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April 7, 2015

India draws bottom line for Rafale


India will not ink the mega $20 billion MMRCA (medium multi-role combat aircraft) project to acquire 126 fighters till France agrees to stick to its original pricing, which led its Rafale fighter to defeat the Eurofighter Typhoon in commercial evaluation over three years ago.

This is India's "bottom line" on which the outcome of long-drawn final negotiations with French aviation major Dassault now hinges, even as Prime Minister Narendra Modi is all set to leave for France on Thursday as part of his three-nation tour.

"Dassault has to adhere to its earlier commitments. No Indian government can finalize such a major project if the L-1 (lowest bidder) pricing is changed... it can be a deal-breaker despite political pressure from France," said a top source.

As first reported by TOI, the defence ministry is upset with Dassault's attempt to "change the price line" because it will substantially jack up the production cost of the 108 Rafales to be made by Hindustan Aeronautics (HAL) in India after the first 18 are imported.
As per Dassault's costing, there is now a "big jump in the man-hours needed" for each jet to be produced by HAL after transfer of technology. In effect, each jet will now cost much more than what was originally projected.

"Hypothetically, if the cost of each jet goes up by around Rs 30-40 crore, we will then be looking at a hike of Rs 3,240-Rs 4,320 crore for the 108 jets to be made here. Dassault should relent, become fully compliant to the RFP (request for proposal) and stand 100% by its original offer. It can live with a slightly lesser profit margin," said the source.

There is, however, progress on the other major stumbling block. A mechanism is being evolved to ensure there are no penalties or liquidity damages imposed on Dassault if HAL fails to deliver as per specified timelines, sources said.

The voluminous MMRCA contract was almost 90% done, with technology transfer, offsets and other issues as well as the inter-governmental agreement all ready, when pricing and guarantee issues stalled negotiations almost a year ago.

With continuing delay in finalization of the MMRCA project and IAF down to just 34 fighter squadrons (14 of them made of old MiG-21s and MiG-27s), India is also trying to fast-track the stealth fifth-generation fighter aircraft project with Russia, as reported by TOI earlier.
India has told Russia it wants deliveries of the FGFA to begin 36 months after the main contract is inked, instead of the 94 months envisaged earlier. For this, India is ready to switch from the original co-development and co-production plan to direct acquisition of an initial lot followed by co-production. India will spend around $25 billion on the FGFA project if eventually 127 such fighters as planned.
- timesofindia

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