The Tejas Mark I will be one of the world's most affordable fighters in its class. Ministry of Defence (MoD) sources tell Business Standard that Hindustan Aeronautics Ltd (HAL) has quoted a price of Rs 162 crore per aircraft for the first 20 Tejas fighters that have begun production in Bangalore. That translates into a dollar price of approximately $26 million a fighter. This is a fraction of the cost of the comparable Mirage-2000, which was bought relatively cheaply in the 1980s, but is currently being upgraded for Rs 280 crore ($45 million) per fighter. On December 19, 2011, Defence Minister A K Antony had told Parliament that Thales would get Euro 1.4 billion (Rs 11,830 crore today) for upgrading the Indian Air Force (IAF) fleet of 49 Mirage-2000 fighters, while HAL would get Rs 2,020 crore, i.e., a total of Rs 13,850 crore. Since the upgrade will only be completed by 2021, that cost would rise further if the rupee falls. Antony also told Parliament the IAF's fleet of 69 MiG-29 fighters was being upgraded for $964 million, that is about Rs 87 crore per fighter, over and above the acquisition cost. The Sukhoi-30MKI, a heavier and, therefore, more expensive fighter that HAL builds in Nashik, currently costs the IAF more than Rs 400 crore ($65 million) each. The Rafale medium multi-role fighter, which is currently being negotiated with Dassault, could cost between Rs 750 crore and Rs 850 crore ($120-140 million) each. The JF-17 Thunder, the Pakistan Air Force's new light fighter that was "co-developed" with China is believed to be marginally cheaper, at $23-24 million per aircraft. However, the Tejas is significantly more advanced than the JF-17, being built from composite materials, incorporating an advanced fly-by-wire system, and fitted with more advanced avionics. The MoD is bargaining with HAL over the Tejas' Rs 162 crore price tag, pointing that HAL had, in 2006, quoted a unit price of Rs 116.49 crore per fighter. HAL argues the rupee's decline (some 45 per cent of the Tejas comes from abroad) and inflation over the past 8 years warrants a 40 per cent rise. During a recent tour of the Tejas assembly line, Business Standard was briefed about HAL's initiatives to slash the cost of the Tejas, rendering it more attractive to the IAF. HAL's first step has been to target economy of scale by developing its assembly line and supply chains for 200 fighters, though the IAF has only committed to buying just 40 Tejas Mark I fighters so far. In planning ambitiously, HAL has the MoD's support. Antony announced last month in Bangalore, when the Tejas was being inducted into the IAF, that about 200 fighters would be eventually built in Mark I and Mark II configurations. By HAL's reckoning, these include 20 Tejas Mark I fighters in the current configuration; and 20 more once Final Operational Clearance is received at the end of 2014 (the IAF has already committed to buying these two squadrons).
Next, HAL plans to build 84 Tejas Mark II (four squadrons). The navy has already ordered 8 Naval Tejas; and is planning to order 11 Naval Tejas trainers soon. When development is complete, about 46 Naval Tejas will be ordered for India's two indigenous aircraft carriers - INS Vikrant and its successor. HAL is also developing a cost-effective supply chain by establishing Long Time Business Agreements (LTBAs) of 3-5 years with its sub-vendors. Instead of giving them piecemeal orders, HAL assures its sub-vendors of production orders for up to 40-50 aircraft sets. Having provided them business confidence and driven down prices, HAL negotiates yearly requirements with them in tandem with its production rate, ensuring the in-flow of raw materials and parts to keep the Tejas line rolling. As IAF/navy orders grow, these vendors are assured of further business provided their performance and prices remain satisfactory. Long lead components, which require time to build and sometimes have a high rejection rate, have been identified and addressed. The Tejas line will have a high quality machining shop with state-of-the-art five-axis CNC machines. For critical parts like the Tejas' carbon composite wing skin, these machines will replace the manual drilling of 8,000 holes, using instead a computerised drilling programme that will reduce cycle time, errors and production cost. "With measures like these, we will improve the Tejas' build quality and eliminate rework, rejection and delays. Bringing down the 'Standard Man Hour' for series production, when compared to building prototypes, will automatically reduce the production cost of the Tejas," says RK Tyagi, chairman of HAL.