New Delhi Seeks French Sovereign Guarantee To Fulfill MMRCA Deal: Reports

Citing Dassault Aviation’s current fiscal state as a cause for concern, New Delhi has sought sovereign guarantee from Paris to fulfill the MMRCA deal to supply India with 126 Dassault Rafale aircraft.  

Since winning the deal in early 2012, negotiations have been going on for the past 18 months.

Reports appearing in the Indian media suggested that the issue of sovereign guarantee came up during the visit of French defense minister Jean-Yves Le Drian to New Delhi last week. The details of how the guarantee would be fulfilled if Dassault goes under are still not clear.

Though the purpose of Le Drian’s visit was bilateral military cooperation, the quick fulfillment of the MMRCA deal was the top item on the agenda for both sides.

Dassault Aviation which makes Rafale military planes and Falcon business jets has had a turbulent time during the past five years with fresh military export orders eluding it and a sustained dip in the business jet market saw its revenues slide.  

Consolidated net sales amounted to EUR 1,826 million in the first half-year 2013 representing a 5% fall over first-half 2012. Falcon sales which represented 73% of sales fell by 8%.

The plane-maker has been heavily dependent on the French government which has ordered 200 Rafale jets so far. However, earlier this year, President François Hollande slashed its orders to 225 from the original 286. Hollande explained that the cuts are part of an overall cap on military spending. The cut in order of 51 planes represents 4-5 years of production for the Rafale assembly line.

Further cuts or delays in order are not ruled out due the changing battle scenario with countries seeing merit in weaponized drones over costly fighter aircraft.

In this scenario, the Indian order for 126 fighters with an option of 60 odd more planes has come as a god-sent opportunity for Dassault to tout the technological superiority of its Rafale. The fiercely contested order where the Rafale beat the Eurofighter, the F-16, F-15, the Saab Gripen and the Russian MiG-35 in a two year contest was seen the foretaste of other export orders.

However, the deal has been struck over contract negotiations for over a year now. Issues such as how much responsibility would Hindustan Aeronautics Limited (HAL) assume as the lead integrator, the execution of the 50% offsets and transfer of technology are proving to be far more cumbersome than earlier expected.

The Indian demand for sovereign guarantee could come from another source of botheration. The pool of Rafale parts suppliers in France is upset over the transfer of technology to Indian ancillaries of HAL which they feel will affect the technological superiority of France in the long run.

Defence aviation has been one of France’s strong industries and giving away the intellectual property for one contract has not gone too well with the hundreds of small and medium enterprises which form the Rafale parts food chain. A sovereign guarantee would ensure that regardless of Dassault’s ability to persuade its suppliers to part with technology, Paris would be bound by contract to keep HAL’s supply chain going.

As the Indian government is in a pre-poll mood, it is highly unlikely if the Rafale deal would be signed this fiscal. With the Indian economy in a downward spiral, chances of the government committing to US$ 12 billion for a fighter purchase too seems politically incorrect at this time.