Wednesday, January 7, 2015
The Rafale Saga
When the 'rafales' prevailed in the MMRCA competition, many thought that the Big Deal would soon be signed; three years later, it is still going through tough procedural ‘gusts of wind’. The reasons are not the qualities of the combat aircraft, but other complications.
Out of the 126 aircrafts to be supplied to the IAF, 18 planes are to be manufactured by the French supplier, Dassault Aviation, from its facilities in France, while the remaining 108 planes have to be built in India, under a large Transfer of Technology agreement, by Hindustan Aeronitical Ltd. (HAL).
Till recently the French side seemed very optimistic. In November, Eric Trappier, Dassault’s Chairman declared that his firm expected to conclude a deal by March: “The final phase of exclusive negotiations on the contract should conclude within India's current budget year ending in March 2015.”
He added that this date was a ‘reasonable goal’.
On December 2, when this writer interviewed the French Defence Minister and asked about the pace of the negotiations, Mr. Le Drian said: “The negotiations are proceeding well. For a project of this scale and such complexity, which brings the transfer of numerous know-hows to several industrial stakeholders of India, the pace is comparable to that of other negotiations. Both our Governments share the will to conclude it and this is, of course, essential.”
In January 2012, the French firm Dassault Aviation had been selected for supplying 126 MMRCAs to the IAF. The Rafale fighter had gone through a long competitive process which lasted five years, with the American F/A-18 and F-16, Russian MiG 35, European Eurofighter and Swedish Saab Gripen in the race.
While the initial Request for Information had been issued in 2001, the Request for Proposal (RFP) was only issued in 2007, as the then minister, AK Antony wanted to add new clauses, such as the Total Life-cycle Costs, in the Indian defence procurement policy. This is where the ‘complications’ started.
It is not always easy to follow the intricacies of the Rafale saga, since Dassault is, as the French say ‘muet comme une carpe’ (‘silent as a carp fish’ which makes bubbles with no sound); and the Indian Ministry of Defence and the Indian Air Force are not very loquacious too; it is understandable in view of the high stakes.
One can however gather from the Indian press that the main disagreement raised by the French is that Dassault is not ready to take the ‘full responsibility’ for the 108 fighters to be manufactured in India by HAL, while there is apparently no issue with the 18 fighter planes to be manufactured in France by Dassault.
An Indian defence ministry official told some Indian journalists (on the condition of anonymity, as usual): “The ministry is in no hurry to conclude the negotiations despite what people may say. Dassault has to accept commitment mentioned in the RFP.”
Another ministry insider said that Dassault was not agreeing to HAL’s demand to take responsibility for the manufacturing process in India, “regardless of French government’s pressure, [Dassault finds that] it is too risky”.
The same senior Indian MoD official added: “accepting terms and conditions of the original tender have emerged as the key issue to be resolved. The RFP clearly stated that under the transfer of technology agreement, the French will have to …take full responsibility of Indian manufactured fighter jets.”
The negotiations seem stuck on the imposition of penalties in case any delay occurs in the supply of the aircraft manufactured by HAL.
The question is: can Delhi ‘legally’ impose liabilities on something over which Dassault has no control? This sounds like one of these clauses drafted during the Antony Raj, where the ‘foreign’ supplier has to pay’.
This is also true for the Civil Liability for Nuclear Damage Act, which will be discussed during Obama’s visit later this month. The Economic Times recently editorialized: “India should bring its liability law in line with international norms. It makes little sense to keep nuclear suppliers’ liability open-ended and unlimited. This is what has held back vendors from the US, Japan and elsewhere from concretising their India plans.”
This does not solve the Rafale issue.
Ajia Shukla writes in The Business Standard: “For the first time since January 31, 2012, …a top Indian official has admitted serious problems in negotiating the purchase with French vendor, Dassault.”
Defence Minister Manohar Parrikar indeed spoke of ‘complications’ in the negotiations “with the French side reluctant to meet commitments that the IAF had specified in the tender”. Parrikar announced India’s Plan B: “The Su-30MKI is an adequate aircraft for meeting the air force’s needs”.
It is only a bluff or is the IAF serious?
Earlier this month, the Indian minister had assured his French counterpart that the Rafale negotiations would be placed on a ‘fast track’. More recently, he asserted that Le Drian “had committed to send an empowered person to negotiate after New Year.”
Now it appears that a French ‘empowered’ delegation is likely to visit India to take forward the negotiations. One could however ask: empowered' by whom?
Dassault Aviations is a private limited company, the last aviation group in the world still owned by its founding family, who owns 51% of the group’s shares (while EADS France – Airbus Group has 46%).
Could someone outside Dassault Aviation be ‘empowered’?
Would Delhi like to deal with an official of the French Ministry of Defence?
In which capacity would that person negotiate? Can the French State guarantee the liabilities of a private limited firm? All this seems rather complicated.
Since 1999, Dassault’s main activity has been the export of business jets (Falcons). In 2012, 71% of the revenues came from the sales of the Falcons, while the Defence sector (export) is less than 5%. Is Dassault ready to take the risk to spoil its ‘civilian’ branch by guaranteeing the Rafale deal? Of course, it is up to the familial firm to decide.
When Mr. Parrikar recently declared, ‘we are in a mess that I can't spell out’, was he thinking of this Deal?
There is no doubt that Dassault’s defence branch badly needs the Rafale order to survive, while the Indian Air Force desperately has to replace its ageing MiG-21s with a modern fighter. The IAF is aware that HAL’s LCA, the Tejas does not fit the bill; further the IAF which has today a sanctioned strength of 45 fighter jet squadrons, has only 25 operational squadrons.
The ‘Rafale Deal’ would be indeed a win-win for both India and France …if signed. Let us hope for the best.