5 Feb, 2012, Bennett Voyles - economictimes.indiatimes.com
Many global arms industry observers were surprised this week when the Indian Air Force announced that it had chosen French firm Dassault Aviation as its preferred bidder for a roughly $11-billion deal to supply India with 126 jet fighters. After all, despite 12 years of heavy sales bombardments all over the world that sometimes even included the president, only the French air force has ever actually bought the Rafale.
The deal isn't done yet - the French have just won the right to an exclusive negotiation - but it is close enough that shares in Dassault shot up by 20% the day of the announcement.
So how did Dassault finally pull it off? And not just any deal, but what some say is the biggest cross-border military aviation contract of all time? Of course, the Indian government said it went to the low bidder, but that seems unlikely - particularly since the final price hasn't been set, and no one picks up jet planes just because they're on sale.
The Deal
French firm Dassault won $11 billion contract to supply 126 Rafale jets.
Snapped it up with lower bid against Eurofighter Typhoon aircraft.
The size of the contract could eventually go up to 200 aircraft.
The Aircraft
Rafale is a twin-engined, delta-wing jet Can fly up to 2,130 km per hour in high altitude.
In service for the French Air Force since 2006.
Has been playing air support roles in Afghan war Part of Nato campaign in Libya in 2011.
The Company
Dassault family is the majority owner. EADS, a co-producer of competing Typhoon, owns 46% of the equity.
The company has delivered 7,500 civil & military aircraft to 75 countries.
Dassault came close to selling aircraft to Brazil and Switzerland, but failed to secure a contract as yet.
UAE was reportedly in final negotiations to buy 60 Rafale in June 2010, but drama unfolded when Eurofighter Typhoon was allowed to submit a counter-offer.
French defence minister gave an ultimatum that Rafale production would be halted if the jets could be sold abroad.
And The Snag
The file containing the offset proposals of contenders went missing in December 2010. Later found on the roadside in south Delhi. The episode threatened to derail the tendering process itself.
Others in the race
Six contenders were subjected to extensive field evaluation trials.
Four aircraft eliminated last year on technical grounds were American Lockheed Martin's F-16 and Boeing's F/A-18, Russian United Aircraft Corporation's MiG-35 and Swedish SAAB's Gripen
With billions on the table, and the national security at stake, the French plane must have edged out the multi-national Eurofighter for a number of reasons. Nine possibilities:
A Better lunch
Of course, nobody makes an important decision for the food, but the prospect of hanging out in Bordeaux, home of the Dassault assembly line, instead of Halbergmoos, Germany, couldn't have hurt. On the one hand, you're in the heart of the French wine country, in a rich and sunny part of France. On the other, you're in cold, grey Bavaria, facing a few years of sausages, sauerkraut, and beer served in mugs the size of small aquariums.
DASSAULT WAS HUNGRY
Dassault has failed to sell the Rafale abroad since 2000. Although its Mirage planes were popular in the 1970s, Dassault hasn't had a similar success with the Rafale line. Deals with the United Arab Emirates, Morocco and Brazil all fell through.
To top it off, President Nicolas Sarkozy is very unpopular and faces an uphill election campaign. After all the economic troubles under his tenure, bringing home a little jambon would be seen as a positive - particularly as France has reportedly sunk more than $50 billion on the Rafale's development, a lot of money for a country that spends around $60 billion a year on defence.
Despite the fact that chairman and chief executive officer Serge Dassault is a member of Sarkozy's political party, owns the leading French conservative newspaper (Le Figaro) and even serves as a French senator (where he is vice-finance chairman), the government had recently announced plans to cease production in 2021 if outside buyers could not be found.
BECAUSE I'M WORTH IT
L'Oreal, the French cosmetics company, made a fortune selling its more-expensive home hair dye with ads that showed some sultry blonde saying she'd chosen L'Oreal, "because I'm worth it". Now that India has become a much wealthier country, it can afford the best for its pilots - and Rafale is arguably the best.
"They kind of went for the 'fun to fly' factor rather than the best value factor," says S Amer Latif, a visiting fellow in US-India policy studies at the Center for Strategic and International Studies (CSIS) in Washington, DC.
"If you ask me which plane is better, I'd answer Rafale is a more mature and already multi-role plane," says David Cenicotti, an Italian military aviation blogger. "The Eurofighter is a younger technology, believed to be cheaper and to have a more political clout because it is built by four European countries."
However, this can also be a flaw in times when financial crisis has seen the same four countries much distant from one another on the strategy to save eurozone.
DASSAULT IS SMART
Although the Eurofighter Typhoon and the Rafale began as more or less the same aircraft, Dassault pulled out of the design consortium in 1985, and in recent years the Rafale has made some technical gains. First, the Rafale has a more advanced radar system than the Eurofighter Typhoon. Unlike the Typhoon, it's also already possible to configure to landing on an aircraft carrier - an adjustment that can be difficult, according to James Hardy, Asia-Pacific editor of Jane's Defence Weekly.
The company has also had a tradition of being on the cutting edge. A 1973 profile of Dassault described the company as viewing sales differently than American aircraft companies: "Whereas most American aircraft companies commonly look on development as an unavoidable and not particularly attractive prelude to production, Dassault seems to view production as a buffer work assignment to fill capacity not absorbed by development."
DASSAULT IS NOT AMERICAN
American arms deals tend to come with strings attached - inspections, and possibly spare parts embargos if they don't approve of the uses to which a plane is put - as happened after India's nuclear tests in the 1990s. Buy American and you get the American agenda free.
"The US sells weapons under quite strict conditions - how to use them and where to use them," says Siemon Wezeman, senior researcher at the Stockholm International Research Institute. The US also requires buyers to submit to regular inspections, he says, which some countries find humiliating.
The French, on the other hand, tend to be more laissez-faire and more independent of the major powers - in their own way, not unlike the Indians. "The whole idea that the French are sometimes very independent vis-a-vis some of the big countries, may give them an added advantage," Wezeman adds.
OR BRITISH AND GERMAN AND SPANISH AND ITALIAN
An important part of the deal is the transfer of the technology to India. The Eurofighter is a joint product, which runs off four different production lines. This could have led to a lot of complexity down the line, particularly as the agreement calls for setting up a production line and transferring the technology to India. "It seems to me that the Eurofighter's technical transfer might have been a bit more complicated than the French," says Latif of CSIS.
FRANCE MAKES ALL THE PARTS
Even as most arms makers, including American manufacturers, have tried to cut costs and boost political consensus by creating global supply chains, France still tries to maintain an independent military industrial base. That makes things more expensive for the French taxpayer, but the Indian Air Force may see this as an advantage: rather than worry about maintaining relations with a group of countries, almost all the parts for the Rafale are sourced within France, simplifying the logistics, according to Wezeman.
THE ARAB SPRING SPRANG THE RAFALE INTO THE NEWS
To most of us, war is a horrible tragedy. To arms dealers, it's a great sales tool. Muammar Ghaddafi was a big fan of the Rafale, and even expressed interest in purchasing a number of them in 2007. Although he later changed his mind - a decision he may have regretted last spring - the one time fan inadvertently helped sell them: French Rafale fighters provided key support for Libyan rebels and reportedly performed very well.
BEAUTY IS IN THE WALLET OF THE BEHOLDER
In the late 1980s, Dassault was involved with a helicopter procurement scandal in Belgium that ended in the conviction of the minister of defence, the chairman of the Socialist Party and a number of other Belgian politicians and government officials, and 18 months' probation for CEO Serge Dassault.
However, it should be noted that at the time, Dassault was not actually breaking French law - bribing French officials was illegal but bribing foreign officials was fair game: until 2000, foreign bribery expenses were even tax deductible.
More recently, Dassault seems to have continued to have problems with his cash targeting system. In 2008, he won reelection of mayor (it's possible to hold several offices simultaneously in France) in Evry, a town south of Paris, but in 2009, the State Council invalidated results on allegations that he paid some voters for their support.
So far, no official allegations have been made about the Rafale contract, outside an outlandish claim last April by Subramanian Swamy, Janata Party leader, that a kind of criminal Italian sorority had engineered the deal, comprised Carla Bruni, the half-Italian first lady of France, and Sonia Gandhi, the head of the National Advisory Council, and Mrs Gandhi's sisters.
Whether a few fat envelopes closed the deal or not, one analyst says suspicion of corruption could still unravel the contract. "I think the biggest risk is when somebody starts shouting corruption even if there isn't anything, because it has to be investigated," Wezeman says.
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