As the world turns..................
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.
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.
Indian Air Force (IAF) Sukhoi-30 aircraft drop bombs
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.
Indian workers at a Rafale fighter jet stall prepare
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.
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