Will the IAF not get its Rafales?

French and Indian Air Chiefs in front of Rafale (Jodhpur 2014)

My article Will the IAF not get its Rafales? appeared in Rediff.com

With the Rafale fighter deal stuck over price, can the prime minister step in and find a way out for both countries?
Claude Arpi examines the issue.

During the recently conducted Indian Air Force drill ('Iron Fist Exercise 2016') in Pokhran, Rajasthan, attended by President Pranab Mukherjee and Prime Minister Narendra Modi, Air Chief Marshal Arup Raha declared: “This demonstration is the tip of an iceberg when compared to the overall capability of the air force.”
Well, it is a melting iceberg, with the Indian fleet rapidly reducing.
The Air Chief admitted: “The IAF has flagged concerns about the shortage of fighter jets and the process for the acquisition of 36 French Rafale fighter aircraft is still underway."
What does ‘underway’ mean?

Hollande's visit
Let us do a flashback to January 25, 2016.
As Manohar Parrikar, the Indian Defence Minister and his French counterpart Jean-Yves Le Drian signed a MoU for the purchase of 36 Rafale aircrafts, President Hollande of France said, in front of the national and international media in Hyderabad House, that the ‘real’ deal would be inked ‘dans les jours prochains’ (‘in the coming days’).
Later Dassault Aviation, the aircraft manufacturer, clarified that it would take about 4 weeks. The French officials, including Le Drian, accompanying the French President during his State visit were quite optimistic that this could be done.
On February 18, during an interview with Karan Thapar on India Today TV Parrikar stated: “Price is the only issue left now, …an agreement on 50 percent offsets has been reached.”
News appeared that Dassault would have quoted around $9 billion for the 36 jets while South Block was expecting a much cheaper price. The final deal would include two types of missiles and bombs, training of pilots and two base facilities for the planes.
Incidentally, the latter creates a huge problem for the French Air Force (FAF), already overstretched with a growing number of overseas military interventions and a shrinking budget. The Rafale deal, if it comes through, like the previous ones signed with Egypt and Qatar, is not a boon for the FAF, which will be responsible for the training and setting up of the bases. It will however be a huge success for the rather unpopular French President …and France’s economy.
As talks were going on, a report in the Indian press pointed out to several loopholes, apparently earlier overlooked by the Modi Sarkar.
The Union Law Ministry would be objecting to some clauses in the January MoU; they could 'compromise' India’s interests, it says.

The Saga
But first let us recall that the initial Request for Information had been issued in 2001. Fifteen years ago! 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. The ‘complications’ had started. Finally, in January 2012, the French firm Dassault Aviation was selected for supplying 126 planes to the IAF.
In April 2015 in Paris, realizing the difficulty with the transfer of technology to Hindustan Aeronautics Ltd and to avoid going back to the starting blocks, Mr Modi opted for 36 ‘off-the-shelf’ planes only. The French had probably not realized that ‘off-the-shelf’ can be rather complicated in India.

The babus strike again
The main sticking points raised by the Law Ministry, touched upon the issues of liability, bank guarantees, arbitration and a higher-than-usual offset clause.
A ‘senior official involved with the matter’ (how a babu can freely speak to journalists is a mystery which should be inquired into!) told The Indian Express: “While many senior government functionaries, including those in the ministry of defence, have favoured out-of-box thinking to take the deal forward, when we examined the draft Inter-Governmental Agreement (IGA) and the draft supply protocols, we were left wondering as to how India could agree to all the stipulations suggested by the French side. In our opinion, the two documents were not drafted with the interest of the Government of India in mind.”
What is strange is that while the Minister says that only the price needs to be discussed, the babus’ report speaks of the conditions which “are being heavily loaded in favour of the French nation.”
For the bank guarantees too, The Indian Express’ source asserted that the French government has refused to give any bank guarantees; instead, it has offered to provide a ‘comfort letter’ from its Prime Minister. It is apparently what was accepted during Hollande’s visit to Delhi in January.
The babu’s mindset is also manifest when it objects that while the deal had agreed on Geneva (Switzerland) for arbitration proceedings, the MoD should have pressed for having India as the seat of arbitration.
All this just shows the babus’ deep frustration: they had not been kept in the loop; as a matter of fact, it was precisely why the Prime Minister decided for an ‘out-of-the box’ solution for 36 instead of 126 jets.
On March 10, Defense News, a usually well-informed website, reported that Dassault Aviation was negotiating with Delhi the possibility to build 90 more units with potential local partners. The website quoted the French company’s chairman Eric Trappier: “Dassault seeks to set up ‘a real partnership’ with Indian industry rather a conventional offset, which requires investing in unrelated sectors. That partnership approach would see Safran, Thales and other French suppliers working with local partners on the Rafale if New Delhi agreed the order for 36 and followed up with a further 90 unit. That second order was needed as the former figure was too small to justify a local build.” In other words a ‘Make in India’ scheme!

Dassault's order book
In the meantime, Dassault is talking to Canada, which may drop out from the F-35 program with the US and also Switzerland trying to replace its F-5 and F-18, as well as Belgium, the United Arab Emirates and Malaysia.
The problem for India, as well as for other potential buyers, is that the annual output of the assembly line of the Rafale’ workshop near Bordeaux is 11 units, or one a month, (in August, France does not work!); the output could rise by three units, if India and other countries signed up for the fighter, explained Mr Trappier; further Dassault needs to deliver six Rafales to the FAF in 2016 and one in 2017.
A few days later, while confirming that the Rafale deal with Dassault was still on, Mr Parrikar boasted to be a ‘tough negotiator’ wanting the ‘best price’ for Rafale fighter jets.
It is fine to be a tough negotiator, but Mr Parrikar should not forget that Dassault too is a hard bargainer. Further, the position of the French consortium is not the same as two years ago: Their order-book is full and first ordered, first served, remains the rule.
Last week, defence analyst Ajai Shukla, commented in The Business Standard: “Paris is beginning to acknowledge the possibility that India might not buy the Rafale fighter because of sharp differences over the price, and New Delhi’s insistence on enforceable guarantees regarding the fighter’s delivery, performance and availability.”
Quoting a senior French official, Shukla wrote: “If some people in the MoD do not want to allow the Rafale deal to go through, so be it. We are currently building it for Egypt and Qatar, and we could have another customer in Malaysia.”
It is clearly a poker game, with each party sending ‘feelers’ and vague threats though the media.
But who would be the loser if the deal does not come through?
Undoubtedly both France and India, particularity the IAF, with Air Chief Raha’s melting iceberg melting further due to the change of ‘bilateral’ climate.

The Saudi factor
Quite-worryingly, some news, which passed unnoticed in India, created waves in France: it is the awarding of the Legion d'Honneur, the country's highest honour, to Saudi Crown Prince Mohammed bin Nayef. It sparked a huge controversy in France, which Jean-Marc Ayrault, the newly-appointed foreign minister tried to justify: “It's a diplomatic tradition …there was ‘nothing grandiose’ about the ceremony;” but Saudi Arabia remains one of the world’s worst human rights violator (and suspected by many of financing the IS).
Why honour the kingdom?
The website Intelligence online had perhaps the answer.
In January, it titled: “Riyad wants to lure Paris with a contract for the Rafale”. It quoted a source saying that Prince Mohammad bin Salman, Saudi Arabia’s Defense Minister, appealed to Paris to submit a proposal for the supply of fighter aircraft Dassault's Rafale ‘in the coming weeks’.
Are 72 jets not worth a small medal?
And if the Prince decides, there is no babu in Ryad who will block the contract …and no problem of cash either.
That would mean that the ‘Indian deal’ is further postponed for several years.
Let us hope that once again the Prime Minister will step in and find a way which will be a win-win solution for both countries.

Dassault can also sign contracts

A Rafale during the Garuda exercises in Jodhpur in 2014

A few weeks ago, I mentioned on this blog, the long, very long negotiation process between Dassault Aviation and the Government of India to purchase 18 Rafales Multi Role Combat Aircrafts (MMRCA) and later built 108 Rafales in India in collaboration with Hindustan Aeronautics Ltd. (HAL).
Last week, a rather surprising development occurred.
A senior official of the Armament Procurement Agency (Direction générale de l’armement or DGA) of the French Ministry of Defence asserted that a 2012 agreement to provide Rafales to India never committed Dassault Aviation to guarantee aircraft manufactured in India.
For the first time, Paris openly sided with Dassault, a French family concern, in its talks with Delhi, the latter arguing that liabilities during the process of manufacturing 108 aircrafts in India, should be the French supplier's responsibility. For months now, this has been the main bone of contention between the 2 parties.
Laurent Collet-Billon, the DGA’s boss affirmed: “Dassault will not be responsible for the whole contract. It is a co-management setup.”
He also ‘clarified’ that France will not assume full liability for the HAL-built aircrafts: “It cannot be a problem, because it was not in the request for proposals (RFP),” he added. It is not what the Indian Ministry of Defence says.
Speaking to reporters on February 9, Collet-Billion also admitted: “A lot of progress has been made since 2012.” The French official however latter agreed that the negotiations should "give way to a contract for the 126 fighters plus 63 options".
After several failed attempts to export the French plane, the DGA has learned patience: “India has its own pace. ...It’s not useful to put pressure on the client. We have to live with our differences."
As far as Dassault is concerned, the French Air Force should be ordering 11 Rafales in 2015, but just four in 2016, and have a break of near 2 years due to budget constraint. Collet-Billon admitted that “Problems will [then] occur, if we don't export Rafales."
During the same press conference, the DGA's official mentioned a possible deal with Egypt for 24 Rafale fighters, a FREMM frigate and a number of missiles.
Nobody really took note of this.

Dwindling number of squadrons
In a meantime in India, the Parliamentary Standing Committee on Defence expressed some concern “over the dwindling number of fighter squadrons in the Indian Air Force. The squadron strength has come down to 25 from the sanctioned 42.” The Committee’s report which was tabled in the Parliament, stated that the Indian Air Force (IAF) required at least 45 fighter squadrons to counter a ‘two-front collusive threat’, while the government has sanctioned  42 squadrons only: “The revelation is astonishing, and the committee feels that the paradox in the required and sanctioned strength needs to be rectified at the earliest,” commented the Committee.
The IAF should maintain 32 squadrons of 18 aircrafts each. The committee noted: “Moreover, 14 of these squadrons are equipped with MiG-21s and MiG-27s, which will retire between 2015 and 2024. Thus the strength will be reduced to just 11 squadrons by 2024. Our capability has already come down.”
The Committee added that though the IAF has inducted several ‘force multipliers’, such as airborne early warning systems (AWACS), mid-air re-fuellers and tactical airlift aircraft, the dwindling fighter strength operationally means that the supremacy that India has enjoyed over its neighbours is fast eroding.
The Parliamentary Committee particular expressed its concern about the ‘laxity’ of the Government which, according to the members, ‘compromises national security’. The government has been requested to take concrete steps expeditiously to address this.

The Rafale Mirage
On February 9, nobody had taken Collet-Billion’s declaration about the talks with Egypt seriously.
A few days later, an article in the daily, Le Monde compared the Rafale to a ‘mirage’ (also the name of the Rafale's illustrious predecessor). The writer asked “can the sale to Egypt change the tide”. He cited a ‘litany of disappointments’, i.e. Brazil (2103), Arab Emirates (2011), Switzerland (2011), Korea, Nederland (2002) or Saudi Arabia.
About Egypt, the journalist concludes « Nothing can be taken for granted; one of the specialties of the Rafale is to provoke ‘mirages of sale’: “first the tension mounts, then the negotiators get excited, the politicians are enthusiasts, the signature is programmed, 3, 2, 1 …” and plouf, nothing happens.
He quotes one of the characters of Gaston Lagaffe comic, Monsieur Aimé De Mesmaeker, a business man who always announces that he will soon sign an all-important contract with the comic publication Journal de Spirou ...and episodes after episodes, the contract is never signed.

This time Mesmaeker-Dassault has done it
A contract between Dassault and Egypt has been signed for 24 Rafales. French President François Hollande yesterday announced that Egypt will buy 24 planes and a frigate for an amount of Euro 5 billion ($5.7 billion).
Speaking at a news conference after a European summit in Brussels, the French president said the contract is 'a triumph for French industrial policy and the action of the state', which has intervened to guarantee part of the financial deal: “We’ve missed out on contracts several times over the last 10 years, probably because there wasn’t the will to accompany the talks, to finance and conclude a deal,” he added.
Mr. Hollande explained: “Egypt wanted this plane quickly because of the threats surrounding the country.” He also mentioned that France is also expecting an order from Qatar.
Interestingly, an extremely tired French President (after overnight marathon talks for Ukraine at Minsk and the EU summit in Brussels), first confused Egypt and India, announcing the contract for 24 jets was …with India.
He later rectified: “It’s confusion perhaps from tiredness, but also maybe from hope,” he commented on his own lapsus.
Regarding the differences between India and Dassault mentioned by the DGA’s boss, it is clear that if there is 'the will to conclude a deal' from both sides is present, a compromise can be found, as it was done in the case of the nuclear liabilities with the United States just before the visit of President Obama to India.
After all, it would in the interest of both, India and France to have the contract signed at the earliest (for example, during the visit of Mr. Modi to France in April, ).
The contract with Egypt is also interesting in the sense that one of the main arguments of the anti-Rafale lobby has been that Dassault has not exported any plane so far. Now, this argument is not valid anymore.
It perhaps explains that the deal was negotiated and signed in a record time (hardly 3 months); Dassault wanting probably to prove that it can also sign contracts.