Rafale soars high, hopes for a deal

The elusive Indian MMRCA deal is the biggest prospect for Dassault Aviation

Two editions ago, Aero India 2011 set the Bengaluru skies on fire as five out of the six contenders for the 126 Medium Multi-Role Combat Aircraft (MMRCA) deal competed to impress the officials and audience at the show.

A year later, the defence ministry selected Dassault Aviation’s Rafale as the preferred choice for the Indian Air Force. The next edition of Aero India in 2013 witnessed a muted presence of the foreign fighter jets with only the Rafale flying, hopeful of a commercial contract in the imminent future.

But the deal remains elusive three years after the shortlist as Aero India 2015 is set to commence. The US fighters are now back in Bengaluru and so is the ever hopeful Rafale.

While the presence of F-15 Eagles and F-16 does not mean a reentry of the US companies in the fray at this point, their presence would be a reminder to the participating French defence minister Jean-Yves Le Drian on the need to conclude the much anticipated deal at the earliest.

As the negotiations between India and France entered the fourth year, the principal point of concern for Dassault Aviation remained the liability associated with the production of Rafale fighters at HAL.

India insisted that the role of the HAL as lead integrator was clearly written in the 211 request for proposal (RFP) issued by the defence ministry in 2007 and Dassault has to follow it to the hilt.

On the eve of Aero-India 2015, the French authorities, however, countered the MoD claiming that a 2012 mutually agreed document on the supply of Rafale fighter jets to New Delhi never committed the company to guarantee the aircraft manufactured in India.

“Dassault will not be responsible for the whole contract. It is a co-management setup,” says chief of French defence procurement agency Laurent Collet-Billon, who was clear that France will not assume full liability for the HAL-produced aircraft. “It cannot be a problem, because it was not in the RFP.”

When Le Drian met his Indian counterpart Manohar Parrikar in December, 2014 for bilateral talks, the two sides agreed to “resolve every differences in a fast track” manner. The main stalling issue was to own up the responsibility of the HAL-made aircraft as the French firm stated it could not guarantee what HAL produces.

The last 60 planes are slated to have 90 per cent Indian content. Soon after his meeting with the French Minister, Parrikar said India might consider buying more Su-30 MKI as a viable alternative to the Rafale. Even though the bigger and heavier Su-30 MKI belongs to a different class, the message was probably for the political class and the French industry.

The Indian deal is the biggest prospect for Dassault Aviation, whose two attempts to export Rafale in the last decade – South Korea in 2002 and Brazil in 2013 – fell through. Besides India, the French firm is in talks with Egypt for supplying the aircraft though the numbers (24) are far too small.

The Indian deal is the biggest ones in the history of Indian military aviation. As per the 2007 RFP, the plan was to procure 126 MMRCAs at an estimated cost of Rs 42,000 crores. Defence Procurement Procedure, 2006 was to be used the guiding selection document. Seven years down the line, the cost is sure to be increased.

But exactly how much the hike would be remains unknown and is subject to negotiations.
Under the terms of purchase, the first 18 aircraft will come in a ‘fly away’ condition while the remaining 108 will be manufactured under Transfer of Technology.

The selected vendor would also be required to undertake 50 per cent offset obligations in India. The transfer of technology and offset contracts are meant to provide a great technological and economic boost to the indigenous defence industries including Defence Public Sector Undertakings, Raksha Udyog Ratnas and other eligible private sector industries. The foreign vendor would be provided great flexibility in effecting tie up with Indian partners for the purpose.

As the aircraft are likely to be in service for over 40 years, care has been taken to ensure that only determinable factors, which do not lend themselves to any subjectivity, are included in the commercial selection that was carried out in a transparent and fair manner.

The three guiding principles for this procurement scheme was meeting the IAF’s operational requirements; a competitive, fair and transparent selection process so that best value for money is realized and an opportunity fro the Indian defence industries to grow to global scales.

Six fighter jets – Russia’s MIG-35 (RAC MiG); Swedish JAS-39 (Gripen); French Rafale (Dassault Aviation); American F-16 Falcon (Lockheed Martin) and F/A-18 Super Hornet (Boeing) and Eurofighter Typhoon (made by a consortium of British, German, Spanish and Italian firms) – were tested on 600 test points.

After the technical evaluation, only Rafale and Eurofighter were down-selected and finally Rafale emerged as the preferred platform in 2012, leading to the commencement of the commercial negotiations. A new concept like the life cycle cost was factored into commercial negotiations to ensure than an aircraft that appears cheap upfront, does not turn out to be a costly one because of the spares and maintenance.

As the protracted negotiations continued, IAF remained the most worried with successive air chiefs claiming that the service wanted the fighters “yesterday” to replace the ageing MiG-21 fleet. The IAF has recently confessed to a Parliamentary Standing Committee that the service is now down to 25 “active squadrons”.

"With regard to existing squadron strength, it is learnt that we are down to 25 squadrons even though the authorisation is for 42 combat squadrons. Thus, our capability has already come down," the Standing Committee on Defence said in a report tabled in Parliament.

Noting that IAF had only 25 active fighter squadrons with 14 of them equipped with MiG-21s and MiG-27s combat planes which would retire between 2015 and 2024, it said the strength would be reduced to just 11 squadrons by 2024. This "widening gap" has occurred primarily due to the rate of retirement of the fighter jet aircraft and the defence ministry’s inability to find out the replacement.

As the Prime Minister Narendra Modi plans to travel to France in April, efforts are on from both sides to arrive at some sort of understanding on the thorny issues so that a positive statement can be made at the conclusion of Modi’s first bilateral trip to Paris.