Thursday, 21 April 2016

Parrikar denies Rafale contract sealed, contradicts BJP



By Ajai Shukla
Business Standard, 22nd Apr 16

Illustrating the problems in concluding a pricey contract with French company, Dassault, for 36 Rafale fighter aircraft, Defence Minister Manohar Parrikar on Thursday distanced himself from an earlier claim by the ruling party that the deal had been “finalised at $8.8 billion” (Rs 59,000 crore at current exchange rates).

Speaking to journalists in New Delhi, Parrikar issued a measured clarification that the deal is at “an advanced stage”, and the government intends to “close it quite soon”.

The defence minister is some distance from the ruling Bharatiya Janata Party (BJP), which has already claimed the Rafale contract as a victory. On Tuesday, the party had tweeted: “Rafale deal: ‘Strengthening defence capabilities’ – Modi government saved $3.2 billion out of $12 billion deal.”

The party tweet was accompanied by an elaborate graphic that stated: “The deal to buy 36 state-of-the-art Rafale aircrafts (sic) from France at $12 billion (around Rs 80,000 crore) was re-negotiated and finalised at $8.8 billion (around Rs 59,000 crore).”

The BJP tweet referred to the Rafale contract as a done deal, with negotiations in the past tense.

Parrikar today contradicted that, stating: “I still can’t say that negotiations are totally cleared until we sign the deal, or at least the deal is forwarded to the Cabinet for approval.”

This is the heart of the contradiction: The BJP, facing flak for being weak on national security after its outreach to Pakistan, needs to brandish a high-profile defence procurement success like the Rafale. However, government negotiators and decision makers know they could face years of awkward questions over a price tag that is hard to justify.

The $8.8 billion tag, distributed over 36 aircraft, puts the cost of each Rafale at $244 million (Rs 1,640 crore). That is more than thrice as expensive as the highly capable Sukhoi-30MKI, which costs Rs 450 crore; and about six times as costly as The Rs 275 crore Tejas LCA Mark IA, which is scheduled for production in 2018.

Senior defence ministry sources that are close to the negotiations speak of deep disquiet amongst negotiators at the pressure to conclude the contract. The negotiators point out that Dassault had quoted $18-20 billion for 126 Rafales in its commercial bid in the medium multi-role combat aircraft (MMRCA) tender. Even accounting for inflation, negotiators say an $8.8 billion bid for 36 fighters is hard to justify.

In fact, that is Dassault’s selling price, given that the Rafale is being built only in small numbers that do not allow economy of scale. The French air force and navy slashed Rafale orders to just 180 aircraft, of which barely 140 have been delivered.

Foreign orders have been painfully slow in coming. Early last year, Egypt ordered 24 Rafales for $5.9 billion --- a price tag in line with what India is being offered. That was followed last May by an order from Qatar for 24 Rafales for $7 billion, a cost that included missiles to arm the fighter.

In comparison Eurofighter GmbH has orders of some 600 fighters (almost 500 delivered) from six countries, with more orders in the pipeline. Similarly, there are more than 500 American F/A-18 Super Hornets already in service; Boeing is pitching strongly to build these in India for an estimated cost per fighter of just over $100 million.

What is especially worrying to defence planners, though apparently not to the Indian Air Force (IAF), is the long-term cost of the Rafale. Analysts cite the thumb rule that the cost of operating a fighter through its three-decade service life cycle is about 6-10 times its procurement cost. That means the IAF would pay Rs 354,000-590,000 crore, in current rupees, as the Rafale’s operating cost over 30 years. Annualised, this amounts to Rs 11,800-20,000 crore per year, far more than what the IAF can afford.

“In the final balance, the government will have to decide whether it can afford to pay so much for political posturing on defence. If it abandons fiscal prudence in the belief that this would be someone else’s problem in the future, future governments will pay for the Rafale from some other -- probably more critical --- defence head. Ultimately, funds for defence are finite”, says a prominent aviation analyst, speaking anonymously.

22 comments:

Anonymous said...

On the price we need to bear in mind that this includes life cycle costs so it is not that we pay 8.8 Billion dollars when the 36th aircraft is delieverd. It means that over the 40 year life of the craft this amount will be incurred although a large share of this will be done initially. But also we must imagine what it would have cost us if we had gone in for 126 rafale's, essentially ending up paying 1 years defence budget to fulfil that contract even though it would have been built in India. Clearly we cannot afford 126 rafales and to that extent this govt did the right thing by cutting down on the numbers. let's hope a cheaper alternative comes up but clearly this will neither be russian nor indian make. but looking at the overall price tag, we must look also at alternatives like F35 JSF. although it is no match to rafale on payload, it very well makes up for that on the avionics and stealth. I hope someone thinks in this direction especially with no future of fgfa project.

Anonymous said...

For an aircraft that first flew in 1986, that is a lot of money. The cost will double when upgrades or MLU are needed 20 years from now. Shows a lack of vision of the Governments in the 1980's and inability to learn from Mig-29/Mirage-2000 upgrades each of which have cost a bomb! Better off getting more Su-30MKI in spite of issues with Russia. At least training, logistics would be cost saver. China has two 50th generation fighter planes and our 3++/4g Tejas is not even in service. AMCA is on the drawing board. God save India if she has to fight a war on two sides!

Anonymous said...

This deal has been on since 2007. I do not think we as a nation can walk off after making 5 companies dance for so long.
Post Kargil IAF wanted to buy Mirage 2000. MoD found ingenious ways to say NO. Then came with competitive evaluation.
This just means our Babudom is simply incompetent to say yes. They find reasons to say No or push files back & forth.

So the decision necessarily needs to come from from Politicians.
The we accuse them of playing games !

What we should do,is stop pensions of all defence secretaries since 1999 , in any other country they would put behind bars with keys thrown away.
Let us not curse Modi or Parrikar or even IAF.
Next let the 5 star chief of defence staff be made defence secretary. I am sure things will be straighten up in a few months.

Anonymous said...

Any capital acquisition has to look,at what IT guys calls,as TCO.Total Cost of Ownership.This is computed,over the life of the asset. The technology guys choose the lowest TCO.Else their CFOs dont sign,off on the expenditure. If the TCO of 36 RAFALE are going to be US$100 billion over its lifetime.Thats saying a lot.It says each aircraft is going to cost you an aircraft carrier or two!At the rate squadrons decimate, due to crashes.The 36 @aircraft will ALL disappear before their end of lifetime period.So expenditures for no assets,or for nothing.There is no point in doing this,just to keep the French ready.Either work on the SU 30 and their next variant or our own desi variant of Tejas or

Ajay Singh said...

The Government seeks to portray this deal as a great success. In reality, however, it is a reflection of the abject failure of the Government (the IAF and MOD included) in meeting national defence needs in a timely manner. The IAF - as it had originally projected - needs 6-10 squadrons of MMRCA aircraft (126-200 aircraft) to meet the threat of a two-front war. Even so, it would remain inferior to China in the light-weight aircraft segment (since induction of the Tejas 2 - assuming it lives up to the requirements - is delayed) and the heavy-weight 5th generation aircraft segment (the PAK-FA with Russia) is making no progress. Thus, this deal to acquire 36 aircraft (2 squadrons without war wastage reserves at that) is neither here nor there. This is just political showmanship concealing the incompetence of the defence planning and procurement apparatus.

The failures are many: the IAF and MOD planned the 6-10 squadron requirement and wasted several years in a tender exercise when they should have realised that this would not be an affordable proposition; it was conducted with sense of urgency; costs spiralled into the realms of fantasy and in the end the inevitable happened. There was no back-up plan. In the end the IAF will have to make do with what it manages to cobble together (as it is doing in the light-weight segment with the over-aged MiG21) putting pilots lives at risk. The country will lose air superiority to China and Pakistan with consequent risks. The only beneficiaries will be the IAF brass and bureaucrats who will retire into cushy sinecures, and of course the netas.

Anonymous said...

NSR says ---
Remember France charged $45 million dollars per each Mirage-2000 and it does not even include a new engine ...

What kind of stupid airforce will try to run a fighter with 30+ year old...Only IAF..

The deal is too complicated and after signing on the dotted line, France will start pulling dollars/Eeuros/Rupees through India's nose...

India must put a full stop to it immediately...

Pay a billion dollars or so to get full TOT for SU-30MKI and SU-35S avionics...like AESA radar...and build moe of them...

Get a good bargain from USA for a fighter production line...I think Boeing F/A-18 makes sense...AESA radar and GE F-414 engine technology and manufacturing and sub-assemblies...

India will get into the world aerospace map...with Rafale, it only drains the funds forever...

Go on an expedited basis to get S-400 and this will make Cina and Pakistan to think twice before firing a shot...


Rafale is not the solution for any of the India's defense problems...


Run as if your life is in danger...

Anonymous said...

If somebody in BJP thinks signing the deal at this price is a feather in the cap then it means they have as poor a vision of defence and security as the UPA.

Anonymous said...

What's the harm in settling for a F-16/F-35 combination though single engined but still we can afford a much larger of aircraft than just 2-3 squadrons of Rafales.how will the IAF justify the Super hornet when it couldnt make the cut during the MMRCA trials?

Alok Asthana said...

You seem to be right. The deciding factor is hardly which aircraft meets our need best, most economically. It is - what can Modi do soon enough to counter the image of harming national security? It seems tht the Rafale deal is handy so it might be used. Who cares for Indian defence, anyway? Neither the ministers, nor its people.

Jim Marven said...

Canadian military vs american military?
expat

Anonymous said...

NSR says --

The new GE F-414 Enhanced Performance or Enhanced Duration has 20% more thrust so it will meet and beat all the IAF requirements...

The AESA radar is top of the line...

USA sells missiles and bombs at the same price it buys and with some maintenance costs...not like France's atrocious prices...

When India can get engine and AESA radar technology, what is left to worry?

The deal would help LCA/Tejas and AMCA, and even Kaveri engine...

Go for it when Boeing and USA is willing to transfer entire manufacturing...
Ask Boeing to setup and improve manufacturing facilities for Tejas and AMCA...

This kind of opportunity does not come often...

gurinder said...

Only in India can you find a Government willing to pay billions of dollars to a foreign company, for an overpriced product it really doesn't need , but can't find money for basics like new ballistic protection, thermal imaging and sights as well as modern communications for its troops.Nobody from the Government or IAF have been able to make a business case for this aircraft. I can't believe that this is the same air force which was a world leader with the SU-30 MKI

Vijay Chauhan said...

I would still say Typhoon is a better deal than Rafale.

Anonymous said...

What options does the current govt have? Backing out of The Rafale now after the big announcement in Paris would mean egg on Modi's face.

Unless this is being used as a leverage against signing contract for F18s. Makes sense with the "Make in India" movement.

Anonymous said...

NSR says ---

Even the F-16 offered by Lockheed Martin is vastly superior to that of one offered to Pakistan...It can also be cheaper to maintain and operate...
It can do well until Tejas II and AMCA comes in...

Boeing with its vast commercial and military manufacturing base may give better deal because it has no other fighter programs...

So grab one and open an Indian manufacturing so it will not have to starve for spares and servicing...

I think any one of these programs and adequate batteries of S-400 will keep India in fine shape...

swap said...

"Egypt ordered 24 Rafales for $5.9 billion --- a price tag in line with what India is being offered. "
If this is the competence of a defense journalist one can only imagine what others must be doing .Egypt deal includes almost a billion dollar FREMM frigate , it also includes missiles .

Anonymous said...

@Nsr

China is getting s 400 before India. According to Russia, advanced payment has already been made.

From dark

Anonymous said...

NSR says ---

China has been begging for S-400 and SU-35S for many years and they are getting them soon...

What our IAF does not understand that S-400 can shoot them down while they are in Indian territory itself...

I wrote many comments that we should give highest priority to S-400 as we can shoot Pakistani nuclear missiles and bombers in its own territory....

An effective air and missile defense is what will save India from these two countries...

Ram Bharadwaj said...

This cost of 8.8 billion dollars includes the cost of setting up the ground handling support at the base. It also includes the Missiles and other munitions. And the MRO cost as well. For any future purchases we will not need to incur the cost of setting up the ground handling support.

This is true for any new platform.

We should compare the cost of procuring the first batch of Su-30 MKI in 1996 with the Rafale acquisition after factoring inflation. We procured 40 jets at that time.

Anonymous said...

Well Chinese will have s 400 to study. Strengths and weaknesses, will be evaluated.

From dark

Anonymous said...

The french need our support. Their unemployment rates are too high. We need to help them with our money.

Raahul Kumar said...

Horrifying, terrifying sticker shock. The cost is more than what it takes to reach Mars.

$8.8 billion tag, distributed over 36 aircraft, puts the cost of each Rafale at $244 million (Rs 1,640 crore)That means the IAF would pay Rs 354,000-590,000 crore, in current rupees, as the Rafale’s operating cost over 30 years. Annualised, this amounts to Rs 11,800-20,000 crore per year

Too much. Cancel the deal fast, cancel it now. Why drag it out any longer? It was obvious from the start that the cost was too high.