AFVOA Newsletter May 2020

Section 3 - Memoirs Newsletter No. 1 / 2020 P a g e 68 | 101 (f) Supply chain from Far East and Europe will take months to revive and some of the companies may go into liquidity. Let us study some of these factors a little more in details. Stoppage of Work and Supply Chain Disruption . So far in all the orders issued by the Government, despite being a strategic sector it has not found its place in the exempt list of any of the orders issued by MHA and are left at the mercy of State Government and local administration. These are either locked down or operating at 20-30% of its operating strength. Casual/ migratory labor is idling and as per Government’s directive are being paid salary and food being provided by the principal employer at various Labor Camps. A company like L&T which has a strength of 1,60,000 migratory labor all over India, you can imagine the financial burden it is taking. No one knows, when the blockade will be lifted, how many of them will stay back. Due to stoppage of interstate transport, items ready at vendor’s premises could not move, raw material including consumables are not available. China being the major source of Steel is shut down, shipping is yet to start. Europe is closed, all high-tech equipment and sensors cannot be exported from these countries since cargo flights are not operating. Fincantieri & Navantia, Italy; Indra, Spain, GE, USA; IAI, Israel, MTU Germany, etc. have all shut shop and will take months to recommence their operations. The nature of supply chain and the sourcing pattern of the Defence Technology Industry Base (DTIB) will also affect production as production queues with branched out supply chains are more affected. European DTIB have a fair share of branched out supply chains with different components and subsystems coming from different sources getting finally integrated at the OEM premises. Regulation and prioritization of such supply chains will have adverse effect on our industry. Even when the operations start maintaining social distancing and keeping track of asymptomatic Corona carriers in an industry like ours will be a challenge. Mounting costs of maintaining idling infrastructure is killing the industry with no output. Impacts on Orders. As such orders in Defence industry are received after years of waiting for CCS approval, RFI, RFP procedure and lengthy negotiations and some of the inputs or orders having Government to Government Linkages. Apart from that, stringent inspection procedures, delayed payments view stringent norms in stage payments are difficult to survive with. We cannot rule out the possibility that government may review some of the already awarded orders and reduce the numbers of the platforms to be delivered. Also, put on hold such projects on which LOI is awarded but production is yet to commence. Put on hold all RFPs indefinitely and conserve / divert budget for maintaining the medical infrastructure and various welfare plans which government may have to maintain till return of normalcy. Some indications have already come wherein “Capital Acquisitions” have been put on