India signs Euro 7.8 billion deal for 36 Rafale fighters; no options for more

Each bare-bones Rafale to cost Rs 686 crore; will be IAF’s most expensive fighter

By Ajai Shukla

Business Standard, 24th Sept 16

On Friday, India drew the curtain on a tortuous, nine-year selection process for a medium, multi-role fighter, signing up to buy 36 Rafale fighter aircraft from French aerospace vendor, Dassault, for Euro 7.8 billion (Rs 58,000 crore).

In New Delhi, Defence Minister Manohar Parrikar signed an inter-governmental agreement (IGA) with his visiting French counterpart, Jean-Yves Le Drian; while officials signed commercial components of the actual contract.

“Rafale is a potent weapon which will add to the capability of IAF,” Parrikar said.

Senior ministry of defence (MoD) officials, speaking anonymously after the signing, said the average cost of each Rafale was fixed at Euro 91.7 million (Rs 686 crore). This included 28 single-seat fighters, each costing Euro 91.07 million (Rs 681 crore); and eight twin-seat fighters priced at Euro 94 million (Rs 703 crore).

Surprisingly the contract for 36 fighters has no “options clause”. This means the Indian Air Force (IAF) must operate just two squadrons of this new fighter --- the seventh type in the IAF inventory --- or negotiate afresh for additional Rafales.

With 36 bare-bones aircraft costing Euro 3.3 billion, the remaining Euro 4.5 billion is for India-specific enhancements (Euro 1.7 billion); spares (Euro 1.8 billion), logistics (Euro 350 million) and weaponry (Euro 700 million), say MoD officials.

The weapons package includes a stockpile of Meteor “beyond visual range air-to-air missiles” (BVRAAMs), which can shoot down enemy fighters that are 120-140 kilometres away. Each Meteor missile, built by Franco-British-Italian vendor MBDA, has a ticker price of some Euro two million. The Meteor is currently integrated into three fighters --- the Eurofighter Typhoon, Gripen NG and Rafale.

The contract also includes a stock of the million-dollar SCALP missile --- a French acronym for General Purpose Long Range Standoff Cruise Missile --- also known as the Storm Shadow. The SCALP, which can be fired from standoff ranges at ground targets 500 kilometres away, allows the Rafale to strike heavily-defended airfields, military headquarters and strategic infrastructure.

Like the Mirage-2000 that Dassault supplied the IAF earlier, the Rafale can be modified to carry nuclear weapons. Its long operating range --- it can strike targets more than a thousand kilometres away --- make it especially suitable as an aerial nuclear delivery platform.

Following the model of the C-17 Globemaster III procurement from the US, a large share of the Rafale payout is for “performance based logistics” (PBL). This means that for the first five years of a Rafale’s service, Dassault will supply all spares and components, including engines, and technicians needed to keep the fighter flying. The vendor is liable to ensure that 75 per cent of the fleet is available at all times.

The IAF has the option to extend PBL to 12 years, subject to a fresh contract being negotiated for the next seven years.

Says a top ministry official: “We are currently getting 55-56 per cent availability from the Sukhoi-30MKI fleet. The Rafale will give us 20 per cent more.”

Air power experts note that this sounds better than it actually is. Over a fleet size of 36 Rafales, an extra 20 per cent amount to 7 extra fighters operational at any time.

MoD officials cite Dassault’s claim that the Rafale’s quick “turnaround time”, or the time between two sorties, allows each fighter to do five operational sorties each day. While this claim would need verification during actual usage, the IAF has determined during trials that the Rafale’s engine can be replaced in just 30 minutes, compared to eight hours for replacing a Sukhoi-30MKI engine.

The contract stipulates that the first Indian Air Force (IAF) Rafale must be delivered within 36 months, i.e. in September 2019. The entire order must be delivered within 67 months, which means the last Rafale must join the IAF by April 2022.

Even though this is a significantly slower induction rate than what the MoD had promised, Dassault will be hard pressed to deliver in this time frame. It was building 11 fighters per year for the French air force and navy, which are likely to slow down induction. Last year, Egypt and Qatar ordered 24 Rafales each. It is not clear how quickly Dassault can raise production or how it will sequence these commitments.

Indian officials say some delay was inevitable because the IAF demanded a range of India-specific improvements to customise the Rafale and “make it more potent than the French air force Rafales”.

These include operational features like “helmet mounted display sights” that allow pilots to aim their weapons merely by looking at a target; a “radar warning receiver” to detect enemy radar and “low band jammers” to foil it; a radio altimeter, Doppler radar, extreme cold weather starting-up devices for airfields like Leh, and others.

The contract requires the IAF to pay a 15 per cent advance of about Rs 8,700 crore today. Since the IAF budget does not cater for this, an additional allocation would be needed. Another 25 per cent would be paid next year, for which the IAF would have to budget Rs 14,500 in addition to its other commitments. The balance amount would be paid to the vendor at stipulated delivery milestones over the coming years.

MoD officials say one of their biggest achievements during price negotiations was to peg annual cost inflation at the actual inflation level; or a maximum of 3.5 per cent. Earlier contracts with French vendors had stipulated annual inflation at 4-4.5 per cent.

“Actual inflation in Europe is barely one per cent, while we were paying four per cent. That means we have saved about three per cent per year; or Rs 4,000-14,000 crore over the contract period, depending upon the actual inflation in Europe”, says a senior MoD official.

The Rafale contract makes French vendors, Dassault and Thales, responsible for discharging offsets worth 50 per cent of the contract value, i.e. Rs 29,000 crore. While the vendors get to choose their offset partners, the contract stipulates that 74 per cent of the liability value must be discharged through component exports from India. There is also a “technology sharing component”, amounting to six per cent of the total offsets, which the vendors will negotiate with the Defence R&D Organisation.

The Rafale contract comes 15 years after New Delhi first issued a Request for Information (RFI) for 126 medium multi-role combat aircraft (MMRCA), of which 18 would be supplied in fly-away condition and 108 progressively built in India. After a tender was issued in 2007, the IAF evaluated six fighter aircraft --- Boeing’s F/A-18E/F Super Hornet: Lockheed Martin’s F-16IN Super Viper; RAC MiG’s MiG-35; Saab’s Gripen C, the Eurofighter Typhoon and the Rafale --- in what was hailed as “the world’s most professionally run fighter competition.”

In 2011 the IAF shortlisted the last two fighters, and finally named Rafale the winner in 2012. That was followed by three years of fruitless negotiations, dragged out by inconsistencies detected in Dassault’s commercial bid. The deadlock was broken in April 2015, when Prime Minister Narendra Modi announced on a visit to Paris that the IAF would buy just 36 Rafales, off the shelf.