Now, Indian order is all the more important for Dassault

The French state has decided to cut back its orders for Rafale fighter jets from the current 11 per year to just 26 over the next six years. This could jeopardise the entire Rafale programme unless Dassault Aviation is able to sign the India contract for the sale of 126 fighters for over €10 billion.

At a press conference here on Friday, France’s Defence Minister Jean-Yves Le Drian, who returned from a trip to India last week, was blunt: as of 2016, Dassault Aviation should count only on exports to support the production of the multirole combat aircraft. That can mean only one thing: wrap up the contract with India or you’re sunk.

He announced the government’s new Defence Review, known in French as the Draft Military Programme (LPM),for French forces from 2014 to 2019.

After much wrangling with the government, Dassault had obtained the purchase by the military of 11 jets a year. At a recent press conference, Eric Trappier, CEO of Dassault Aviation, the company that makes the aircraft, warned that anything below 11 per year would be commercially unviable for the company. Dassault has been unable to sell a single Rafale abroad, and the company is pinning all its hopes on the Indian contract.

It is unclear what sort of assurances Mr. Le Drian received on his recent trip to India. Did the Indians tell him the contract was in the bag and he felt confident enough to announce cuts in the government’s budget for the Rafale or, on the contrary, is this his way of warning Dassault Aviation and the French public of the woes that lie ahead?

“There are countries that are more than interested in the Rafale and I am speaking particularly of India, Qatar and others, and I am very sure of the Rafale’s export capacity in the months ahead,” Mr. Le Drian said in a radio interview on Friday morning. “I am very hopeful that the negotiations with India will be fruitful.”

Was that his way of sending a positive message to say that relief was on its way because the Indians are ready to sign on the dotted line?

But news from New Delhi points in another direction altogether.

Reports indicate that serious doubts have been raised about the life cycle costs of the Rafale by responsible and respected politicians like the former Finance and Foreign Affairs Minister, Yashwant Sinha, and that Defence Minister A.K.Antony, with his habitual caution, has ordered a cost review which could seriously delay the signature. Beyond October, with elections looming large on the horizon, it is difficult to imagine a quick signature of the biggest defence tender ever floated by India.

The LPM aims to make “exceptional savings,” notably through a reduction in force (RIF) exercise, through the sale of immovable assets belonging to the country’s armed services and by limiting its orders for the Rafale.

The daily Le Monde noted in its edition dated August 2: “To date, the aircraft built by Dassault Aviation has never sold outside France. India could be the first foreign country to equip its air force with it, but nothing is concrete yet. And past mishaps by way of failed negotiations with Brazil and the United Arab Emirates should incite the executive to display greater prudence in the matter.”

As another newspaper, the economic daily Les Echos, pointed out, the army budget is posited on at least one major foreign sale of the Rafale.

Normally speaking, if the current rhythm of delivery to the French military is maintained, Dassault should deliver 66 planes by 2019. But under the LPM announced by the minister on Friday, the French military will purchase only 26 aircraft during this period, creating a shortfall of €4 billion for Dassault.

“Dassault Aviation will have to sell some 40 planes to France’s commercial partners,” wrote Le Monde, if it is to juggle production costs, the army’s requirements and the minimum number of aircraft it must build to maintain the commercial validity of the Rafale programme. “The minister appeared most optimistic that the plane would be sold abroad. But what would happen if foreign sales are not concluded? All the aircraft produced will be bought by the French military. At €100 million apiece, the bill will have climbed to about €4 billion by 2019.” French plans to impose budget cuts could go up in smoke, the paper suggests.

The Indians being fine negotiators have realised that Dassault Aviation is desperate to sell. They are therefore also dragging out the negotiating process in a bid to squeeze every possible concession from Dassault. But there could come a tipping point beyond which the negotiations will stall because of India’s domestic electoral calendar. The Indian Air Force badly needs this plane, and the negotiators should be sanguine enough to move back from the brink before the tipping point is reached.

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