has the gall to say that king has no clothes on.

No private player would want to share risk with ADA/HAL knowing their work culture and total disregard for accountability.

But, if the Government is so hell-bent on soothing DPSU's (Union's) underbeyy, they they should seriously consider a multi SPV approach towards the AMCA project. Instead of one vendor leading the project, let there be a team led by DPSUs and another consortium led by Private contractors and then have both team utilize the SPV to come out with their respective product prototypes. Ultimately let IAF evaluate both prototypes and the projects and select the winning contender.

We will get to see if our desi babus have any creativity left on managing such critical nation-building projects in future.

What you are suggesting is the american model. Bro, in order to do that you need an incredible amount of money.

Did you read the article? Private companies are hesitant to join SPV because of financial risk. What you are suggesting is that they build a prototype to compete with a different prototype, and best one wins. This is hugely risky, as if their prototype gets rejected they will suffer losses, which is exactly what they dont want.

This is most brain dead suggestion for indian context.

 

[charminar_waale_ismail_bhai]

Pvt Players Only wants Return Nothing Else

Yeah, but I am certain, aap aise nahin hain. You dont care for returns when you give away loans to your dear friends. You don't even ask your money back. You donate at least 10% of your income for social causes. You allow every needy to borrow your vehicle and often take in homeless into your house and feed the hungry. Aap desh mei social service ki sirf aek misaal hi nahin aek bahut achche insaan bhi ho.

 

[charminar_waale_ismail_bhai]

This is hugely risky, as if their prototype gets rejected they will suffer losses, which is exactly what they dont want.

Where is that written in the entire article?

Did you read the article? Private companies are hesitant to join SPV because of financial risk.

Did you read the article?
It clearly mentions that private company do not want to share risk emanating out of project being led by HAL and ADA.

 

[BnglrTester]

This issue will cease to exist if HAL alongside other PSUs are privatised.

Then HAL will start producing consumer goods instead of aircrafts. We should realise that aerospace is not that lucrative for private players.

 

[Apocalypse gupta]

In P75I also, foreign companies were hesitant to participate because of liability(risk) reasons. But eventually policy was reworked to assuage their concerns and now P75I is going well.

Something similar can be done in this case. There can be tweaks in the policy, so that govt takes some of the risk that right now private players have to deal with. I believe that a slution will be found. We still have some time as serial production is still far away.

 

[charminar_waale_ismail_bhai]

Then HAL will start producing consumer goods instead of aircrafts. We should realise that aerospace is not that lucrative for private players.

Woh Tata TASL, Mahindra Aerospace and Adani defence & Aerspace are invsetments into making making toasters and frying pans in their factories.

 

[Apocalypse gupta]

Where is that written in the entire article?

Did you read the article?
It clearly mentions that private company do not want to share risk emanating out of project being led by HAL and ADA.

The entire article is about them not wanting financial risk. Private companies want to reduce the risk, they also lack expertise to build a fighter jet. What you are suggesting is that they build a prototype for 5th gen fighter and compete with HAL and friends for defence contract. That is like asking a 10th class student coding enthusiast to compete with a google software developer.

Spending all that time and money developing a prototype 5th gen fighter, when you lack expertise and you are asked to compete for contracts with an established juggernaut...... you dont think it is INSANELY risky?

 

[Pink Panther]

This issue will cease to exist if HAL alongside other PSUs are privatised.

Then that private company will become like HAL, work cultures will never change.

 

[Apocalypse gupta]

Where is that written in the entire article?

Did you read the article?
It clearly mentions that private company do not want to share risk emanating out of project being led by HAL and ADA.

No, that is not what article says. It says that private companies dont want a situation where HAL and ADA are incharge of everything, while private players are the ones putting in money. It says that if private players ars going to put money then they want a seat in decision making table. And that risk should be shared between private players, and HAL, ADA. Right now what is being proposed puts the entire risk on private players while HAL and ADA make the decisions.

 

[charminar_waale_ismail_bhai]

Spending all that time and money developing a prototype 5th gen fighter, when you lack expertise and you are asked to compete for contracts with an established juggernaut...... you dont think it is INSANELY risky?

Haan bhai, HAL has been making 5th and 6th gen aircraft since ages and have an impeccable record of delivering everything on-time without delays.

HAL Tejas, HAL IJT, HAL MTA are all examples where HAL has delivered projected platforma on time.

Way I see it, depending on HAL alone for the future of aeronautical Industry in India is the biggest risk the nation is taking. Allowing private players to come up with their design and expertise is called risk hedging, not risk taking.

 

[charminar_waale_ismail_bhai]

Then that private company will become like HAL, work cultures will never change.

Hahahaha. A private company like HAL would shut shop withing a month.

 

[Akshat]

In P75I also, foreign companies were hesitant to participate because of liability(risk) reasons. But eventually policy was reworked to assuage their concerns and now P75I is going well.

Something similar can be done in this case. There can be tweaks in the policy, so that govt takes some of the risk that right now private players have to deal with. I believe that a slution will be found. We still have some time as serial production is still far away.

There are no such risks. GoI is financing the entire development cost. CCS has approved it. IAF gives an advance amount when orders are placed, which is enough for all capex and initial opex (they paid 7000 crores in advance for Tejas mk1a deal). So no one has to invest anything.

Problem again is ADA and HAL. Ex ACM Bhadoria has said this on record that HAL and ADA are not inviting the private players.