India selects Typhoon & Rafale for MMRCA shortlist - Part 2

Viv S · Post by **Viv S** » 27 Jun 2011 04:55

Danell wrote:Moreover the Rafale is marketed by Rafale International , not Dassault aviation and Rafale International includes Dassault, Thales and Safran/Snecma (3 groups with an overall revenue around 30 billions euros in 2010)

Sure, just as Eurofighter includes Eurojet Gmbh and Euroradar in addition to Eurofighter Gmbh. I was using Dassault/Cassidian-BAE as a reference because they will be required be provide the bulk of offset value. I suppose if one is being picky, Rolls Royce, MTU Aero Engines, Avio, ITP, Selex-Galileo, Indra and Finmeccanica should be added to the list with collective annual revenues at over €110 billion.

Whichever way you look at it the EF consortium is bound to have a better offsets proposal not least because its two largest stakeholders (EADS in particular) are already heavily expanding into the Indian market.

svinayak · Post by **svinayak** » 27 Jun 2011 04:58

Viv S wrote:
Whichever way you look at it the EF consortium is bound to have a better offsets proposal not least because its two largest stakeholders (EADS in particular) are already heavily expanding into the Indian market.

But the political center for all these units are at different countries and with Euro and Eu zone being more insecure this could unravel.

One country is better for long term relationship

Viv S · Post by **Viv S** » 27 Jun 2011 05:01

NRao wrote:Anyways, kidding aside (BTW, have the French learned how to spell - after all these years? JK) on offsets. The winners gets some $11 billion. It is from this $11 billion he needs to figures out how to plow back $3 billion. The French finding the offset clause challenging is their national pass time to cry all the time. The crying is part of their game to extent the time and thus increase the cost.

?? The requirement if I'm not mistaken is for 50% of the contract value to be reinvested in the country which would be $5.5 billion -$6 billion. More if munitions are not budgeted separately.

Viv S · Post by **Viv S** » 27 Jun 2011 05:40

MarcH wrote:Dassaults CEO is on record for saying the Rafale offers as much as 60% lower lifecycle costs then EF. That alone is a huge arguement pro Rafale. (if true). But then again the French weapons package is probably multiple times more expansive, and in my opinion a "must have" if it gets selected. Remove f.e. the AASM from the deal, and suddenly Rafale looks far less impressive compared to EF.

I'd take that statement with a healthy complement of iodized salt, just like the claim about Thales being 'five years ahead of anybody in Europe or the U.S.' with regard to airborne AESA technologies.

The AASM seems to be an expensive proposition, one I can't see the MoD being too fond of. That said, if the IAF really needs something in that class, the Eurofighter does have the HOPE/HOSBO option available.

ILA: Diehl, EADS give Hope to Indian Eurofighter campaign
By Craig Hoyle

Diehl BGT Defence and EADS are offering Germany's Hope and Hosbo glide weapons to potential buyers, including as part of a proposed Eurofighter Typhoon package for the Indian air force.

The Paveway-IV aside, Raytheon's JDAM family seems to be the most cost-effective option available to the IAF, though it would have to be integrated independently.

Viv S · Post by **Viv S** » 27 Jun 2011 05:58

Acharya wrote:But the political center for all these units are at different countries and with Euro and Eu zone being more insecure this could unravel.

One country is better for long term relationship

For all practical purposes, the EF is a British-German venture and is managed via a single point of contact (NETMA). The IAF didn't face any major issues with the SEPECAT Jaguar which was an Anglo-French program.

Also, the French unlike the EF members don't seem to be looking for a long term relationship, so one can't be drawing a parallel there.

Viv S · Post by **Viv S** » 27 Jun 2011 07:13

cheenum wrote:What else can the 2 Groups Offer?
Rafale International: Missiles, Snecma Engine technology, Avionics, AESA Radar,
EADS: I am not sure...

How about missiles, avionics and AESA radar? (Snecma 'JV' is unrelated to the MRCA contract).

With French we already have multiple JVs, with EADS nothing...

Larsen & Toubro and EADS are reworking their JV agreement (after a MoD veto last year). In terms of value it'll be largest the sector has seen so far. In addition, through its Astrium, Airbus and Eurocopter subsidiaries it has JVs with ISRO, Indian Airlines, SSSI and Pawan Hans.

MBDA which is jointly owned by EADS, BAE systems and Finmeccanica is working with DRDO, BEL and Bharat Dynamics on several programs.

In addition BAE has a JV agreement with Mahindra & Mahindra.

Khan Influence: this does not affect Rafale (either way)... for EF2K, it can help if Khan pushes the deal but the dependancy on Khan supplied components (engine Ityaadi) can work against it.. my 0.0002 paisa

The EF doesn't have any US supplied components that are critical to operations. Even in production the major involvement is confined to some composites sourced from Hexcel Corp. Also, US approvals apply to its own companies, while HAL will be sourcing components from EF which has other alternatives available. And its not like the US will actually impede the EF's production, certainly not while GE, Raytheon, Boeing and LM are lining up for the MoD's business.

devesh · Post by **devesh** » 27 Jun 2011 08:13

might be OT, but India becoming a "shareholder" of EADS could potentially be a revolutionary change in European geopolitics. I can imagine a scenario where Spain will be pushed out if India decides to go in big. the UK and Germans don't care for the Spanish. as far as Germans are concerned, Spain in borderline Euro trash comparable to Greece and Balkans. Germany is trying to redefine its interests in Europe and the broader world, Indian money can free it from any obligations it might have to UK and Atlantic alliance. combine Indian participation with increasing relationship with Russia, and you have a very potent "explosive" mix to shake up Europe and startle Khan out of their delusions about turning India into a poodle.

karan_mc · Post by **karan_mc** » 27 Jun 2011 08:25

@NRao , If Americans didn't find much significant improvement of FBL over FBW ,then why is ADA so adamant to have that for AMCA ?? ,even all three 5th gen fighters (F-22.F-35,Fak-FA) don't have them ,i think ADA might struggle to fix issues which might crop up in its development , we struggled with LCA FBW in initial year or unless ADA has already carried out some research on this matter ,and confident of able to fix any issues which might come , last thing AMCA wants is delays due to FBL .

Prasad · Post by **Prasad** » 27 Jun 2011 10:05

What fibre optic transmission does is place the onus on the designers to make use of the greater b/w available for use, limited of course, by onboard processing power. How one uses the greater b/w is a significant question and perhaps requires a rethink on architecture too?

Also, perhaps significant weight savings wrt em shielding of copper wires not being needed in tomorows battlefield.

SaiK · Post by **SaiK** » 27 Jun 2011 10:49

If EADS or Dassault, is able to give into 50% reinvestment, then it is bloody well understood how much profit margin they are in.. no company will sell under loss. Now, it would very interesting if Dassault, supposedly very very rich can do this. I am more positive about EADS rather Dassault on this subject.

kelesis · Post by **kelesis** » 27 Jun 2011 14:09

Dear all,

I've been reading BR for a few years. I'm working on financial markets in a big european bank and i'm in charge of a portefolio of defence assets. I just want to clarify some points regarding shareholding and relations between EADS, Dassault, MBDA etc...

First of all, we must keep in mind that EADS is not a classical company. The French States holds (via Lagardère and Sogeade) a little bit more than 22.45% of the whole group and is consider as the most influent shareholder of EADS. But the french state has nothing to do with Eurofighter GMBH.

EADS France is controled by french state (via by-laws of EADS NV - The choice of the "NV" Dutch corporate law for the holding has been made to allow independants affiliates). EADS France holds 46.32% of Dassault and 37.5% of MBDA. The rest of EADS has nothing to do with Dassault and MBDA (MBDA is mainly a French-UK company with half of its activity in France).

The Shareholding of Eurofighter GMBH is : 13% for EADS CASA (Spain) and 33% for EADS Deutschland (germany not Dutchland), the rest is 21% for Alenia Aeronautica and 33% and for BAE Systems. For example, Airbus or Eurocopter can not be part of Eurofighter offsets proposals (french veto).

Regarding the evolutions to come : the french defense landscape will change (merger Safran-Thales-DCNS, under the control of French State and Dassault). BAE is negociating a place in the futur big structure to come. The brits don't want to work anymore with EADS and the Germans, they now want to put in place bilateral programms (mainly BAE-Dassault with Thales). That's the big change to come in Europe. A merger between EADS and Dassault has never been a option since France and UK don't trust EADS anymore on military issues.

Finally, regarding financial figures there is a confusion above... The 2010 annual net results are :

Dassault Aviation : + 0.395 billion Euros
Safran : + 0.207 billion Euros
EADS : + 0.553 billion Euros
BAE : -0.242 billion GBP
Thales : -0.107 billion Euros

BAE has a huge turnover but very poor margins and Dassault has a very small turnover but very good margins... Thales is not very well, that's why they should merge with Safran (and maybe Zodiac Aerospace). To be complete we should take into account the debt of each player and its capacity to deal with this debt but this is a hard work... I just wanted you to be very carefull with financial figures.

Regards

Prasad · Post by **Prasad** » 27 Jun 2011 14:39

That explanation makes it sound like a "Swabhimaan" (of the kitu gidwani serial infamy) situation with everyone owning a part of another!

Thanks for the insight into ownership details

rajanb · Post by **rajanb** » 27 Jun 2011 15:05

Thanks Kelesis.

Incestuous to say the least. MoF and MoD will have to get their heads around this one.

Viv S · Post by **Viv S** » 27 Jun 2011 15:52

kelesis wrote:The Shareholding of Eurofighter GMBH is : 13% for EADS CASA (Spain) and 33% for EADS Deutschland (germany not Dutchland), the rest is 21% for Alenia Aeronautica and 33% and for BAE Systems. For example, Airbus or Eurocopter can not be part of Eurofighter offsets proposals (french veto).

Are you familiar with the Indian MoD's regulations? How does it certify offsets? Is EADS for example prohibited from accounting normal Airbus/Eurocopter investments/JVs in the country under Eurofighter's offset requirements? I believe the MoD was to make an exception for the MRCA offsets wherein the reinvested sum could be channeled into civilian sectors without the need for an Indian owned subsidiary.

According to sources, the potential contenders of the MMRCA are expected to be revealed by next month once the reshaped offset policy is released next week. Also, the policy will shape the opening up of the civil aviation and internal security in a clear manner. The six contenders for the MMRCA contract had pointed out that the offset obligations are hard to fulfill since they had been hiked to 50 per cent of the contract value.

In the MMRCA deal, the selected supplier was required to meet offset obligation of 50 per cent of the foreign exchange component of the value of the total deal of $10.6 billion. Also being discussed, is the eligibility of a wholly-owned subsidiary of a foreign company, though India registered, for offsets. It would need to modify its share holding pattern and bring it to 74 per cent Indian holding for it to be eligible for offsets, unless special dispensation to it is permitted by the government.
http://www.defencenow.com/news/160/indi ... mmrca.html

EADS France is controled by french state (via by-laws of EADS NV - The choice of the "NV" Dutch corporate law for the holding has been made to allow independants affiliates). EADS France holds 46.32% of Dassault and 37.5% of MBDA. The rest of EADS has nothing to do with Dassault and MBDA (MBDA is mainly a French-UK company with half of its activity in France).

While I understand its subject to French laws, is EADS France completely independent of its parent company? Between them Daimler AG and SEPI (both of which have a stake in EF Gmbh) own a greater part of EADS than the French state.

My head's gotten a little fuzzy but it would appear the French state profits financially from the sale of either aircraft even though only a Rafale victory would grant the French industry work.

Finally, regarding financial figures there is a confusion above... The 2010 annual net results are :

Dassault Aviation : + 0.395 billion Euros
Safran : + 0.207 billion Euros
EADS : + 0.553 billion Euros
BAE : -0.242 billion GBP
Thales : -0.107 billion Euros

Shouldn't turnover rather than profitability be the benchmark for deciding whether the firm has the ability to plow 50% of the contract value in overseas investments. In your opinion, what will be the focus of Dassault's offsets proposals - civil or military aerospace, and/or other defence sectors?

shukla · Post by **shukla** » 27 Jun 2011 17:19

From Tippu Sultan to AK Antony, a French connection
Indian love for french arms..

arthuro · Post by **arthuro** » 27 Jun 2011 17:52

"Eurofighter very touchy after Rafale team claims superiority"

http://rafalenews.blogspot.com/

kelesis · Post by **kelesis** » 27 Jun 2011 18:11

Viv S

Thank you for your answer.

We should consider that EADS NV is not involved in MMRCA, only members of Eurofighter GMBH are part of the deal. Regarding Eurocopter and Airbus, any investment or ToT must be approved by France. In other contests it is not a problem but MMRCA is new situation : this is the first time the final round is between Rafale and Typhoon. France will of course favours Rafale in all negociations. Airbus/Eurocopter investments can also be consider as French offsets!

Regarding the independance of EADS France, that's why Dutch law has been chosen (For technical and legal reasons it was impossible under french or german law companies). The shareholder agreement between France and Germany states that any strategical decision must be taken by both country (more than 50% of the whole company). The independance of EADS France is very important for both Dassault and Eurofighter, don't forget that actually Alain Gallois the chairman of EADS NV is french and has been chosen by the french government which is clearly working for Dassault. EADS is a pure political company!

I don't think France can gain something from Typhoon sales (or maybe a very indirect profit), an agreement must have been signed to make sure any euro will be invested in Cassidian on programms involving german workers (for example). But i don't think Eurofighter will generate a euro of profit in the years to come.

Turnover and profit are two necessary benchmarks. BAE and EADS have huge turnovers means they are two huge companies doing a lot of business. But their capacity of investment is defined by the cash they can generate and the level of their debts. BAE is not profitable, if it wants to recover a capacity to invest it must sell assets... it's turnover will then be smaller

Regarding Dassault's offsets, all activities of the group can be used but i think Dassault System and Safran can offer the most importants ones (but this is just my own point of vue). But maybe the deal is larger : the French State holds 20% of Thales, 30% of Safran, 46% of Dassault (via EADS France) etc... They will merger soon and a shareholder deal can be done with the Indian State (or Indian companies) very easily compare to the situation of Eurofighter. But these offers are secret for the moment, I can only speculate.

SaiK · Post by **SaiK** » 27 Jun 2011 20:38

while I hear Thales is in advanced stages w.r.t AESA radar, where as EADS is way behind, there are biskooti news that EADS is more working on next generation of T/R modules where Thales is using GaAs based ones. Can someone confirm the CAPTOR one is (Al)GaN based?

Viv S · Post by **Viv S** » 27 Jun 2011 21:53

kelesis wrote:Viv S

Thank you for your answer.

We should consider that EADS NV is not involved in MMRCA, only members of Eurofighter GMBH are part of the deal. Regarding Eurocopter and Airbus, any investment or ToT must be approved by France.

The question was can the Airbus/Eurocopter being subsidiaries of EADS have their already existing or previously proposed investments in India budgeted under the MoD's offset requirements (I'm assuming being in the business, you're familiar with the MoD's regulations).

Regarding EADS NV, how much autonomy do EADS DASA and EADS CASA have? Unless they are financially independent and have separate boards of directors, I can't see how the EADS brass would be uninvolved in the competition.

In other contests it is not a problem but MMRCA is new situation : this is the first time the final round is between Rafale and Typhoon. France will of course favours Rafale in all negociations. Airbus/Eurocopter investments can also be consider as French offsets!

Why would the Indian MoD accept them as offsets for Rafale International when there are different companies involved in both?

Regarding the independance of EADS France, that's why Dutch law has been chosen (For technical and legal reasons it was impossible under french or german law companies). The shareholder agreement between France and Germany states that any strategical decision must be taken by both country (more than 50% of the whole company). The independance of EADS France is very important for both Dassault and Eurofighter, don't forget that actually Alain Gallois the chairman of EADS NV is french and has been chosen by the french government which is clearly working for Dassault. EADS is a pure political company!

The question is how is the Indian MoD looking at the substantial Airbus expansion thats happening (and is due to accelerate) in India?

I don't think France can gain something from Typhoon sales (or maybe a very indirect profit), an agreement must have been signed to make sure any euro will be invested in Cassidian on programms involving german workers (for example). But i don't think Eurofighter will generate a euro of profit in the years to come.

France is a shareholder in EADS and will inevitably gain financially (though not industrially) from an EF selection. I disagree with your assertion - if the decision in September goes its way it'll be generating plenty of euros in profit.

Turnover and profit are two necessary benchmarks. BAE and EADS have huge turnovers means they are two huge companies doing a lot of business. But their capacity of investment is defined by the cash they can generate and the level of their debts. BAE is not profitable, if it wants to recover a capacity to invest it must sell assets... it's turnover will then be smaller

Profitability waxes and wanes, but having the industrial size to implement challenging offsets isn't an ancillary quality. HAL for example is more profitable than Dassault Aviation, yet its unrealistic to expect an imminent expansion into Europe or the US.

Regarding Dassault's offsets, all activities of the group can be used but i think Dassault System and Safran can offer the most importants ones (but this is just my own point of vue). But maybe the deal is larger : the French State holds 20% of Thales, 30% of Safran, 46% of Dassault (via EADS France) etc... They will merger soon and a shareholder deal can be done with the Indian State (or Indian companies) very easily compare to the situation of Eurofighter. But these offers are secret for the moment, I can only speculate.

Indian shareholding in a French consortium? To put it bluntly - unlikely. After all the pains taken to keep it French, I don't see India been granted a considerable stake. Especially not when Rafale hasn't offered India any industrial participation despite the fact that it would improve it prospects considerably.

SaiK · Post by **SaiK** » 27 Jun 2011 22:29

Didn't we hear German opposition to EADS offering to Indian MMRCA? What is the status there?

Lalmohan · Post by **Lalmohan** » 27 Jun 2011 22:31

not really, only from the green party
every european country has that constituency
nothing to worry about

kelesis · Post by **kelesis** » 28 Jun 2011 00:05

The question was can the Airbus/Eurocopter being subsidiaries of EADS have their already existing or previously proposed investments in India budgeted under the MoD's offset requirements (I'm assuming being in the business, you're familiar with the MoD's regulations).

Regarding EADS NV, how much autonomy do EADS DASA and EADS CASA have? Unless they are financially independent and have separate boards of directors, I can't see how the EADS brass would be uninvolved in the competition.

Why should I know something about the MoD regulations? I’m not working for an Industrial company involved in MMRCA. If India has already contracts or proposed investments budgeted under the MoD's offset requirements, then it was probably mainly negotiated with the French…
The control of a company is not only the result of a financial relationship. Defense industry is very different from usual business companies. EADS is a political holding which is driving industrial projects decided by the member states (mainly France and Germany). The possibility of having an independent branch was a condition for EADS to survive. For example, a critical knowledge of EADS France cannot be used by EADS CASA without the consent of the French State, that is obvious and well known.

Why would the Indian MoD accept them as offsets for Rafale International when there are different companies involved in both?

Why not? Finally the defense deals are always a discussion between two states. Eurocopter is mainly French (understand 60% of workers, Head Office, main R&D centers etc…) if you imagine a second that Angela Merkel (or Cameron) can negotiate the future of more than 7000 French workers for the benefit of the Typhoon, then you don’t understand the way Europe works. I would be the end of EADS.

The question is how is the Indian MoD looking at the substantial Airbus expansion thats happening (and is due to accelerate) in India?

They probably discuss this point with Sarkozy and the french gov.

France is a shareholder in EADS and will inevitably gain financially (though not industrially) from an EF selection. I disagree with your assertion - if the decision in September goes its way it'll be generating plenty of euros in profit.

No, there is no automatic link between being a holding and to received money from an affiliate. It depends of the conditions of the by-laws (which is the result of a contractual agreement between the shareholders). I repeat I don’t think the victory of the Typhoon will be substantially profitable for France, EADS is structured to avoid such undesirable effects. If the decision favors the Typhoon it will be of course very good news for EADS. On a personel point of vue, I doubt this program will be profitable at the end. I’m not very confident for the future investments because I doubt there is a political will to maintain the Typhoon up to date for 10 or 15 years. Of course you may disagree and the decision of India can validate or not my feelings, that’s also why I'm passionate about this deal.

Profitability waxes and wanes, but having the industrial size to implement challenging offsets isn't an ancillary quality. HAL for example is more profitable than Dassault Aviation, yet its unrealistic to expect an imminent expansion into Europe or the US.

The capacity to make cash, that’s the key. Of course the size is important but when you loose money you don’t stay big for a long time. You have to sell assets and/or to close some activities to become profitable again (if possible). During this process you can’t invest so much. BAE is clearly not in capacity to make huge investments yet.

Indian shareholding in a French consortium? To put it bluntly - unlikely. After all the pains taken to keep it French, I don't see India been granted a considerable stake. Especially not when Rafale hasn't offered India any industrial participation despite the fact that it would improve it prospects considerably.

We don’t know what is the French offer to India. But you’re right, there is a few probability for this to happen.

Manish_Sharma · Post by **Manish_Sharma** » 28 Jun 2011 00:12

SaiK wrote:Didn't we hear German opposition to EADS offering to Indian MMRCA? What is the status there?

No SaiK, the german govt. refused to sell guns sighting gujarat and kashmir in indian army, but for Typhoon they are in full force to sell.

Gurneesh · Post by **Gurneesh** » 28 Jun 2011 00:25

That is because a lot of countries buy guns, but only a few buy planes. Talk about Hypocrisy .

The real geo-political use of such 'big deals' should be to get such countries to maintain uniform standards in all deals. If you are refusing to sell us guns then please take your plane and missile offers with you too, we have many options. That will sort these people out. Dunno how GOI dreams of becoming a super power but refuses to show some balls when others take cheap shots. I mean take that china report as an example, GOI should tell China to f**k off and not interfere with what we build on our side. This is a big problem with our establishment, always has been (since independence) and I am afraid always will be

.

Viv S · Post by **Viv S** » 28 Jun 2011 12:49

kelesis wrote:Why should I know something about the MoD regulations? I’m not working for an Industrial company involved in MMRCA.

Err.. you're aren't French by any chance are you?

If India has already contracts or proposed investments budgeted under the MoD's offset requirements, then it was probably mainly negotiated with the French…

What do you mean by 'the French' here? I agree if you mean someone of French nationality - Louis Gallois has been involved with the EADS's Eurofighter proposal (including its offset plans) while still being French and former Chairman and CEO of Snecma to boot.

The control of a company is not only the result of a financial relationship. Defense industry is very different from usual business companies. EADS is a political holding which is driving industrial projects decided by the member states (mainly France and Germany). The possibility of having an independent branch was a condition for EADS to survive. For example, a critical knowledge of EADS France cannot be used by EADS CASA without the consent of the French State, that is obvious and well known.

Question is are CASA and DASA units financially independent - does the selection of the Eurofighter have a bearing on the financial health of EADS as a whole?

Why not? Finally the defense deals are always a discussion between two states. Eurocopter is mainly French (understand 60% of workers, Head Office, main R&D centers etc…) if you imagine a second that Angela Merkel (or Cameron) can negotiate the future of more than 7000 French workers for the benefit of the Typhoon, then you don’t understand the way Europe works. I would be the end of EADS.

Because they are different companies - Sagem and Thales are both French but their business is computed independently (though in the MRCA's case they are on the same side since SAFRAN is involved in the Rafale program). Secondly, the Indian MoD's accounting practices have no effect on the future of the 7000 French employees of Eurocopter.

They probably discuss this point with Sarkozy and the french gov.

Sarkozy or the French govt. isn't going to have any influence on the MoD's internal decision-making.

No, there is no automatic link between being a holding and to received money from an affiliate. It depends of the conditions of the by-laws (which is the result of a contractual agreement between the shareholders).

Do subsidiaries distribute dividends independently? Does EADS-DASA and EADS-CASA's financial health have no bearing on EADS share prices/profits/dividend?

I repeat I don’t think the victory of the Typhoon will be substantially profitable for France, EADS is structured to avoid such undesirable effects.

Substantially profitable? For France - no, for French shareholders (including the French state) - yes.

If the decision favors the Typhoon it will be of course very good news for EADS. On a personel point of vue, I doubt this program will be profitable at the end. I’m not very confident for the future investments because I doubt there is a political will to maintain the Typhoon up to date for 10 or 15 years. Of course you may disagree and the decision of India can validate or not my feelings, that’s also why I'm passionate about this deal.

Profitable for the countries that have invested in it or for the companies involved in R&D and production? Because it has certainly been profitable on the latter count while on the former its question of perceptions. The participating countries received a fighter of broadly speaking similar capabilities as France did, but at a considerably lower overall cost (the Rafale's unit cost is over 50% higher than the EF's when R&D costs are factored in).

Profitability waxes and wanes, but having the industrial size to implement challenging offsets isn't an ancillary quality. HAL for example is more profitable than Dassault Aviation, yet its unrealistic to expect an imminent expansion into Europe or the US.
The capacity to make cash, that’s the key. Of course the size is important but when you loose money you don’t stay big for a long time. You have to sell assets and/or to close some activities to become profitable again (if possible). During this process you can’t invest so much. BAE is clearly not in capacity to make huge investments yet.

I looked it up - both EADS and BAE are profitable companies. BAE had poor showing in the year before (2009-10) with £63 million in losses primarily because of new acquisitions in the US, but listed a very respectable operating profit of £1.6 billion in 2010-11. It still remains the world's second largest defence contractor (after Lockheed Martin) with revenues of $34 billion+ and is expanding in India as a part of it core business strategy.

http://bae-systems-investor-relations.p ... r-2010.pdf

Viv S · Post by **Viv S** » 28 Jun 2011 13:06

Regarding offsets:-

DASSAULT -

India has set demanding requirements for industrial offsets in its fighter contest but Dassault is ready to negotiate on the deals, executive chairman Charles Edelstenne said June 17.
The Indian request for tender including offsets which were “very tough,” Edelstenne told journalists ahead of the Paris Air Show which opens June 20.

http://defensenews.com/blogs/paris-air- ... -on-mmrca/

EADS -

Off-sets are not an obstacle for us. Our will to invest in India is high and the off-set factor is not a big constraint. We want to invest in India because we feel it is one of the most promising markets in the world, whether for civil products or for military products. We have 250 people in India at the moment; we will have almost 700 people in 2012. To get access to the Indian market we have to invest, that's clear. In India we find the technological resources we are looking for. We are extremely happy with Bangalore where we have not just a design office but a research centre now being developed and we will have a design office for Airbus and Cassidian, our defence division. More globally, EADS has to be built on three pillars — one in Europe, certainly because our roots are in Europe, one in the United States because half of the world defence market and 40 per cent of the aeroplanes flying are in the U.S., but the third pillar has to be in emerging countries. Growth and dynamism will be with the emerging countries in future and India is certainly one of the most promising. It's a country where we can partner with local industry, where we could find technological resources, where we have one of our main partners for space. We are partners on helicopters, on Cassidian (defence projects) — for some products for the Eurofighter and certainly for Airbus. It means our four divisions can work in India and partner in India with Indian companies. The market is equal to the size of the country — huge.

Interview with Louis Gallois, CEO of EADS.

http://www.thehindu.com/opinion/op-ed/article950513.ece

shukla · Post by **shukla** » 28 Jun 2011 14:24

Mega fighter deal to strengthen India's airspace
IBNlive

Raju said he along with a five-member delegation recently visited Paris and held talks with the French officials over defence matters and other issues of mutual concern. "Our talks mainly concentrated on the purchase of 126 fight planes," he said.

The minister said he would be attending a business conclave being organised in California by the Telugu Association of North America (TANA) later this week.

kelesis · Post by **kelesis** » 28 Jun 2011 17:15

What do you mean by 'the French' here? I agree if you mean someone of French nationality - Louis Gallois has been involved with the EADS's Eurofighter proposal (including its offset plans) while still being French and former Chairman and CEO of Snecma to boot.

No, I mean the french state as decision maker. Please read my previous post. Gallois must ask Merkel and Sarkozy before taking any strategical decision.

Question is are CASA and DASA units financially independent - does the selection of the Eurofighter have a bearing on the financial health of EADS as a whole?

The answer is in my previous post.

Because they are different companies - Sagem and Thales are both French but their business is computed independently (though in the MRCA's case they are on the same side since SAFRAN is involved in the Rafale program). Secondly, the Indian MoD's accounting practices have no effect on the future of the 7000 French employees of Eurocopter.

Sarkozy or the French govt. isn't going to have any influence on the MoD's internal decision-making.

So you seem to be familiar with the MoD's process and internal decision-making. I'm not, but i'm sure the Indian MoD is talking with decision makers and regarding Airbus and Eurocopter, no decision can be taken without the prior consent of the french gov, that's obvious. Regarding EADS things are not as simple as you think. My point of vue is that Eurocopter and Airbus are not part of the offsets.

No, there is no automatic link between being a holding and to received money from an affiliate. It depends of the conditions of the by-laws (which is the result of a contractual agreement between the shareholders).

Do subsidiaries distribute dividends independently? Does EADS-DASA and EADS-CASA's financial health have no bearing on EADS share prices/profits/dividend?

The answer is in my previous post.

Substantially profitable? For France - no, for French shareholders (including the French state) - yes.

For France individual shareholders maybe (not sure the market will consider that the deal is not so good for EADS, it already happened with big defense deals), for the French State it is very doubtfull. The value of the share will rise but it can't be sold due to the shareholder agreement with Germany... The money will mainly be reinvested in EADS for the benefit of members of the Eurofighter team. Why do you absolutly want France to benefit from the Typhoon export? Do you think the germans are so stupid?

Profitable for the countries that have invested in it or for the companies involved in R&D and production? Because it has certainly been profitable on the latter count while on the former its question of perceptions. The participating countries received a fighter of broadly speaking similar capabilities as France did, but at a considerably lower overall cost (the Rafale's unit cost is over 50% higher than the EF's when R&D costs are factored in).

That's your point of vue and it differs from what our analysts use to say (it is mainly based on what the british NAO and french Cours des Comptes have reported) I tend to trust them. The Typhoon seems to be more expensive than the Rafale. That's why the Brits don't want to be involved in such program anymore and now wants to work with Dassault on future projects. Regarding capabilities, some people here are more qualified than me to argue on this subject.

I looked it up - both EADS and BAE are profitable companies. BAE had poor showing in the year before (2009-10) with £63 million in losses primarily because of new acquisitions in the US, but listed a very respectable operating profit of £1.6 billion in 2010-11. It still remains the world's second largest defence contractor (after Lockheed Martin) with revenues of $34 billion+ and is expanding in India as a part of it core business strategy.

http://bae-systems-investor-relations.p ... r-2010.pdf

[/quote]

Again BAE is a very big company with a very small capability to generate cash. The situation will be very difficult for the years to come because of the huge cuts in UK defense budgets (the main customer of BAE) this is not a confidential information. The investors report of Thales is also very optimistic while the analysts are not so confident, this is the usual game.

Viv, I'm not a Rafale fanboy, my point was to show you that the world of european defense industry is not as simple as you may believe. I'm not saying the Rafale is better than the Typhoon or Dassault biggest than BAE. I'm a bit surprised by you reaction, I understand that you will not believe a word of what i'm saying because you feel this is not in favour of the Typhoon. This discussion does not make sens.

SaiK · Post by **SaiK** » 28 Jun 2011 17:43

One has to look at Dassault's statement that though they said the offsets are tough (meaning biting into profits), they did not say it is not possible. But, from the face of the information presented so far, EADS appears to be more open and enthusiastic than Dassault w.r.t establishing local production., but in no way inferior to Dassault by any other means.

IMO IAF and MoD would have the toughest times ahead in choosing between these two, and the lowest bidder would win eventually of course satisfying the basic requirements. May be, EADS and Dassault (Euro interest) can talk between themselves and come up with an ingenious solution if both needs business.

L1 has to take precedence .. hence they may not be able to do the 50% offset.. but EADS offering it more happily means that they have enough profit margins to accommodate offset deals. The only way is moving or having another production facility locally in local partnership, that EADS is very eager to do. I think they have capitalized on this.. and would have no problems with that.

OTOH, France may struggle to give away local production.. but may perhaps be lower on the cost. It would be EADS winner, if they say 50% offsets, and we are matching Rafale's cost equally and thus ending this big game. [no more technical since both qualify for L1]

rajanb · Post by **rajanb** » 28 Jun 2011 17:46

Thanks Kelesis.

While I am neutral (or should I say non-aligned to the final selection

) I realised that the selection of the final winner is not going to be without a lot of factors to be considered.

In my opinion, the tech eval is the easiest and the most fun aspect (for me at least) of the MMRCA excercise.

The ToT and contract negotiations, the risk mitigation etc. are the real convoluted parts that the MoD have to pick their way through. And you have thrown a lot of light on the factors we have to consider before we announce a winner.

Some of the posts here even mentioned that an EF assembly line would be transferred here and we would be involved in the whole design and gain etc. etc., whereas the realities on the ground are, to an ex-salesman like me, a minefield for the legal and finance guys to chart a course through. Phew!

And in this case a political twist to it too.

While I respect my fellow BRFites who majorly seem to love the EF, I have always propounded that may the IAF get the gear they want. And w/o any access to the voluminous information, it is difficult for us to really say which will be best considering the complete package of gear, ToT and risk mitigation.

And whereas, I am keenly looking to the announcement of the final winner (so we can ramp up the IAF as soon as possible), I realise that the MoD and MoF have a lot to do in terms of "due diligence". And be cold blooded about it.

With whatever information we get, it is better for us to recognise it as such, rather than colour it as anti EF or anti Rafale, as it may sound.

I once worked for a company and to my horror 46% was owned by our fiercest competitor.

Which I came to know later!

rajanb · Post by **rajanb** » 28 Jun 2011 17:57

Saikji

One has to look at Dassault's statement that though they said the offsets are tough (meaning biting into profits), they did not say it is not possible. But, from the face of the information presented so far, EADS appears to be more open and enthusiastic than Dassault w.r.t establishing local production., but in no way inferior to Dassault by any other means.

Saik

Sales is like a war and public pronouncements are to be taken with a pinch of salt. Very difficult to say what cards, both EF and Rafale hold.

I could take a different view of what Dassault is saying: That they are setting expectations of inflexibility, whereas in actuality, in their written responses, they may have agreed to a lot, thus surprising the evaluators. Purely psychological this game!

My reading, and maybe flawed in the absence of the full picture, is that both parties are desperate. EF losing support from within the member countries backing it. RAFALE desperate to get an export order, and also for them having to overcome the clout of Khan. The reason why they did not bid in Japan.

My 2 pice.

arthuro · Post by **arthuro** » 28 Jun 2011 18:46

As far as the commercial bidding is concernes I believe that :

1) Rafale is definitely the L1 and by a good margin.
2) Typhoon consortium seems to have more offseting possibilities.
3) ToT, while both promise full ToT France seems more credible since you only have to deal with a single entity (french gov).

Then it is a a question of weighted importance of these criteria and political risks...

Normaly if the minimum criteria in terms of offset and ToT are respected the L1 should win which should be the rafale.
The question seems whether dassault will be able to match the offset requirements. If they do they have the best chance of winning in my opinion.

SaiK · Post by **SaiK** » 28 Jun 2011 19:26

I have a different take on the hassle to deal with a consortium of countries.. and I don't believe it is harder there since, Fr may have more ownership, and thus reluctant to budge rather EADS with more open mindedness having proven that they can deal 4 countries, and now adding a 5th one would not be an issue. It depends on how you construe things.

arthuro · Post by **arthuro** » 28 Jun 2011 19:38

ToT is about governement decision, not firms alone. When France says "full ToT" it is only one voice.
It is far easier and clearer to write a contarct with one country than to negociate with four.

For the record it was a big argument brought by Brazilian Defense minister (Nelson Jobim) in favor of the rafale. As a former lawyer he stressed the fact that france was responsible for all the rafale systems and it was thus safer for ToT than the gripen NG who take systems from different countries.

That's why when France say full ToT it is usually regarded as more credible/reliable (a point stressed by French mindef during his indian visit)

Avid · Post by **Avid** » 28 Jun 2011 20:09

If (and a big IF) it is true that UK is positioning itself to reduce its involvement with Eurofighter, it does not bode well for future developments of EF. There might be enough truth to it considering the rising volume of opposition to EF within UK (press and politicians alike). UK is stuck in a difficult position - i.e. how to reduce the involvement without fallout with Germany, and also recover at much of investment as possible.

Theoretically, India being part of the consortium is a great and definitely a feel good idea. However, practically speaking if the Euro nations themselves have had difficulties aligning themselves (UK, Germany and Italy), because of cultural difficulties and political differences -- what are the chances that we would suddenly get along fine and things will be miraculous for us? EF is not the sole example of such cross-country collaborations not working out and delivering the promise they held on paper. Think of all the euro companies that have immense difficulties getting their subsidiaries in the consortium operating in an aligned manner. They do not even undertake joint product development! VW and Skoda -- I could tell you stories from within Skoda, and you would be shaking your head at the level of problems that really have no rational reason to exist on paper. T-Mobile subsidiaries within each EU country - now there's another set of nightmare stories.

Point being: EF consortium is not going to work out like some people seem to be dreaming. We have worked longer with Russians and still we have differences and difficulties. And no, these are not purely one-sided nor are they purely economical.

I fear, the EF sales pitch is highly motivated by the desire of some of the member countries to divest themselves of their commitments to purchase certain numbers of EF. Furthermore, by offering a seat to India at the table, they are going to further pull out their investments and reduce commitments to funding future developments.

I wonder if the %partnership to India counts towards offsets?

rajanb · Post by **rajanb** » 28 Jun 2011 20:17

Avid, well put.

With the reported news that the Khans want to push the JSF, they are surely going to use the salesy line that the UK is going for the JSF going forward!

That is why we have to look at the choice cold bloodedly. I think, that in the public domain we probably have less than 10% of the information of what the bidders have submitted.

Right now, I hope there are no "extraneous" influences at work!

Lalmohan · Post by **Lalmohan** » 28 Jun 2011 20:28

there are several euro frictions... e.g. german engineers get paid 2 x UK engineers, there are pockets of technical excellence in each country which their governments want to preserve, who paid what against workshare is always a big gripe - but then thankfully this is a commercial venture. there are endless conferences in expensive hotels where people get together to discuss inane nonsense about the programme...

however, injecting a new partner into this mix also has advantages

HAL could learn a thing or two about management as well as ToT. having proper 'work packages' in india is long term beneficial, and may eventually allow us to lead in certain fields - not just theory and comp sci.

having indian funds in the mix bolsters rather than replaces existing member funds - they all need the programme, but because of their domestic politics, can't prioritise defence over health and social welfare, etc.

Avid · Post by **Avid** » 28 Jun 2011 20:52

^^^ Agreed.

Would they agree to sign a contract which lays out the 10 year product/technology development roadmap that states --
"Under no circumstance will:
1. Any member be allowed to divest their commitment to purchasing their current numbers of EF
2. Reduce their investment commitments
3. Apply any sanctions on India
4. Commit to the ToT"

In absence of that, the cost of learning management and ToT is too hefty. We do not want to get saddled with the EF with little interest/commitment from the members.

With all of the members, cutting their losses on EF or reducing their commitment to it and moving to other products (JSF, SH, Gripen) is a feasible option. They have a history and culture of adopting, purchasing, and operating american equipment. They also are going to face significant pressure from US to increase their spend on NATO. However, with their reticence to increasing the spend on defense, they might choose a combination strategy: 1) increase defense budgets but in amounts much smaller than US would like, and 2) switch back to purchasing american fighters/UAVs/UCAVs. EF's continued sustainability is highly dependent on what is going on with friction within NATO.

Each of the EF members is facing incredible pressures on their defense budgets, and national budgets. The pressure from US to increase spend on defense budget is a non-trivial, and its impact will likely be felt on EF and other associated weapons systems. I do not think India should be saddled with that liability - and it will be should any of the members divest their commitments for purchase and/or future development.

SaiK · Post by **SaiK** » 28 Jun 2011 21:05

when it comes to management, HAL can learn from both Fr and the consorts equally.. HAL has lot to learn from production engineering and jigs to precision technology and extracting the best out of cnc machines.

agreed that we have to deal with only one gov regarding Raffale purchase and build. But, I guess that is not an issue from the supplier-purchaser context.. now if there are restrictions on ToT from any of these seller govs, then that should have been already sorted out now. If not, get ready to JSF entry... and to the best wishes of many american clout and lobbyists and super power pressure.

So, imo, it should be fairly = = for Ef and Rf on the ToT angle, where I don't expect any troubles.. however, we should keep a deep focus and perhaps use DDM to find out, which Eu Govs are actually not liking this deal at all? It is better now than later.

When it comes to real politics, I think Fr scores a little points extra here.

MarcH · Post by **MarcH** » 29 Jun 2011 01:03

Well, for one you don't deal with 4 countries, you deal with Eurofighter GmbH.

Next thing is (here I'm repeating myself) how a company with one production line (producing 11 airframes a year) can quickly wind up production, train up Indian workers and supervise
the setup of HAL's production line.

Then we have Eurofighter, a multinational programme with 4 production lines producing around 50 airframes a year. Quite a bit simpler for them to wind up production or derive 18 airframes for India and train up HAL employess at the same time.

Nethertheless, from everything I have seen so far Rafale is between 5-10% cheaper to buy and to run compared to EF. If it is strictly about L1, Rafale should win.