MOSCOW, NEW DELHI, PARIS AND WASHINGTON — When Egypt signed an agreement
to purchase 24 Dassault Rafale fighters, it marked a milestone for the
program: the first international sale of the jet, which has struggled to
find a market outside of its home nation of France.
But what
should be a celebratory attitude at the company's Paris headquarters has
instead turned glum, as the crown jewel of its expansion plans — a $12
billion deal with India that has been in the works since 2012 — now
appears in danger, with Russia hovering nearby in the hope of stealing
the contract.
If Dassault can finally cement the Indian deal, it
will add 126 fighters to a production facing domestic budget cuts. If
Russia can come in and undercut Dassault, it would seriously harm the
future of the French fighter, while exacting some measure of revenge on
France's decision not to deliver to Russia a naval vessel following the
crisis in Ukraine.
In 2012, the Indian Defence Ministry made
Dassault its preferred vendor to fill its Medium Multi-Role Combat
Aircraft requirement. The Rafale beat out five other competitors — the
Boeing F/A-18E/F Super Hornet, Lockheed Martin F-16, Mikoyan MiG-35,
Saab JAS 39 Gripen and the Eurofighter Typhoon, the latter which was the
runner up in the competition.
What seemed like a major win for
the Rafale quickly entered a stalemate, however, in large part due to
India pressuring Dassault to guarantee work produced by Hindustan
Aeronautics Limited (HAL), the Indian firm that would produce the
domestic models of the jet. (Under the contract, Dassault would produce
only 18 of the jets before turning production over to HAL.)
Such a guarantee puts a burden on the family-controlled Dassault, which thus far has declined to accept that agreement.
Cost
concerns also come into play, with the French saying the cost of
integration at HAL facilities would be higher than the normal Rafale
because the productivity of labor at HAL is low compared to the plants
in France. And after visiting the HAL facilities, Dassault officials
concluded there are no economies of scale at HAL to help drive down the
cost of the platform.
No resolution appears in sight. Richard
Aboulafia, an analyst with the Teal Group, gives Dassault a 40 percent
chance of landing the deal.
The obvious alternative to the Rafale
is the Eurofighter Typhoon, which was the other finalist after the
program downselection. Eurofighter has maintained a presence in Aero
India both in 2013 and 2015, and would love to win the contract from its
French rival. But another contender has emerged — one with strong ties
to India and a desire to spite the French.
Red Dawn ::
Russia has begun a very public campaign to convince Indian officials that Moscow has a better solution on the table.
Sergei
Goreslavsky, deputy director of Russia's arms export agency
Rosoboronexport, told the RIA Novosti news agency on Feb. 16 that "if
[India] needs additional Su-30MKI fighters, then we are ready to work
out such an agreement," stressing that New Delhi need only ask.
Goreslavsky is the head of Russia's delegation to the Aero India 2015 air show, which was held last week in Bangalore.
India
already operates a large fleet of Sukhoi Su-30 fighters, some of which
have been locally produced by HAL. That argument was pushed by Yuri
Slyusar, the recently appointed head of the state-owned United Aircraft
Corporation, during a Feb. 19 appearance in Bangalore.
"Which
aircraft would better suit the needs of the customer? Our obvious
competitive advantage is that India is already making these aircraft
right here, right now," Slyusar said. "The factories have been built,
the technology debugged, the documents transferred, the pilots,
engineers and technicians have been trained."
Russia's RSK MiG
has also announced plans to throw its hat in the ring with an upgraded
version of its developmental MiG-35 if India rejects the Rafale and
reopens the tender.
"We have every chance to compete [for the
contract]," RIA Novosti quoted MiG chief Sergei Korotkov as saying at
Aero India on Feb. 18. "We have not lost hope that a future tender or
competition will be announced."
Ruslan Pukhov, director of the
Center for the Analysis of Strategies and Technologies, a Moscow-based
defense think tank, said Russia has been lobbying for some time for
India to ax the Rafale contract.
"Russia has tried its best to
explain to India, as the Eurofighter people have, that it is completely
senseless to buy a platform designed in the 1980s for such a huge amount
of money," Pukhov said, "especially since the full fleet won't be
operational for, let's say, 10 years."
For the money India would
spend on Rafale, it could buy from a mature product that they already
know how to maintain and operate, Pukhov argued, adding that its combat
capability surpasses that of any other aircraft in India's Air Force.
Pukhov,
who is also a member of the Defense Ministry's public advisory board,
didn't discount that Russia may be working further behind the scenes to
influence the situation in Moscow's favor, but stressed the cause is
Dassault's inexperience with exporting the Rafale.
"This is
totally Russian," François Lureau of consultancy EuroFLconsult and
former head of the French procurement office. Until a contract is
signed, he said, the Indian deal is seen to be open to competition and
the Russians will push the message of French unreliability.
Aboulafia noted that the Russian position is fairly strong, given its industrial presence in India.
"You're
looking at two groups who could each decide to walk away," he said of
Dassault and the Indian MoD. "India says it loves the Rafale, but has a
production line for the cheaper Sukhoi already in India. And while it
would be a transformative sale for Dassault, they are essentially
telling India it is asking for the impossible."
The strength of
Dassault's position depends on whether the Egyptian sale represents a
major change in the fortunes of the jet — Aboulafia describes its
history as "25 years of trying and multiple defeats snatched from the
jaws of victory" — or if the sale was a very specific case.
The
financing on the Egyptian sale, which may involve gulf nations and
France providing very favorable terms to Egypt, could end up meaning the
sale is a one off, rather than the start of a trend for the jet.
On
the other hand, the Rafale is still alive in three major competitions
in the gulf region. There is a potential agreement with Qatar, in
discussion for as many as 36 jets, as well as a potential 60-ship sale
to the United Arab Emirates and a smaller contest in Kuwait.
Landing
any of those deals could boost Dassault's negotiating strength with
India, or at least embolden the company to cut its losses.
Mistral Fallout?
Meanwhile,
Russia's state-run media outlets last week were littered with
statements from officials across Russia's defense industry boasting
Russia's proven track record of technology transfer and product
delivery.
These comments have been juxtaposed against France's
refusal to deliver the first of two French-built Mistral-class
amphibious assault carriers to the Russian Navy last year.
Under
international pressure, France decided not to hand over the ship as a
result of Russia's role in the crisis in Ukraine. The move greatly
angered Russia, which has derided France as an unreliable business
partner since.
Dmitry Shugaev, deputy director for international
affairs at state defense holding Rostec, also pinned the Rafale's
troubles on France's reluctance to guarantee the jets in comments
carried by the state-run TASS news agency on Feb. 16.
Shugaev
said France's failure to deliver the Mistral could also be one of the
reasons India has expressed concerns over the deal.
The sentiment
in Russia is that snatching the contract, or at least getting India to
commit to more Su-30s while it works through its problems with Dassault,
would provide some measure of solace in the wake of the scorned Mistral
delivery.
Russian officials and pundits have gone out of their
way in recent months to cast France as an unreliable trading partner, a
supplier that may cancel deals at the last minute in accordance with the
political whims of its puppet masters in DC, and have promised to
pursue legal damages if Paris does not go through with the delivery.
The fact that Russia is pushing the Mistral issue as a marketing tool does not come as a surprise in Paris.
But
a Russian message of the risk of a potential French embargo does not
stand up to scrutiny because there would be a technology transfer to
India that would deliver "industrial autonomy" on the Rafale, Lureau
said.
French Senator Daniel Rainer, who sits on the defense
committee, said Russia is using the Mistral as a "commercial argument of
circumstance." The circumstance is the suspension of the warship and
the commercial interest is the Indian fighter contest.
Dassault,
the Direction Générale de l'Armement procurement office and Defense
Ministry are well aware of the Russian lobbying effort in India, he
said.
Dassault's talks with its prospective Indian partner, HAL, "are on the right track", he said.
While
the message of French unreliability may not be a major concern at the
political level, public opinion about the Mistral suspension shows a
different story.
An opinion poll commissioned by La Tribune
business news website showed 64 percent in favor of handing over the two
Mistral helicopter ships, with 77 percent concerned about a hit on
French jobs. DCNS is prime contractor and STX France builder of the
hulls.
Some 69 percent saw the Mistral suspension as helping
foreign competitors, such as the UK, US and Russia. The poll found 56
percent saw the French reputation hurt by the decision to withhold
delivery, La Tribune reported. IFOP polled 1,001 respondents Jan. 9 to
12 for La Tribune.
In comments made Oct. 29, procurement chief
Laurent Collet-Billon told the French Senate defense committee that the
Russians tell the Indians that the French are unreliable. "The English,
too" say the same, he said.
The message does not appear to be working in New Delhi — yet.
An
Indian MoD official said the government has full faith in France as a
friend, and its surety to transfer technology as promised. That said,
Delhi is also not going to turn its back on Russia. India-Russia defense
and strategic ties remain intact with the current government under
Narendra Modi as well.
"Russia remains a trusted, well-tried weapon supplier to India," the MoD official said.
By
Aaron Mehta in Washington, Matthew Bodner in Moscow, Pierre Tran in
Paris and Vivek Raghuvanshi in New Delhi. Andrew Chuter in London also
contributed.
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