Heavy Dividends to Centre, Unpaid Dues Land HAL in the Soup

As much as the unpaid dues from IAF, dividends paid to the government have hit the PSU’s balance sheet

Hindustan Aeronautical Limited (HAL) borrowing Rs 1,000 crore to pay salaries, for the first time in its history, has kicked off a political storm. The Congress has held the Union government responsible for the public sector undertaking’s poor condition, highlighting the Rs 15,700 crore that defence forces owe HAL and the lack of orders from the Ministry of Defence (MoD).

But according to executives at HAL, as much as the unpaid dues, dividends paid to the Union government have hit the PSU’s balance sheet. While the revenue of the company grew by 17.7 percent over the four years, the dividend paid to the government increased by 124.7 percent.

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Dividends and Buyback Strain Balance Sheet

According to the company’s books, there was a negative cashflow of Rs 2,682 crore owing to a combined effect of the dividends paid to the Centre and share buybacks. Even though the payment of Rs 15,700 crore from the armed forces were due, in 2017-18 HAL paid Rs 1,295 crore as dividend to the Centre, which is a shareholder in HAL.

Between 2014-15 and 2017-18, HAL’s revenue increased by a mere 17.7 percent. However, in comparison, the dividend paid to the Centre doubled from Rs 577 crore to Rs 1,295 crore during the same time period. 

Apart from the dividend paid, HAL brought back 7.5 percent of its shares from the government at Rs 1,120 crore. Similarly, in 2015-16, HAL had spent Rs 5,265 crore on a buyback.

According to some HAL executives, these two expenditures resulted in HAL digging into its reserves. This, combined with the due defaults from armed forces resulted in the PSU taking close to Rs 1,000 crores in overdraft to pay salaries.

While the decision of paying dividends and buying shares back are taken by the Board, a HAL executive said for a PUC, “the process is different” due to “overarching government influence”.

Deals in the ‘Pipeline’ Are Tricky

The other point of contention was the orders the government has placed with HAL. Defence Minister Nirmala Sitharaman in her suo motu statement in the Parliament said around Rs 73,000 crore worth projects with HAL were in the pipeline.

One of the major projects that constitutes this amount is readying 200 Kamov helicopters for the Indian Navy, worth Rs 20,000 crore. However, reports suggest that this helicopter deal would be a joint venture – Indo Russian Helicopter Private Limited (IRHL).

HAL will only have 50.5 percent stake in this joint venture; 42.5 percent shares will go to Russian Helicopters and 7 percent will go to Rosoboronexport.

Similarly, another major project in the pipeline is Rs 50,000 crore worth Light Combat Aircraft (LCA) project. The current estimated cost of each aircraft is around Rs 600 crore and the Ministry of Defence had taken objection to the increased cost of the aircraft. According to HAL, even though discussions are on, the government has still not committed to the buying the LCAs.

Morale Down, Says Union

Of the Rs 15,700 crore due to HAL, about Rs 14,500 crore has to be cleared by the Indian Air Force, while rest of the amount is owed by the Navy, Army and Coast Guard. Also, the amount pending is not an advance for any project, but the payment for works undertaken by HAL.

Suryadevara Chandra Shekar, general secretary of the Hindustan Aeronautical Employees Association, said unless these dues are paid, HAL will have to take further overdrafts. “The morale of HAL has come down. We are worried what HAL’s future would be; there are thousands of the families that depend on HAL. This month the situation was difficult because the salaries were postponed. This was because of the technicalities in getting the overdraft,” he said.