SOURCE: AFI
India’s ambitious Advanced Medium Combat Aircraft (AMCA) program faces a hurdle in attracting private sector participation due to concerns over risk sharing. Let’s delve into why private companies are hesitant and the challenges involved.
Private players base their investment decisions on a careful evaluation of potential returns and associated risks. Every risk needs a quantifiable measure and a clear mitigation plan. Unfortunately, the AMCA project presents a significant development risk that deters private sector involvement.
The development risk in AMCA stems from the project being led by the Aeronautical Development Agency (ADA) and Hindustan Aeronautics Limited (HAL). This structure leaves private companies with minimal control over the development process, hindering their ability to mitigate risks.
The development risk encompasses three key elements: timeline, cost, and quality.
- Timeline Slippage: Delays in development can significantly impact a project’s return on investment (ROI) for private companies.
- Cost Overruns: If project costs exceed initial estimates, it directly eats into private sector profits.
- Technological Shortcomings: If the final AMCA aircraft falls short of its cutting-edge performance goals, it may not generate the projected demand, leading to lower returns.
Given these uncertainties, private companies are more inclined to participate in the AMCA program as part of the established supply chain. This allows them to contribute their expertise in manufacturing specific components while limiting their exposure to the overall development risks.
The Ministry of Defence (MoD) envisions a Special Purpose Vehicle (SPV) model as the long-term manufacturing strategy for AMCA. This model would involve a greater level of private sector participation, but it likely hinges on addressing their concerns regarding risk mitigation.
To attract private companies as full partners in the AMCA project, the MoD and project leads may need to consider strategies for:
- Risk Sharing Mechanisms: Establishing a framework where development risks are shared proportionally between public and private entities.
- Clearly Defined Milestones: Setting clear and achievable milestones to ensure timely project completion.
- Transparent Cost Management: Implementing transparent cost management practices to minimize the risk of overruns.
By addressing these concerns, India can potentially unlock greater private sector participation and expedite the development of the AMCA program.