R Madhavan is the chairman and managing director of defence PSU Hindustan Aeronautics Limited (HAL). He took over as the CMD of the company in September this year, replacing T Suvarna Raju. Prior to this, Madhavan served as the executive director of the Accessories Division of HAL in Lucknow.

In an exclusive interview with CNBC-TV18, Madhavan talked about the prolonging Rafale controversy involving his company and what caused the breakdown in talks between the company and Rafale jet maker Dassault.

Here is the transcript of his interview:

Q: I spoke to Dassault CEO Éric Trappier just about a month back. What he said is that HAL and Dassault were engaged in talks regarding work share agreement and while doing that they could not take their agreement forward because a - the kind of price that was quoted per aircraft by HAL was high and b - the man hours that were needed were quite high. These are issues that have been raised by a foreign OEM with whom you have already executed past projects. We wanted to understand from you the HAL side of the story?

A: The cost consists of two parts basically the material cost, the labour cost is other one. Material cost if it is kept high, the labour content is not very big a content in that. So, we should look at the final cost- how it is built up. When you say that man hours are high, you cannot compare a hundredth aircraft being produced versus a new aircraft, the first aircraft to be produced, we call it the learning curve. Generally the learning curve has a margin of 79-80 percent which we give to first aircraft because the learning timings are higher. Then as you continue to produce the aircraft the time comes down. So by the 50th aircraft we will be at the same level as anybody else. In fact if you look at the Su-30, we are at a level which is lower than the Russian hours even now, so that means we are much more efficient there.

Initially when you ask for the first aircraft timings, that is man hours, it will definitely be higher because you cannot compare the first one versus the 100th one that is produced, so that is a difference.

Also look at it that my man hour rates are much lower than the international rates, because in India, the rates are lesser. It is lesser so the total cost against the labour is lower.

Q: As you are saying the man hour rates are low but in that specific case you quoted a man hour which was 2.7 times more…

A: It is not 2.7 times, I do not know how you got that figure but it is definitely 170-180 percent more in the first quote and it will keep on coming down as we increase the number of aircraft that we produce, it is a standard that we follow.

The main point that HAL raised was the depth of technology that was being transferred. The depth of technology was held with other OEMs (original equipment manufacturer) along with Dassault basically Thales and the SMEGMA, so those depth of technologies were what we wanted because making the structure was not a problem. So that is where we had some issues.

Q: So, you are saying that actually it was technology transfer which led to more problems rather than man hours and cost?

A: Yes and we left it at that at that point of time.

Q: There was no work share agreement?

A: I was not there at that time, so I do not know about work share agreement.

Q: Do you think that your issues were related to something totally different but could such issues have been sorted out? I am asking this because you in future will be engaging with many of the OEMs for future contracts. So, can such issues or could that issue in that particular case of Dassault have been sorted out?

A: It is a hypothetical question, I do not think I will be able to answer that. Those who were handling it at that point of time should be in a better position to address that. It is a closed chapter for us so I did not rake up and open out the issues of that point of time.

Q: You have always maintained that you were not into the business of offsets, but why not? Won't it add to your revenue stream?

A: It is not that we do not do offsets at all. There are some offsets which come in our area of work, if it is related to aircraft manufacture or design, we are ready to take those offsets but if it is not related to my area of work I will not be interested.

Q: So, you are not going to actively pursue offsets?

A: No. It is not my basic area of work where I will be looking at. My job is to make aircraft.