Indian Industry Could Lose Out in Revised Rafale Deal

Neelam Mathews
Aug 19 2015

AIN. Credit. Neelam Mathews

India’s expanding aerospace industry has expressed regret about the government’s decision to buy 36 Dassault Rafale combat jets directly from France, without an offsets clause. Delhi has committed to signing the inter-government contract by the end of calendar year 2015, AIN has learned from sources close to the negotiations. The tender for 126 medium multi-role combat aircraft (MMRCA), which has now been withdrawn, specified 50 percent offsets as well as licensed production of 108 aircraft. Negotiations on the MMRCA faltered on the liability clause between government-owned Hindustan Aeronautics (HAL) and Dassault, which was not willing to take responsibility for HAL’s work.

“So much for the Make in India program,” said an Indian defense vendor, who told AIN that the valuable MMRCA project would have boosted the aerospace industry in India. A number of other industry officials contacted by AIN agreed. For instance, the Samtel Thales Avionics joint venture, which is currently supplying displays for the Mirage 2000 upgrade, expected to supply multifunction and head-up displays for the Rafale cockpit. While some work may still come through this joint venture because of cost advantages, it is not clear when economies of scale can be reached. Samtel was not available for comment.

While most are willing to accept that the Indian Air Force’s urgent need for new fighters trumped industry considerations, disappointment is replete. But the government’s change of policy also has some supporters. “The aircraft will be in French configuration and this speedy decision-making changes the way India does business in future,” said one. By buying the aircraft in a flyaway condition, besides relenting on the offset clause, India has agreed to accept the fighter without changes in the structure that were to be made to accommodate its own choice of weapons.

“Once signed, the contract for 36 could complemented by a follow-on order of 36 to 60 units,” Rahul Gangal, global partner, Roland Berger Strategy Consultants, told AIN. “India's Rafale order will help Dassault achieve a greater production rate for the next five to seven years. To address the gap between the projected and actual force levels, India may additionally expand its orders on developmental programs such asthe Fifth Gen Fighter Aircraft [FGFA] and Light Combat Aircraft [LCA] Mk2,” he added.

Dassault is in a stronger negotiating position, following the Egyptian and Qatar orders for 24 each. “Dassault will get a price escalation and with the reduction in complexity related to working with HAL, there will be a savings of at least 15 percent for them,” said a financial consultant. Moreover, the French company will now be required to help establish only one airbase for the Rafale instead of two, enabling a further reduction in costs.