Offset Hurdles Threaten MMRCA Project With Delays

India’s MMRCA project has hit yet another road block with winner Dassault demanding, in a written letter to the MoD, that it be given the overall responsibility of the project.

The bone of contention is the role of Hindustan Aeronautics Ltd (HAL) role in the project. Despite the ministry asserting that HAL would act as the project’s ‘lead-integrator’ as per the terms of the RFI issued in 2007, Dassault is now insisting that it be given the freedom to decide on the quantum of work to be shared between companies.

Sources asserted that the differences arose after Dassault evaluated HAL’s manufacturing facilities which were not sufficiently tooled up to manage a project of this magnitude.

According to the original terms, eighteen of the 126 planes are to be purchased directly from Dassault, while HAL will manufacture the other 108 under a licence at an upcoming facility in Bangalore.

With commercial negotiations are still on, the two are trying to settle the pricing for the aircraft, offsets and transfer of technology. Any changes to be made from the original tender would need to be approved by the Defense Acquisition Council and legal issues could arise, according to reports.

Meanwhile Dassault, soon after winning the $10 billion contract, signed a memorandum of understanding (MoU) with Reliance Industries to work together in Indian defence and security sectors. The deal is part of Dassault requirement to reinvest 50 percent of the worth of the deal back into Indian defense sector. There will no forward movement with Reliance or any other Indian company until the crucial issue of HAL is decided.

Meanwhile, reports indicate that the Indian Ministry of Finance has told the MoD that it would have to take a budget cut which means the defence acquisition program would be delayed.  The acquisition of the MMRCA in the 2013-14 fiscal now looks like a remote possibility.