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MMRCA: a do or die contract for Dassault’s military business

France cuts Rafale purchase,no export customer yet for the Rs. 1390cr aircraft

Written by HumaSiddiqui | New Delhi |
May 12, 2013 4:34:12 pm

Dassault Aviation,the French maker of Rafale fighter jet which is in exclusive negotiations with the Indian ministry of defence for the $12 billion Medium Multi-Role Combat Aircraft (MMRCA) tender is facing rough weather at home.

In the latest strategic defence review carried out under the insistence of the French government,last month,France has capped the purchase of Rafale fighter jets to 225. Originally,the Rafale programme envisaged production of 320 aircraft for the French government but this was cut to 286 later and now to 225. Till date,only 180 of them have been ordered; all of them by France. The company is yet to find an export customer for its front-line fighter jet.

As a result,the cost of Rafale to France has climbed steadily. The French Senate assessment of the 2013 national defence budget pegs the total cost of the Rafale programme,including development expenses,to the French exchequer at €44.2 billion. Dividing the total programme cost with number of aircraft to be built i.e. 225 gives a per aircraft cost of €196.4 million or approx. Rs. 1,390 crore at today’s exchange rate.

A cut to Rafale numbers for France poses a challenge to Dassault’s military business which is mainly dependent on Rafale sales.

Given the situation,bagging MMRCA,which envisages purchase of 126 aircraft with an option for buying 63 more,is critical for Dassault. However,contrary to initial expectations of a quick contract signature,Dassault-MoD negotiations have dragged on for over a year.

As reported by FE earlier,cost has been an issue since the start besides the company’s reluctance to transfer sophisticated technology to India and meet offsets requirements. In the last few months,questions have been raised by Dassault regarding the role of Hindustan Aeronautics Limited (HAL) in the MMRCA. Moreover,the French company is unwilling to be held liable for the quality,timely and on-cost delivery of the 108 aircraft to be license produced at HAL. This is in breach of tender conditions and has emerged as a major threat to speedy contract conclusion.

Sources FE spoke to said: “Given the slow pace of negotiations it looks increasingly likely that MMRCA will spill over to the next government.” But,Dassault CEO Eric Trappier is optimistic. Reportedly,Trappier said: “I hope 2013 should be the year.”

As things stand,for Trappier’s wish to come true,either Dassault will have to give in to India’s demands which it has resisted until now or the Indian side will have to relax its tender criteria. Currently,both look unlikely. Given Dassault’s financial situation the company cannot afford any business risk. Whereas,enhanced scrutiny of defence deals in a season ridden with corruption scandals precludes Indian negotiators from extending any concessions.

In this case,the French company will have to do something special. Eyes are on the Paris Air Show which opens 17th of June at Le Bourget in France. Dassault is expected to lay out a red carpet for the Indian delegation. However,in what could come as a dampener to the French company,rumours in the defence ministry corridors suggest that given the sensitive phase of negotiations,the ministry is expected to tone down this year’s participation at the show.

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