Tuesday, 26 January 2016

Leaders acknowledge difficulties over Rafale’s high cost



By Ajai Shukla
Business Standard, 26th Jan 16

For months, it has been whispered that New Delhi is unwilling to pay the price that French company Dassault Aviation is demanding for the 36 Rafale fighters that Prime Minister Narendra Modi had asked for in Paris last April. Today, Modi, and visiting French president, Francois Hollande, both confirmed those rumours.

Addressing the media after bilateral talks in New Delhi on Monday, Modi admitted that “financial issues” remain to be sorted out, which would be resolved quickly.

Speaking after Modi, Hollande stated: “There are some financial issues that will be sorted out in a couple of days, but the memorandum has been signed.”

The French president was referring to an Inter-Governmental Agreement (IGA) that was inked today. An IGA is a high-level expression of intent that does not have the force of a contract. Several IGAs signed by India are languishing --- such as the Indo-Russian IGA, signed in 2007, to jointly develop a multi-role transport aircraft.

There are two major hurdles to the contract. First, New Delhi and had Paris agreed the price of the 36 Rafales would be less than what Dassault had quoted in response to the Indian tender of 2007 for 126 medium multi-role combat aircraft (MMRCA). Of those 126 fighters, the first 18 were to be supplied in “flyaway condition”, i.e. fully built. Since 36 Rafales are now being bought in “flyaway condition”, their per-piece price must be lower than what Dassault quoted for those 18 fighters.

In Paris last April, Modi and Hollande “agreed to conclude an Inter-Governmental Agreement for supply of the aircraft on terms that would be better than conveyed by Dassault Aviation as part of a separate process underway [ie the MMRCA contract].”

Media reports put Dassault’s quote for 36 fighters as $7-9 billion dollars (Rs 47,500 – 60,000 crore). That figure would include the cost of an initial scale of weaponry and spare parts, as well as hangar facilities. That is an astronomic Rs 1,320 – 1,660 crore per aircraft.

“The government would find it extremely difficult to justify that price. For the cost of a Rafale, the Indian Air Force (IAF) could buy 4-5 Sukhoi-30MKI, or 10 Tejas light fighters”, points out Bharat Karnad of the Centre for Policy Research, who has been critical of the MMRCA procurement.

The second hurdle to buying 36 Rafales in flyaway condition is the abandonment of any “Make in India” component. To bring in an element of that prime ministerial initiative, the defence ministry would have to strictly enforce a 50 per cent offsets clause, which would raise Dassault’s cost further.

“There are quite clearly serious complications in negotiating this deal”, points out Pushpinder Singh, editor of the authoritative aerospace trade journal, Vayu.

Dassault had, on January 31, 2012, been declared the winner of India’s tender for 126 MMRCA aircraft. After exhaustive trials, the IAF chose the Rafale over five other fighters --- Boeing’s F/A-18E/F Super Hornet; Lockheed Martin’s F-16IN Super Viper; Saab’s Gripen NG; RAC-MiG’s MiG-35 and Eurofighter GmbH’s Typhoon.

However, in protracted price negotiations that followed, the defence ministry found that Dassault’s payment would amount to more than what its commercial bid initially suggested. The United Progressive Alliance government dragged on the negotiations. The National Democratic Alliance government chose to abandon the MMRCA tender altogether, and instead buy 36 Rafales over-the-counter.

The IAF insists it needs the Rafale, since it now operates just 34 squadrons against the 45 squadrons needed for a two-front war.

Critics of the Rafale procurement object, first, to its price; but also point out that the IAF already operates seven different fighters --- Sukhoi-30MKI, MiG-29, MiG-27, MiG-21, Mirage 2000, Jaguar and Tejas LCA. Buying an eighth fighter, would require major expenditure on depots, maintenance infrastructure and spare part stocks.

Furthermore, the multi-billion dollar MMRCA contract was to be a springboard for galvanising India’s aerospace industry. Buying 36 fully built Rafales would only benefit that of France. The India contract is vital for Dassault, which provides 11,600 French jobs and earned Euro 3.68 billion in revenue last year. But critics wonder what part of India’s defence industry stands to benefit. 

8 comments:

Anonymous said...

Tell them Au revoir and get the F35 as it would cost a little less than Rafale deal and it is a generation ahead of Rafale. Tell them clearly that the price has to be below 100 million per aircraft and all ammo has to be correctly priced if they do it hen no money for those ho were thumping trumpets for Rafale buy as the airforce cannot do without it. Postpone it till November. 2016 and then the deal would work out the way India wants as there would be. Plan B as well as plan C.

Anonymous said...

IAF wanted Mirage2000 as it's MRCA. That simple wish has ballooned into a monster 15 years later.
We now have Tejas that is local & so much cheaper, performance almost there with mirages.
We are upgrading mirage 2000s at a huge cost.
We are upgrading Jaguars .
Have 200+ Su-30 MKI that carry Brahmos. These would not been bought if choice were left to IAF !

Let us not forget 2 squadrons of navy Mig-29s. These are for defence of our motherland even if they belong to Navy.

These should do . Will Air Force ever commit 200 MUSD birds to deep strike over china ?
Let airforce focus supporting DRDO on stand off weapons. Do they have a design beaure like navy or the proposed one in the army.
Can the Air Force for a change spare 1-2 aircraft to test Kaveri engines , quickly ?

This budget alone can get our Jawans bullet proof jackets, night vision devices, cameras, better assult rifles, clothing etc.
Maybe some sense needs to drilled into this force.

Adabi Mud said...

Indeed a timely written article but it was expected from the blogger. While there is no doubt about the escalated cost of the Rafale contract, we don't know the exact contract details yet, which would include weapons, technology blue prints, training, simulators, spare parts, maintenance etc. It is important to mention here that Rafale was the only strong contender among all MRCA participants because of some obvious advantages. It is an all French fighter, which performs multi role missions, whereas a cost effective fighter like JAS Gripen, which has severe combat limitations in the indian context and actually comparable with Tejas, relies heavily on the US avionics and engine. It would be just ludicrous to buy another Tejas from a foreign country. We already have more than 200 30MKIs, which are predominantly air-dominance fighters and therefore we don't need any more still-in-development mig-35s. Besides there are strong indications that the number of 30MKIs is likely to surpass 400 in near future. We are not matching our capabilities with Pakistan so procuring an improved F-16 is just so pointless and F-18 is meant for carrier-based missions not for typical airforce missions. Typhoon is the best alternative to Rafale but trust me a multivendor product is a pain in back. If the Indian Government had spent a fraction of this money in 2007 on developing key technologies, such as radome, ejection seat, radars, targeting pod and even on improved engine design, we would have not only seen an 100% indigenous Tejas but also flying prototypes of AMCA. IMO whole MRCA was a waste of time & money but a technological inferior country like India doesn't have too many options either. People like Pant and Karnad or the blogger could have different interests and I don't want to waste my/readers time in discussing them here. Nevertheless, let's try not be irrational just for the sack of filling pages for a magazine, newspaper or blog and wait for the final contract details to come out before pointing fingers on the negotiating officials of IAF and ministry. What is more relieving to see in this article, is a total absence of JAS Gripen. The blogger may again label me as 'an idiot' or may be 'a troll' but I take such words as a compliment not as an insult. FYI this is the last comment on your blog.

Anonymous said...

Referring to the last line in the article about critics wondering which part of the Indian defence industry benefits from the Rafale deal; it makes no sense to clarify that while the deal is still being negotiated. Though aspects of it that have been speculated in the media have ranged from one Rafale Production line to jet engine technology for Kaveri to miniature nuclear reactor technology for Arihant's successors. That said, again there is an unhealthy focus on headline costs; when the MMRCA specifically reworked the methodology to consider full life cycle costs. And one must believe that the Defence ministry has hard data on the full life cycle cost of Russian equipment as a point of reference. Also, contrary to popular belief in the Indian media, the delay in concluding the negotiations, hurts Hollande more than it hurts India. It is Hollande who is up for re-election next year; while India is still churning out the less reliable but considerably potent SU-30MKI.

Anonymous said...

If they are buying off-shelf, then why not buy the F35s?

Another feather in the cap to the India-US G2G defense deals.

ROBINSON said...

iN my opinion, the issue of depots, maintenance infrastructure and spare part stocks for various types of aircraft shouldn't be an issue as most of these aircrafts like the MIG-21, MIG27, Jaguars are obsolete. They will one day have to be replaced, so you will encounter this issue in the later stage. It looks like the Rafale deal seems to make sense if the depots, maintenance infrastructure and spare part stocks issue is taken into account. As these aircraft become obsolete, the replacement should be Rafale, with that the number of strike aircraft operated by the IAF would be rationalized to 5 from eight.

Anonymous said...

Opening the doors shut on EF would be the best option for the time being till french make up their minds in lowering the price. Not having plan B has placed france in an advantage position. Does IAF has options other than Rafales?

royalhawk said...

Can anyone tell me how having 36 Rafael is better than 100 sukois and 150 Tejas . 250 aircrafts against 36 that is 6:1 .I will take that odds any day.We need numbers and nobody knows that better than IAF.