Eurofighter believes price and time parameters for Rafale can’t be met

By Ajai Shukla

Business Standard, 29th May 15

German defence minister, Ursula von der Leyen, who talked up her country’s submarine building capability during her Tuesday meeting with Defence Minister Manohar Parrikar, kept silent on the Eurofighter Typhoon, although Germany had led the campaign to sell the Indian Air Force (IAF) the Typhoon.

The 2007 tender for 126 medium multi-role combat aircraft (MMRCA) was scrapped by Prime Minister Narendra Modi in Paris in April, when he requested French President Francois Hollande for 36 Rafale fighters in flyaway condition, in a government-to-government deal.

The Typhoon, like the Rafale, had satisfied the IAF in performance trials, losing out to the Dassault fighter by virtue of being more expensive. With a new format of buying only flyaway fighters, Eurofighter could convincingly argue it would be cheaper, since 571 Typhoons are on order compared to barely 225 Rafales.

Germany’s defence minister had been expected to raise the issue, after British prime minister, David Cameron, while campaigning for the British election in April had declared: “The British offer of Eurofighter Typhoons to India is still on the table… It will be a better deal than the Rafale”.

Yet, Eurofighter is relying on a waiting game. Company sources tell Business Standard they believe Dassault will be unable to meet India’s price expectations and delivery deadlines for the Rafale.

Parrikar has repeatedly clarified that Dassault would have to quote a lower price than what it bid in the MMRCA tender. The defence ministry has never specified what part of Dassault’s earlier quote will form the baseline for comparison, which it must now better. Analysts argue the baseline should be the price that Dassault offered for 18 Rafale fighters in flyaway condition. The rest of the MMRCA bid includes costs like technology transfer for building 108 Rafales in India, which have no place in the current 36-fighter purchase.

“Dassault had quoted $80 million in the MMRCA tender for each of the 18 Rafales it was to supply in flyaway condition. There is no way Dassault can supply the Rafale for less than $80 million today,” points out Abhijit Iyer-Mitra, an aerospace expert at the Observer Research Foundation.

Anonymous government officials are creating a high benchmark, putting out the word that Dassault had quoted $300 million per Rafale in the MMRCA tender. The Economic Times quoted government sources as saying Dassault would provide a 25 per cent discount, offering 36 Rafales for $200 million each, in a contract for about $8 billion.

This price would make the Rafale one-and-a-half times costlier than the fifth-generation Lockheed Martin F-35; four times costlier than the Sukhoi-30MKI; and nine times more expensive than the Tejas LCA.

Mitra says: “Obviously, the price that Dassault quotes for 36 fighters in flyaway condition will have to be compared with what it quoted in the MMRCA tender for 18 fighters in flyaway condition. That price is $80 million per fighter”.

However, Eurofighter estimates the Rafale’s current flyaway price to be at least US $150 million, a figure supported by public information on Armee de l’Aire (as the French air force is called) purchases.

Additionally, while freed from any liability to “Make in India”, Dassault would still have to discharge offsets worth 50 per cent of the contract price. That means

French vendors would incur offset liabilities worth $2.7 billion on a total deal cost of about US $5.4 billion.

Dassault also faces major challenges in meeting India’s timelines. On April 10, when Modi met Hollande, a joint statement said the delivery of 36 Rafales “would be in [a] time-frame that would be compatible with the operational requirement of IAF.”

The next day, Parrikar stated in Goa that 36 Rafale fighters would join the IAF in two years.

Eurofighter calculates that Dassault’s production line, which currently produces 11 Rafales per year, would take at least 18-24 months to ramp up to 24 fighters per year. Dassault’s sub-vendors need time to build enhanced capacities, step up production and deliver larger numbers to a Dassault production line that would meanwhile have to enhance its own capacities.

“Dassault has also to build 24 Rafales for Egypt; and another 24 for Qatar. Will these countries wait while Dassault treats India as a higher priority? I think not”, says a Eurofighter executive.

The IAF community plays down these apprehensions. “I don’t think we should obsess about getting all 36 Rafales in two years. What matters is signing the contract and getting the fighters in an accelerated time frame”, says Air Marshal Nirdosh Tyagi, who played a central role in the now-scrapped MMRCA contract.

Bharat Karnad of the Centre for Policy Research believes the only way delivery can meet deadlines is for the Armee de l’Aire to temporarily divert its own fighters to India, taking them back as Dassault’s production ramps up.

“This would allow IAF pilots to train and familiarize on the fighter. But it must be remembered the IAF has customised specifications for the Rafale, which are different from those of the Armee de l’Aire”, says Karnad.

Eurofighter GmbH, a consortium of companies from the UK, Germany, Italy and Spain, has remained on the sidelines since January 2012, when Dassault’s quote was adjudged cheaper than Eurofighter’s. Through three years of negotiations with Dassault, Eurofighter has declared itself willing to supply the IAF the Typhoon, should negotiations with Dassault fail.

Eurofighter’s only pro-active move came last year, when it unilaterally reduced its quoted price by 20 per cent, and undertook to create 20,000 skilled jobs in India if it was awarded the contract for 126 MMRCAs.