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HAL’s order books are full, its trade receivables up, bank balance down

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"Debts from the government departments are generally treated as fully recoverable and hence the company does not recognize credit risk of such financial assets," the company has stated in filings.

The public sector aircraftmaker Hindustan Aeronautics Limited (HAL), which is at the centre of a political controversy since losing out on a contract for licensed manufacture of 108 French Rafale fighter jets in India, has seen its trade receivables - primarily from its main client, the Government of India's Ministry of Defence - balloon from Rs 4,220 crore in March 2017 to Rs 9,845 crore as on September 30, 2018, according to financial data put out by the company.

The Rs 9,845 crore of receivables is the highest amount of outstanding trade payments reported by HAL in financial disclosures made since 2012 on the company's website.

"Debts from the government departments are generally treated as fully recoverable and hence the company does not recognize credit risk of such financial assets," the company has stated in filings.

As its trade receivables have increased, HAL has seen a diminution of its cash and bank balance from a high of Rs 17,671 crore in the 2015 financial year to a low of Rs 725 crore at the end of the first half of the current 2019 financial year.

The company's financial records indicate borrowings to the tune of Rs 1,000 crore from banks at the start of 2018 for "building capacity" and funding expenses that "will include, civil works, plant and machinery and deferred revenue expenditure".

HAL's financial report for the year ending March 2018 indicates the order book of the company, which is in line with statements made by Defence Minister Nirmala Sitharaman in the Parliament last week in terms of orders already placed with HAL, and its anticipated future orders.

According to the HAL report, the order book position of the company as of March 31, 2018 was Rs 61,123 crore, which included orders for 25 final-phase production of the Su-30 MKI fighter jet for the Indian Air Force, 12 indigenous Light Combat Aircraft (LCA) with initial operation clearance, and 20 LCAs with final operation clearance for the IAF.

The order book in March 2018 also included 12 Dornier 228 aircraft for the Navy and four for the IAF; 17 Advanced Light Helicopters for the Navy, 16 for the Coast Guard, and 40 for the Army; 10 Cheetal helicopters for the IAF and six for the Army; and eight Chetak helicopters for the Navy.

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The March 2018 financial report put out by HAL also mentioned an anticipated order for 83 LCA MK1A configuration based on an RFP "received from the (IAF on 21st December, 2017", and 15 Light Combat Helicopters on the basis of an RFP received "from the Indian Air Force (10 Nos) and the Indian Army (5 Nos) on 22nd December, 2017".

Sitharaman had said orders worth Rs 1 lakh crore were in the pipeline for HAL, with anticipated orders to the tune of Rs 73,000 crore (83 LCAs, 15 LCHs and 200 Kamov helicopters), and existing orders for Dornier 228s, ALHs, Cheetal, Chetak helicopters and aircraft engines to the tune of Rs 26,570 crore.

Congress president Rahul Gandhi had accused Sitharaman of "lying" to Parliament about HAL's order book, posting on Twitter that she "must place before Parliament documents showing 1 Lakh crore of Govt orders to HAL. Or resign".

The financial statements of HAL also reveal that the firm was confident until mid 2014 of being awarded a contract to build 108 Rafale aircraft under licence from Dassault Aviation. The company's annual report for 2013-14 shows that HAL was gearing up to produce the French multi-role combat aircraft - negotiations for which were then at an advanced stage.

In a message dated September 27, 2014 enclosed in the company's 2013-14 annual report, the then chairman of HAL R K Tyagi stated that the "Medium Multi Role Combat Aircraft (MMRCA) is another programme which will be crucial to our achieving manufacturing excellence… World class manufacturing practices will get imbibed into our working. Your company needs to synthesise these manufacturing best practices through this programme."

HAL did not refer to the MMRCA deal in its annual report for 2014-15.

On April 10, 2015, during a visit to Paris, Prime Minister Narendra Modi announced the direct purchase of 36 Rafale aircraft in a government-to-government deal, overriding negotiations for the purchase of 126 MMRCA (18 flyaways and 108 under licensed production at HAL).

The Opposition Congress has accused Modi and the government of favouring a new defence firm floated by businessman Anil Ambani over HAL in the Rafale deal. Ambani's company has been identified by Dassault Aviation as one of its Indian partners to whom manufacturing requirements will be farmed out under defence procurement rules that mandate ploughing of 50% of the cost of Rafale purchases - amounting to around Rs 30,000 crore - into production facilities in India.