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India has strategic plans to develop its advanced 5th generation fighter jet, the Advanced Medium Combat Aircraft (AMCA), through a Special Purpose Vehicle (SPV). In this development initiative, private players will hold a majority stake, while government-owned companies such as Hindustan Aeronautics Limited (HAL) will have a minority stake. This approach aims to leverage the expertise and resources of private companies while also ensuring government participation in the program. has learned that several prospective partners who could potentially join the AMCA program are concerned about the profit margins, which are projected to be significantly below the industrial average of 10.02 to 10.9%. This is attributed to the lower unit numbers committed by the Indian Air Force (IAF), which could result in higher unit costs, potentially impacting the profitability of the venture for the private partners.

In addition to investing in production lines, tools, and machinery, partners in the AMCA program would also need to recruit and train a skilled workforce for the jet’s manufacturing, as well as manage the complex supply chain. However, some prospective partners are concerned that this could impact sales and add margin pressure.

The Indian Air Force (IAF) is known for being a tough negotiator, as evidenced by the Tejas Mk1A order, in which Hindustan Aeronautics Limited (HAL) had to reduce its profit margin from 12% to a little over 6%, resulting in a significant 50% drop in the cost of the jet. The IAF has committed to procuring 140 AMCA jets, but some prospective partners are concerned that this order may not be substantial enough, as there may not be follow-up orders from the IAF, potentially leading to further pressure on profit margins.

Although private sector companies have expressed interest in the AMCA program, some are happy to be a second fiddle and limit their role as an outsourcing partner, as observed in the Tejas Mk1A program. In this program, companies such as Larsen and Toubro (L&T), Dynamatic Technologies Ltd, VEM Technologies Private Limited, and Alpha Design are involved in manufacturing the front, mid, rear fuselage, and tail section, while HAL remains the lead integrator and negotiator with the Indian Air Force (IAF) and Ministry of Defence (MoD).

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