India loses out on arty buy as M-777 production ends

The Indian Army has once again lost out on an opportunity to acquire artillery as BAE systems begins the process of shutting down the production of its M-777 light weight howitzer.

With the October 15 price hike and production closure deadline of the US government offer of 145 M-777 howitzers to India passing without any response from the defense ministry, any hopes of the army for acquisition of the light howitzers appear to be fading fast.

The manufacturer BAE Systems informed some 350 workers on Thursday at its Barrow-in-Furness facility in the UK about the shutdown and the consequent job losses. The company has begun consultations with its employees and shut down of the facility is likely to be completed within 45 days.

A statement solicited from the company quoted Managing Director and Chief Executive of its India operations, Dean McCumiskey, as saying, “We recognize that the discussions between the US Government and the Government of India for the Foreign Military Sale of 145 M777A2 LW155 howitzers to the Government of India have not concluded within the extended offer expiry date of Oct. 15, we are disappointed and are reflecting on its impact. In anticipation of a timely conclusion and to fulfill India’s requirements for early delivery (2014), we have been investing in maintaining the facilities, supply chain and workforce beyond feasible time frames since the issuance of the Letter of Acceptance in March this year. BAE Systems stands ready to continue to support any discussions between the two Governments to bring this case to conclusion, and remains committed to equip the Indian Army with next generation technology to meet their urgent operational requirements.”

The company said in its statement that it would begin ‘consultation with trade unions and other employee representatives on the proposed suspension of the M777 howitzer production line at its Barrow facility which could potentially result in up to 200 job losses’.
 
The company added that it could ‘no longer continue to maintain the current staffing levels’ after ‘on-going delays in the US Government Foreign Military Sale of 145 M777 howitzers to the Government of India’.
 
The company, however, still says, “There could be some mitigation of the proposed suspension in production and potential reductions, if a formal agreement for the M777 howitzer sale to India was reached in the near future. However, the company has reached the point where it has to begin this consultation process.”
 
The final integration of the howitzer is executed at the company’s Hattiesburg facility, in the US. However, work on the M-777 at this facility will only be impacted around six months from now.

The October 15 deadline was also for the escalation of the price of the M-777 light weight howitzer, planned for acquisition by the Indian Army through a Foreign Military Sale (FMS) from the US government.

As first reported by StratPost, the US Defense Security Cooperation Agency (DSCA) had notified the US Congress in the beginning of August, of an escalation in the price of the US government’s offer for 145 M-777 light weight artillery howitzers, manufactured by BAE Systems.

This escalation was as much as 37 percent; from a January, 2010 price tag of USD 647 million to USD 885 million, or by margin of roughly INR 1,200 crore.

Technically, the new price would have been effective from September 02, but the US government offered a final grace period in which the Indian government could come to a decision on the acquisition. This period ended on Tuesday.

This 37 percent escalation is merely the hike in dollar terms. The defense ministry’s indecision also means that if India does take a decision on this acquisition at any point of time, it will also have to bear the cost of restarting the various assembly lines for the howitzer, which are in the process of shutting down in the absence of any other orders. What follows from the closure of the assembly line is also the shutting down of processes for production of specific components by lower tier manufacturers in the supply chain.

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This is not the first time this has happened. Before the plan for the procurement of 126 Medium Multi Role Combat Aircraft (MMRCA) was conceived, the defense ministry dithered over the acquisition of Mirage-2000 aircraft in addition to the 51 aircraft already acquired by the Indian Air Force (IAF), so much that French manufacturer Dassault could no longer keep the assembly line for the aircraft open.

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At this point it is difficult to quantify the burden the Indian taxpayer would have to bear for the restart of the production line, if the government does decide to place an order.

With the Defense Acquisitions Council (DAC) failing to take up the procurement for consideration in its last meeting a month back just before the visit of US Deputy Secretary of Defense Ashton Carter to India, and no movement since, the acquisition itself appears open to question.

This failure came after the US government informed the Indian government of the imminent price hike and shut down of production of the howitzer several times since the beginning of the year. With the US unwilling to pay to keep the assembly line alive indefinitely in the absence of any order and the inability of manufacturer BAE Systems to spend any more of its own money to keep workers on the rolls and the lines oiled, the ministry’s indecision could cost both the taxpayer and the Indian Army.

The US government has already extended the validity of its offer per the Letter of Acceptance to India five times this year. The manufacturer BAE systems has put together a USD 209 million proposal to provide offsets against the potential order, for which it has submitted eight iterations to the defense ministry. By some estimates, the company has spent around USD 100 million over the past five years in pursuit of its commitments for trials and tests on the howitzer over the past five years.

This comes at a time when the army is facing newer, more formidable challenges on the northern and eastern borders and comes after a series of intrusions by Chinese People’s Liberation Army (PLA) troops.

The last time the army acquired artillery was in the 1980s with the order for the old Bofors FH77 B02 howitzer, aborted after the infamous corruption scandal. Recognizing the need for modernization, the Cabinet Committee on Security (CCS) approved the creation of a new Mountain Strike Corps in July, consisting of around 50,000 troops at an estimated cost of over USD 10 billion. Light artillery would be imperative for such a formation.