Air Chief expects Rafale contract by mid-2013

Dassault negotiates with MoD for larger role for Reliance Group

By Ajai Shukla

Yelahanka, Bangalore

Business Standard, 8th Feb 13

Air Chief Marshal NAK Browne, the IAF chief, declared today that the contract for buying 126 Rafale fighters from French aerospace major, Dassault, would not be signed during the visit of the French president, Francois Holland next month. However, he expects the deal to be signed by the middle of this year.

Referring to ongoing negotiations between the defence ministry’s (MoD’s) Contract Negotiation Committee (CNC) and Dassault, Brown said, “By April-May I expect that the CNC will be over. And then it moves to the other stages [of clearance]… it will go to the Ministry of Finance. And if all goes well, by the middle of the year I expect we will sign the contract.”

Terming the MMRCA “the mother of all projects,” Browne said it would be the IAF’s highest priority over the next financial year, irrespective of budget cuts.

Asserting that the “extremely complex project” remains “very much on track”, the air chief stated that current negotiations were not about price but about “work share between HAL (and) Dassault.”

Senior MoD sources tell Business Standard that in discussions in the CNC, Dassault objects to being responsible for the on-time delivery of all the contracted 126 Rafale fighters, even though Hindustan Aeronautics Ltd (HAL) will assemble all but the first 18.

Dassault’s concern is rooted in the three-way contract that New Delhi has mandated for the Rafale. The Government of India will sign a contract with Dassault for 18 fully built fighters; and for 108 more fighters that must be built in HAL. Dassault will sign a parallel contract with HAL, laying down the terms for building 108 fighters in HAL, and spelling out the responsibilities of either party.

This is a very different arrangement from the one that New Delhi implemented with BAE Systems for building the Hawk trainer in India. In that, BAE Systems signed a contract with HAL for building the Hawk in Bangalore; and HAL signed a contract with the Government of India for supplying the aircraft.

The French company fears that the new arrangement could hold Dassault responsibility for delays actually caused by HAL. For that reason Dassault is arguing in the CNC for doing as much manufacturing as possible in its joint venture (JV) with Reliance.

“Rafale would ideally like to build its entire fighter in the Dassault-Reliance JV with HAL’s role being reduced to a token screwdriver turn. But the MoD cannot accept that, since the Request for Proposals (RfP) mandates that the Rafale will be assembled in HAL. Negotiations are now about the maximum role permissible for the Dassault-Reliance JV,” says an official involved in the discussions.

Yesterday, the defence minister did not directly answer a question about a potentially larger role by the Dassault-Reliance JV in building the Rafale.

“(We will go by) whatever are the terms and conditions of the RfP,” said Antony, terming it “non-negotiable”.

Asked the same question today, Air Chief Marshal Browne answered in greater detail.

“The OEM (original equipment manufacturer, i.e. Dassault) has been given the full right to select any production partner that he wishes to have in India or abroad. We have no issues; if he has to supply certain kits, he can get it manufactured in Bangalore… or from Reliance or from anybody else. We have no issues, or we have no say in that matter. That’s a business relationship between Dassault and Reliance,” explained Browne.

“(But) the licensed manufacture part, it is very clear in the RfP that it has to be done by HAL…. Whatever else he (Dassault) gets manufactured here, there, wherever… the Indian government and the IAF have no issues there. As long as those kits and everything else are supplied and given to HAL at the instance of the OEM, for the licensed manufacture.”

The outcome of the CNC negotiations, say experts, will be crucial in determining the trajectory of Reliance’s emergence as an aerospace manufacturer in India.

Requested for comments, Dassault has declined to say anything.