Leasing is a viable option to supplement military capabilities

December 7, 2020 3:06 PM

Reports suggest that the IN is now considering the short-term wet-lease of 12-18 Light Utility to augment its transport capability and additionally use them for surveillance.

Indian Navy, General Atomics Aeronautical Systems, Basic Exchange and Cooperation Agreement (BECA), Defence Acquisition Procedure 2020, India’s military has leased equipment,Indian Navy (IN) has recently leased two non-weaponised General Atomics Aeronautical Systems. (AP Image)

By Amit Cowshish

To augment its surveillance capabilities, both at sea and along its coastal regions, the Indian Navy (IN) has recently leased two non-weaponised General Atomics Aeronautical Systems In MQ-9 Sea Guardian unmanned aerial vehicles (UAVs) from the US for one year. Inducted at the naval base INS Rajali on November 21, these twin medium-altitude long-endurance (MALE) UAVs can remain airborne for over 35 hours and attain a maximum flying altitude of some 35,000 feet. While maintenance and other technical support for will be provided by General Atomics, the IN will have full control over their operational deployment and the information gathered by them.

These UAVs will supplement maritime surveillance operations conducted by the IN’s Rajali-based fleet of Boeing P-8I Neptune long-range aircraft which has also been employed for surveillance along the Line of Actual Control (LAC) in eastern Ladakh, where the Indian and Chinese armies have been locked in a faceoff. The indications are that the leased UAVs could also, be employed to monitor development along the LAC.

According to some sources, IN’s leasing of these UAVs was enabled by India signing the Basic Exchange and Cooperation Agreement (BECA) with the US in late October, which facilitates the bilateral exchange of geospatial data, sensor data and satellite imagery. BECA is the last of four ‘foundational agreements’ between India and the US to further defence, strategic and military ties.

However, it seems unlikely that the UAV lease agreement has been concluded under the provisions incorporated in the Defence Acquisition Procedure 2020 (DAP-2020), which permits leasing of the military equipment and platforms from domestic and foreign vendors in a bid to reduce overall costs, as it was released by the Ministry of Defence (MoD) only on October 30.

This is not the first time that India’s military has leased equipment, with the IN being a pioneer in this regard.

Last March the IN signed a $3 billion Inter-Governmental Agreement (IGA) with Russia to lease its second 8,140 tonne Project 971 ‘Akula-class nuclear attack submarine (SSN) to augment maritime domain awareness. Under the IGA Russia will need to deliver the SSN by 2025, soon after the 10-year lease of INS Chakra, a similar Akula-class boat ends in 2022, though it may possibly be extended. Earlier, a ‘Charlie-I’-class SSN for three years till 1991 that too was commissioned as INS Chakra.

Some reports suggest that the IN is now considering the short-term wet-lease of 12-18 Light Utility to augment its transport capability and additionally use them for surveillance.

The inclusion of an entire chapter on leasing in DAP-2020 is not just a reminder that such renting can be a cost-effective method of operating military assets over a short time frame without substantial capital investment but has also rekindled the interest of the Indian Air Force (IAF) in opting for such a model.

Recent media reports indicate that the IAF, facing a critical shortage of Basic Trainer Aircraft (BTA) is considering leasing some for four years from a domestic company to make good its shortfall. This, however, appears odd as there is no Indian company, other than the state-owned Hindustan Aeronautics Limited (HAL) that makes aircraft. Besides, HAL is poised to begin serial production of its own indigenously designed Hindustan Turbo Trainer-40 or HTT-40 trainer aircraft.

Therefore, it would be paradoxical for HAL to lease trainers to the IAF, while gearing up to supply 106 BTA, whose acquisition was approved by the MoD’s Defence Acquisition Council in August 2020. Thus, another Indian company will need to import BTAs to provide them to the MoD on a lease if the IAF eventually decides to exclude foreign companies from the race, in a move that appears to defy logic.

According to the DAP-2020, leasing of new or previously-used equipment is best suited where the time constraint militates against outright procurement or if the capability it provides is needed for a specific time period. Leasing is also recommended if the military asset or platform would remain underutilised if procured, its requirement is in limited numbers, and the cost of creating administrative and maintenance infrastructure is high. Obtaining operational experience would also be an objective for leasing.

The DAP-2020 gives the option of choosing between an ‘Operating Lease’ -an arrangement where the concerned asset may be acquired by the MoD at the end of the cessation of the leased period at a mutually agreed-price or a ‘Finance Lease’, under which the MoD pays the entire cost of the asset over the lease period and consequently assumes its ownership.

The Operating Lease could be a Dry Lease, in which only the asset is leased or alternately a Wet/Damp lease, under which the lessor provides the asset, crew, maintenance, and insurance to the lessee.

While the IN has been a trailblazer in tapping the potential of leasing equipment, the IAF has been quick to follow suit with its putative move to lease BTA and possibly even air-refuelers which has been a long-standing requirement for over a decade. The Indian Army (IA), for its part has for now not expressed any interest in leasing.

But there is one imponderable in all this. While leasing can mitigate the burden on the military’s stressed capital budget, additional funds would be needed to pay the rent. This, in turn, will necessitate a realistic assessment of likely budgetary allocations before opting for large-scale equipment leasing.

(The author is a former Financial Advisor (Acquisition), Ministry of Defence. Views expressed are personal)

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