Keeping the high costs of hardware upgrade in mind, India’s Rafale negotiators will be well-advised to seek firm contractual assurances. They will also keep in mind that the order is a life-or-death situation for Rafale and leverage that advantage to extract maximum benefits from the French firm.
Dassault Aviation has secured a dazzling victory with India\’s mega-order to beef up its air power with 126 Rafale fighter jets. The first Rafale export order breathes life into the Dassault\’s combat plane programme and makes it a strong contender on the global market for fighters. However, for the company which has seen several export orders slipping between the cup and the lip, several hurdles remain before it can finally lay its hands on the prized contract.
On January 31, it was announced that Dassault\’s Rafale was the lowest bidder (L1) in the final shootout with EADS Cassidian\’s Eurofighter. The two companies were the finalists in India\’s $10.4 billion order to expand its fleet of fighter planes – technically called medium multi-role combat aircraft (MMRCA) – after eliminating rivals like Lockheed Martin\’s F-16IN, Boeing\’s F-18, Mikoyan\’s MiG-35 Saab\’s Gripen NG.
According to India\’s defence procurement procedure (DPP), a specially constituted body called the contract negotiations committee will now engage Dassault for more discussions, a process which promises to be long and arduous for both sides. The MMRCA order comes with a bevy of conditions which the winner must fulfill. The negotiations will include plane configuration, precise costs, delivery of offsets and technology transfer.
India will sign the final contract with Dassault only in the next financial year. According to the request for proposal (RFP), the winner must deliver 18 of the 126 aircraft to the Indian Air Force (IAF) in fly-away condition within 36 months. The rest will be manufactured in Bangalore by India\’s state-owned Hindustan Aeronautics Ltd (HAL) under a technology transfer programme. The winner must also agree to invest a portion of the contract amount back into India\’s defence sector, a system called \’defence offsets.\’
However, all is not well until the last signature is on paper. In November 2011, Dassault lost a lucrative and long-awaited deal to sell at least 60 Rafale jets to the United Arab Emirates at the eleventh hour, when crown prince prince Sheikh Mohammed bin Zayed, deputy supreme commander of UAE Armed Forces said the contract terms were “uncompetitive and unworkable.” Recently the company lost to Sweden\’s Gripen in Switzerland. Earlier, it lost campaigns in the Netherlands and South Korea in 2002, Singapore in 2005, Saudi Arabia in 2006 and Morocco in 2007.
The company has been desperately trying for years to secure a beachhead in Brazil, including top-level lobbying by France\’s president Nicolas Sarkozy. Its breakthrough in India seems to have attracted the Brazilians\’ attention, with a recent Reuters report saying the South American nation is “very likely” to choose Rafale to refurbish its air force. In Brazil, Dassault is up against Boeing\’s F-18 Super Hornet and Saab\’s Gripen. “The India deal changed everything,” a Brazilian source told Reuters. “With India\’s decision, it\’s now very likely the Rafale will be the winner here.”
After the UAE setback, French media attacked Dassault for inability to win in competitive overseas markets, though its Mirage and Rafale jets form the mainstay of the French air force. The privately-owned company also faced fire of charges of living off state patronage (its chairman Serge Dassault is a close friend of Sarkozy) while French taxpayers subsidise the expensive Rafale programme. Dassault himself is a media baron, owning the conservative newspaper Le Figaro.
The prospect of winning India’s MMRCA tender has muted such criticism. However, focus has shifted to a new topic. According to a recent French senate review of the 2012 defence budget, the total size of the Rafale programme is 286 units, of which only 180 have got firm orders from the French government. Including development costs, the total programme cost stands at 43,567 million euros. Dividing the total programme cost by the number of planes, the senate calculates the cost of each Rafale at a hefty 152.3 million euros or Rs 990 crore in today’s terms.
New Delhi\’s selection of Rafale as the lowest MMRCA bidder has sparked a new debate in France: If the company has offered to sell its planes to India at a heavy discount to score a desperately—needed export success, who will finance the price gap? Will it be the French taxpayer? If a report in centre-left Le Canard enchaine newspaper is to be believed, France hopes to make up for the low sticker price by selling at full price all add-ons —including bombs, missiles and rockets the Rafale can carry.
For India, this raises questions on the type of plane Dassault has offered and the elements of its package. Indian negotiators are bound to go through the contract details with a fine-toothed comb to avoid over-paying for the Rafale. The country\’s purchase of 500 MBDA-built MICA missiles from France and the expensive mid-life upgrade of our fleet of Dassault Mirage planes had come under fire for the high costs associated with them.
Negotiations will also cover two major hurdles related to transfer of technology and implementation of defence offsets. Investing approximately $5 billion back into India’s defence segment as required by tender rules will be a tough challenge for any company. Dassault will also have to share technologies with its Indian manufacturing partner, something which many defence manufacturers are not excited about.
After the UAE debacle and the consequent media attack, Dassault chief executive Charles Edelstenne had touted Rafale\’s 100% made-in-France tag as an advantage, which would keep all its high-end technologies, jobs and value-addition within country. But the India deal will force France and Dassault to share critical technologies, processes and jobs. The company is under strong pressure to deliver as per India\’s needs and demands, since it is this huge order that gives an otherwise-faltering Rafale programme its lifeline. India’s negotiators will be well-advised to seek firm contractual assurances on this front during negotiations. They will also keep in mind that the order is a life-or-death situation for Rafale and leverage that advantage to extract maximum benefits.
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