CAG: Dassault, MBDA Yet To Confirm LCA Jet Engine Tech Transfer for Rafale Sale

India’s Comptroller and Auditor General (CAG) in a report said French companies - Dassault Aviation and MBDA - have not yet delivered transfer of technology (ToT) to build engines for indigenous Light Combat Aircraft (LCA) Tejas, in return for the mammoth $81 billion Rafale deal signed in 2016.

The CAG report issued September 23 noted: “….it was found that the foreign vendors made various offset commitments to qualify for the main supply contract but later, were not earnest about fulfilling these commitments.”

The two companies initially proposed (September 2015) to discharge 30% of their offset obligation by offering high technology to Defence Research and Development Organisation (DRDO). “DRDO wanted to obtain Technical Assistance for the indigenous development of engine (Kaveri) for the Light Combat Aircraft (LCA). Till date, the Vendor has not confirmed the transfer of this technology.”

“Thus, it is not clear if this technology transfer will take place, and there is need for MoD/DRDO to identify and acquire the right technologies in order to comply with the directions of Defence Acquisition Council (DAC) given in September 2016,” the report said on the offsets in the Rafale deal.

The Rafale deal has 50% offset clause to be discharged by the four French partners — Dassault Aviation, MBDA, Safran and Thales. Dassault has set up a joint venture with Anil Ambani’s Reliance Defence — Dassault Reliance Aerospace Limited — to manufacture components for the former’s civil jets. Offset obligations of the vendor were to start from September 23, 2019 and the first annual commitment was expected to be completed in a year’s time.

In 2005, India adopted a policy in which Original Equipment Manufacturer (OEM) is required to invest at least 30% of the contract value (applicable for deals above $400 million or INR 300 Crore) in India. There are several ways for foreign manufacturers to meet their offset obligations - Foreign Direct Investment (FDI), offering free ToT to Indian firms, and purchase of eligible products manufactured by Indian firms. To discharge these obligations, OEMs need to select Indian companies as partners.