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May 6, 2015

France offers 25% discount to India on purchase of 36 Rafale jets



France agreed to a 25% discount on its earlier offer to clinch the deal for an off the-shelf purchase of 36Rafale aircraft during Prime Minister Narendra Modi’s visit to Paris last month. This will be the base on which further negotiations will take place on Wednesday.

The ballpark cost per aircraft as per Dassault’s winning bid for the 126 MMRCA programme — the old, nowscrapped, Rafale deal — came to about $300 million, taking into account the estimates ofHindustan Aeronautics Ltd (HAL). Sources told ET that the objective was to bring this down to a little over $200 million apiece.
The overall cost is not expected to cross $8 billion for the entire 36-aircraft fleet, French sources said. MMRCA stands for medium multi-role combat aircraft.

The price per aircraft is not just the acquisition cost of the platform, but also includes maintenance facilities, training of pilots and technicians, armaments and spares. In comparison, Dassault signed a deal withQatar on Monday to sell 24 Rafale fighters for $7 billion, which would put the per-aircraft cost at just over $290 million. India is set to get a better deal because of the larger number being ordered. It may be noted that the rival Eurofighter that was also in contention for the contract had offered India a 20% price cut after the new government took over.

Besides the discount, France has agreed to undertake a longer maintenance schedule. The delivery of the first aircraft, according to the broad understanding reached at Paris, would take place in the next two-three years. France is believed to have pushed for a much larger off-the-shelf purchase with better concessions but New Delhi was wary of the impact this would have on the PM’s own Make in India initiative. The number, 36, was France’s bottom line in the negotiations. Before the visit, France had put its entire diplomatic weight behind striking a deal, which had got caught up in complications that would have translated into a cost escalation. This would have meant it would get reopened, further delaying the programme.

Fresh negotiations began only after India made clear that the old deal was dead. This happened because the cost of the programme had swelled beyond all estimates owing to differences between Dassault and state-owned HAL on the manpower required to produce the aircraft. HAL had estimated that India would require 2.7 times the man hours that France uses for constructing the aircraft, putting the cost beyond negotiation.
defencenewws/economictimes

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