RIL enters fighter engine race with Rolls-Royce: What this means for HAL investors? Analysts decode

The latest development that has put that shift under the spotlight is the deal between Reliance Industries (RIL) and Rolls-Royce. 

Reliance Industries and British aerospace major Rolls-Royce have announced plans to work together on a sovereign indigenous combat engine for India’s Advanced Medium Combat Aircraft (AMCA) programme.

How would a private-sector partnership involving one of the world’s major aero-engine companies eventually  impact  HAL’s role in India’s fighter aircraft programme?

Financialexpress.com spoke to analysts to understand what the RIL-Rolls-Royce partnership means for HAL, whether Reliance has a realistic chance of winning the fighter-engine programme and what investors should watch from here.

How would RIL-Rolls Royce partnership impact HAL?

According to CLSA, “HAL is the most credible play on aerospace engines in India” with its $3 billion plus in engine orders, a pipeline of 350 plus jet engines, a decadal MRO opportunity. It has also won India’s biggest export order from Safran, However, a delay in GE’s transfer of technology (TOT), agreed to by the US President & India’s PM, opened the window for competition.

That said, CLSA still believes HAL leads the fighter engine race. They make fighter engines across AL31FP and RD 33, apart from helicopters. It is also likely to conclude ToT to produce the next-gen GE engine F414 in 2026, which will power the Tejas Mk 2 and AMCA Mk 1. The international brokerage pointed out that they “ do not see any impact on HAL due to the entry of Roll-Royce with Reliance for the AMCA MK2 engine.”

Other key market observers also do not see the partnership creating a major financial or valuation risk for HAL.

Putta Ravi Kumar, Defence Analyst at Choice Institutional Equities, said the proposed engine is intended for a future high-thrust version of the AMCA rather than the initial configuration. That makes the timeline important.

Kumar said, “We do not see the Reliance–Rolls-Royce partnership as a material valuation risk for HAL at this stage, although it could become strategically relevant over the longer term.”

He further noted, “The proposed engine is for the AMCA programme’s future high-thrust variant, rather than the initial AMCA configuration, and the engine itself would have to go through a long development, testing, qualification and integration cycle.”

“For a clean-sheet, high-thrust fighter engine, development can take a decade or more, while the AMCA programme itself has historically faced delays. Against this backdrop, Rolls-Royce’s proposed roadmap of core testing around 2030, maiden flight around 2034 and production around 2036–37 remains subject to programme execution and development milestones,” added Kumar. 

That timeline means there is still a long road before the proposed engine reaches production.

But there is another important point for HAL investors.

HAL’s opportunity goes beyond the engine

HAL has a decadal order pipeline of 350+ jet engines, an MRO opportunity and exports as it won India’s biggest aerospace export order from Safran’s LEAP engine components. 

Kumar added that, “We would not view HAL’s economics as being protected simply because it may act as the aircraft integrator or buyer of the engine; the more important consideration is the extent of value HAL captures across the broader aircraft programme. ”

According to him, , “The key variables to watch will be the pace of development and qualification, eventual volume production and, importantly, the workshare and value capture for HAL.”

This workshare could become one of the most important factors for investors to track.

The engine is only one component of the AMCA programme. HAL has a much wider portfolio covering fighter aircraft, helicopters, trainers and maintenance, repair and overhaul (MRO).

Kumar elaborated that, “The engine is only one component of the broader AMCA programme, while HAL’s opportunity extends well beyond propulsion, with a diversified portfolio spanning Tejas Mk1A, Tejas Mk2, Prachand, IMRH, ALH, HTT-40, AMCA, TEDBF and other future platforms, besides upgrades, MRO and lifecycle support.”

Reliance Industries’ role in the defence manufacturing space

Reliance Industries is a new entrant to defence manufacturing. Rolls-Royce, on the other hand, brings decades of experience in aerospace and propulsion technology.

So, does the partnership give Reliance a genuine chance? Speaking on the deal on August 14, Anant Ambani, Executive Director, Reliance Industries had stated that, “Our intent with Rolls-Royce is to combine their world-leading expertise in advanced propulsion with Reliance’s technology, manufacturing, scale and execution capabilities to build an indigenous aero-engine ecosystem in India.”

Tufan Erginbilgiç, CEO, Rolls-Royce had added that, “Together, with our existing partnerships and capabilities in India, this marks a major milestone towards building a robust, self-reliant aerospace ecosystem.”

However, as CLSA pointed out, “the announcement carried no detail but it did carry the weight of India’s largest private- sector company by revenue aligning itself with a company which lost the AMCA engine competition to France’s Safran less than 12 months ago.”Kumar believes it is a credible contender, but cautions against assuming that it will win, “We believe RIL has a credible opportunity to compete for the fighter-engine programme, but it is too early to view it as a high-probability winner. While RIL is a new entrant to defence manufacturing and lacks a legacy in aero-engine development, its partnership with Rolls-Royce potentially addresses the biggest entry barrier in advanced fighter engines — technology and development expertise.”

The partnership could therefore combine Reliance’s capital and manufacturing capabilities with Rolls-Royce’s technical experience.

But technology will not be the only consideration.

Kumar added, “However, technology alone will not determine the eventual winner. The government is likely to evaluate the depth of technology transfer, indigenous content, IP ownership, development timelines, production capability, lifecycle support and long-term strategic autonomy.”

That could make the selection process highly strategic.

HAL already faces a new competitive landscape

Ankit Soni, Research Analyst at Mirae Asset Sharekhan, believes the larger issue is the changing role of private companies in India’s defence manufacturing sector, “HAL out and private players in: The opening of gates to private players in manufacturing of fighter planes has brought in keen interest of private players.”

HAL was not shortlisted for the Rs 15,000 crore first phase of the AMCA programme. Private-sector companies including Tata Advanced Systems, Larsen & Toubro and Bharat Forge, through the Kalyani Group, are involved in the first phase.

Soni sees this as more than a one-off development. He added, “This is the first time since independence that HAL has been left out of a frontline fighter programme — a genuine structural break from precedent.”

However, he does not see an immediate financial impact.

Why HAL may not feel the impact immediately

HAL already has a substantial order book and several programmes to execute.

Soni said the participation of private companies in AMCA could actually allow HAL to concentrate on its existing commitments.

Further Soni pointed out that, , “HAL is already overburdened, and inclusion of private players for AMCA is being framed as a pragmatic approach to let concentrate HAL on the existing order book. Rather than diluting bandwidth further.”

He pointed out that the AMCA setback may hurt HAL strategically more than financially in the near-term.

Soni noted, “AMCA will be a genuine loss to HAL’s credibility but will not be a financial loss since HAL is already tied with a humongous order book to complete.”

The bigger risk could come later

The more important question is what happens if private companies successfully execute AMCA.

Soni believes that could set a precedent for future defence programmes. “If AMCA is very well executed by private players then the threat is that the model is to be extended to HAL’s future programmes as well.”

That could gradually increase competition for HAL across future aircraft programmes.

For now, however, the company has a sizeable existing order pipeline. The bigger question is whether its dominant position in future programmes remains intact.

Who gets the fighter-engine contract?

The Safran-GTRE joint venture proposal for a 120 kN class engine, valued at approximately $7 billion, is reportedly before the Cabinet Committee on Security for approval, with a decision likely anytime.

Mirae Asset Sharekhan’s Soni  believes “The real competition will be between Safran-GTRE and Rolls-Royce-Reliance for the engine contract. Rolls-Royce’s pitch of fuller IP transfer and India as a “fourth propulsion hub” is a stronger sovereignty pitch which is what is publicly known. ” But the final decision will take into account many factors.  

“This is a government decision on a strategic-sovereignty asset, not a straightforward lowest-bid tender,” Soni added. .

For India, the fighter engine is a critical piece of its long-term defence ambitions. The country has been working to reduce its dependence on foreign propulsion technology and build greater domestic capability.

What does this mean for HAL investors?

For now, the RIL-Rolls-Royce partnership appears to be more of a long-term strategic development than an immediate earnings threat to HAL.

Kumar said, “Hence, we view this more as a long-term strategic development for HAL than an immediate earnings or valuation risk. RIL developing or supplying the engine does not, by itself, imply that HAL loses its core AMCA opportunity, given its broader role in aircraft manufacturing, integration, upgrades and lifecycle support.”

The key aspect to take into account is the overall defence pipeline, HAL’s execution pipeline and future management commentary. 

Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a SEBI-registered financial advisor.