Monday, 9 December 2019

The Rafale Deal and after

Updated: September 6, 2018 2:49 pm

Whichever way one may look at it, the Rafale case between India and France could be a win-win situation for both the countries, argues Claude Arpi

The Rafale deal was again in the news recently. The periodicity is often (in fact always) linked to the political situation in the country. This time, the hue and cry was synchronized with the electoral campaign in Gujarat.

A political party alleged that the off-the-shelf purchase of 36 Rafale fighter aircraft was done unilaterally “without following the Defence Procurement Procedure (DPP), without any inter-governmental agreement and in the absence of the then Defence Minister Manohar Parrikar.”

This became an election issue in the Gujarat polls. A few weeks later, when the question came to Parliament, the government termed the accusations over the deal as ‘motivated’ and ‘baseless’. On December 20, in a written response, Defence Minister Nirmala Sitharaman stated that all the provisions of DPP had been followed before an inter-governmental agreement was signed on September 23, 2016; further, it had the approval of the Cabinet Committee on Security (CCS). Two days earlier, the government had answered in the Rajya Sabha the issue of the pricing. Sitharaman affirmed that a better price was arrived at while finalising the deal and that there was no increase in its cost. She explained: “The cost of the 36 Rafale aircraft cannot be directly compared to the cost of the original MMRCA (Medium Multi Role Combat Aircraft) proposal as the deliverables are significantly different.”

She spoke of better pricing, better maintenance terms and better delivery schedules being ensured in the agreement India had signed with France.

She also clarified: “In the present procurement, 36 Rafale aircraft are being procured in direct fly-away condition to meet the operational necessity of the Indian Air Force (IAF). There is no increase in the cost. Instead, a better price has been ensured.”

The Deal is signed

In September 2016, French Defence Minister Jean Yves Le Drian, accompanied by Eric Trappier, chairman, Dassault Aviation arrived in Delhi to sign a 7.87 billion Euro mega Rafale deal (about Rs 59,000 crore) for 36 Rafale fighter jets. The basic cost, armaments, offsets and service value had been finalised a few days earlier; the details (obviously secret) were contained in several-thousand pages of the Inter Governmental Agreement. It was the end of a long saga which started in 2001.

The delivery of the jets was now scheduled to begin from September 2019. The recent debate, however, raises several real issues.

A long story which could have been shorter

One could say that ‘all is well which ends well,’ and forget the political allegation but the fact remains that the process has been much too long. This point should not be brushed aside, because ultimately it is the Indian Air Force (IAF) and India which have suffered. Hopefully, this crucial issue has been seriously looked into by the present government.

India is probably the only country in the world which has such a cumbersome system for defence procurement (incidentally it took three months for Egypt to buy 24 Rafales in 2015). While the initial Request for Information for 126 Medium Multi-Role Combat Aircraft was issued in 2001, the Request for Proposal was only publicised in 2007. This is when the ‘complications’ started. Eventually, in January 2012, after a long competitive process that lasted five years, in which the American F/A-18 and F-16, Russian MiG 35, European Eurofighter and Swedish Saab Gripen had participated, Dassault and its partners Thales and Safran were selected to supply 126 planes to the IAF.

Accordingly, Of the 126, 18 planes were to be manufactured by Dassault in France, while the remaining 108 planes were to be built in India by Hindustan Aeronautical Ltd (HAL), under a Transfer of Technology (ToT) agreement.

Soon several disagreements cropped up; the transfer of technology was too ambitious. Further, Dassault was not ready to take ‘full responsibility’ for the 108 fighters to be manufactured in India by HAL. The negotiations had reached an impasse when in a stroke Prime Minister Narendra Modi unlocked the situation. On April 9, 2015, the French side was informed of Delhi’s decision to purchase 36 planes ‘off-the-shelf’. It was a pragmatic move. While dropping the MMRCA framework, India considered primarily the IAF’s ‘critical operational necessity’.

On January 25, 2016, as President Francois Hollande landed in Delhi to participate in the Republic Day celebrations, the next day, Defence Minister Manohar Parrikar and Le Drian signed a MoU for the purchase of 36 Rafale aircraft. During the

joint press conference at Hyderabad House, Hollande said the ‘real’ deal would be inked ‘dans les jours prochains (in the coming days).’ Nobody can deny that many ‘forces’ did not want the deal to happen.

propaganda within India has sometimes been ferocious, but once the Modi government opted to go for the ‘off-the-shelf’ option, Delhi tried to get the best of the new formula. It may have resulted in delay, the ‘coming days’ might have became months, but at the end the deal will hopefully be a game changer for the IAF.

The case of Hindustan Aeronautics Ltd

Let us come back for a moment to the MMRCA deal. Many knew that it would be next to impossible for HAL to build 108 jets in Bengaluru in the required time delays.

A few years ago, a former HAL chairman explained to me one of the many difficulties: “HAL is a vertically integrated company. Practically every item is made in-house, ranging from accessories, avionics, and engines to aircraft. It is a management nightmare. No company in the world attempts such vertical integration. About 60 or 70 per cent of a Boeing aircraft is made by subcontractors. When I tried to get engine fuel pump components for the Jaguar made by MICO, Bengaluru (a Bosch subsidiary), it was a non-starter because we needed manufacturing tolerance of five microns and MICO had experience of working with 25 microns.”

The retired official added. “All of us are interested in indigenisation but there are difficulties to achieve it in high technology items.” Under the present DPP, it would have been a nightmare, and a long one, to

build 108 Rafales in India, without a proper adaption and ‘indigenisation’ period. Modi realised this and took the wise decision, though it was a definite setback for his favourite ‘Make in India’ scheme.

Dassault Aviation had long expressed doubts about HAL’s capacity to absorb new technologies and control the quality of all the parts produced in India. I remember that several years ago the question came up during a press conference at the Bangalore Airshow. The then Defence Minister AK Antony was asked why not allow private companies, like Reliance Industries, which had already a collaboration with Dassault, to help fulfill the contract. The Minister peremptorily said: “Never, the deal has to be done by HAL”.

The then Minister probably did not realise that whether it is in the US (Boeing, Lockheed Martin, etc) or elsewhere in the West, the private sector plays a preponderant role in the domain of defence production. In many cases, private players (though closely linked with the government) do not have the same constraints than a public sector undertaking.

It is clear today that HAL could have not ‘digested’ French technology.

A report by a former American ambassador to India, Timothy Roemer, raised critical questions about low quality standards at the HAL factories.

According to The Quint: “Roemer’s confidential report to the then US administration under President Barack Obama, just before his tenure as ambassador ended in 2011, said in clear terms that the HAL was not competent to be a partner of either of the two American companies – Boeing and Lockheed Martin – that were keen to bid for India’s medium multi-role combat aircraft (MMRCA), purely because it did not meet the quality standards the two US giants sought.”

An Indian expert, Air Marshal Bejoy Pandey has noted: “the major issue on account of which the contract for 126 Rafale jets got stuck in a logjam was the precondition in the tender floated that HAL would be the lead integrator, and, hence, partnership between the selected OEM (original equipment manufacturer) and the HAL would be mandatory. This was not acceptable to Dassault Aviation as the OEM did not have the confidence in HAL’s capability and competence to ensure quality standards expected in the production of the Rafale jets in India.”

Thus, it is important to learn from past mistakes and go ahead.

The issue of experience and competence

This leads us to another issue. Though it is not often admitted in India, the West (whether it is the US, Sweden, Germany or France) is still years ahead in aviation technologies. Even China, which is investing far more than India to develop its own engines (as well as two fifth generation aircrafts), needs the West.

A strange case has recently emerged; Beijing is in talks with Bonn to share some state-of-the-art technology, critical in the manufacture of high-performance jet engines. Last month, a senior Chinese government scientist revealed to The South China Morning Post that China produces today turbine blades capable of withstanding temperatures several hundred degrees Celsius higher than the melting point of metallic alloys. The Hong Kong newspaper explained: “The blades are one of the most important components in modern aircraft, both military and civilian, and their quality determines how safe, powerful and durable a jet engine will be.”

According to the scientist, China is willing “to share with industrial partners in Germany [its] latest hardware and technology.”

What does it mean? China, like India, still needs western technology, and for the purpose, Beijing is ready to ‘share’ its own discoveries. Whether the deal will be allowed by North Atlantic Treaty Organisation (NATO) is another issue. But it indicates that, for some time, deals will have to be undertaken through foreign collaboration. Viewed thus, the Rafale case between India and France could be a win-win situation (it might not be a case for a Sino-German deal).

The good news

The most positive outcome of the Rafale deal could be the offset clauses. Initially, Dassault Aviation and its partners were only ready to reinvest 30 per cent of the value of the contract in India to meet its offset obligations. After Modi spoke personally to Hollande in September 2015, the French side accepted to reinvest in India 50 per cent of the value of the deal. The Indian press mentioned that Safran, one of the partners in the Rafale deal, could help India revive the project of a jet engine. The French company is ready to invest 1 billion Euros (about Rs 7,500 crore) by 2020 for a gas turbine powering the indigenous Tejas (indigenous light combat aircraft) fighters.

According to The Economic Times: “The proposal is to use offset credits that would come from the planned Rafale fighter jet deal to revive the indigenous jet engine project.”

The offset clauses need to be fulfilled by all the companies participating in the Rafale project – not only Dassault Aviation but also Safran, Thales and MBDA. In the months and years to come, one particularly needs to watch the joint venture promoted by Dassault Aviation and Reliance Aerospace Ltd; the foundation stone of an aerospace park, which will manufacture aircraft components for the Indian and the global market, was laid in Nagpur in October 2017. Florence Parly, the French Armed Forces Minister, Eric Trappier of Dassault and Anil Ambani, Chairman of Reliance Group attended the event.

The Dhirubhai Ambani Aerospace Park (DAAP), set up in the city’s Mihaan Special Economic Zone, is for the French part of the offset obligations.

Spread over 289 acres, DAAP will be the largest greenfield aerospace project in India; it will be the leading entity to execute the Rafale offset programme. An official stated: “The aerospace park will have assembly lines and manufacturing facilities for fixed wing aircraft and will produce aircraft components for global markets”.

The Dassault–Reliance JV has shortlisted a large number of vendors, mostly small-and medium-size enterprises, to be part of the supply chain at DAAP, something that HAL would never have been able to do. The official, who wished not to be named, told PTI: “Production at the facility is expected to start in the first quarter of 2018; phase one will be fully operational by the third quarter of 2018.”

This is, indeed, an interesting but positive development.

An old precedent

Another plus is the old relation between Dassault and India.

On October 26, 1953, HS Malik, the Indian ambassador in Paris, sent a personal telegram to Jawaharlal Nehru. Dassault had just delivered the first Ouragans fighter planes (known as Toofanis in India). Malik wrote: “I venture to bring to your notice the wonderful cooperation that we have received both from the French officers of the ministry of defence, from the cabinet minister downwards, and from the French industry.” The ambassador further remarked: “Our pilots who came here to learn to fly this type of aircraft, which was new to them, won the admiration and respect of the French air force and, generally speaking, the other members of the Indian Air Force who have come to France for the requisite training to enable them to carry out the servicing of this aircraft in India have, in spite of the language handicap, applied themselves with energy and devotion to their task and have made friends and won the respect of the people among whom they have lived.”

One can only hope that despite the several hiccups during the negotiations, the new collaboration between France and India will be as harmonious as 65 years ago. If all goes well, the collaboration should be even more fruitful, partly due to the offset clauses.

Further, in the future, the supply of Rafale M for the first Indigenous Aircraft Carrier (IAC) could make economic and technological sense. The Indian Navy needs 57 multi-role carrier-borne fighters (MRCBF); a request for information for the project was issued in January 2017, giving aircraft manufacturers a four-month deadline to respond. The main contestants to equip IAC-2 (the Vikrant), built at Kochi dockyard and the IAC-2, which is in a conceptual stage, are presently the Rafale M and F-18 Super Hornet of Boeing.

Two fronts

Some have argued that India does not need such an expensive airplane and that for the price of one Rafale, several other models could be acquired. It is a false debate. One cannot compare entirely different planes which do not belong to the same category and do not have the same functions. Today the need is to defend India against a more powerful neighbor, China, equipped with fifth generation combat planes (J-20s are said to have started training on the Tibetan plateau early this year).

In the Lok Sabha’s debate quoted above, a question was asked on whether the government foresees a two-front war at western and northern borders and what were the initiatives taken by the government to deal with situation. Sitharaman answered that the government is fully seized of the security threats and remains prepared to deal with all kinds of security challenges: “Appropriate measures are taken from time to time to maintain/ upgrade the country’s defence preparedness to safeguard the sovereignty, territorial integrity and security of India.” She added that the government regularly reviews the threat perception to secure borders.

China is becoming more aggressive by the day, whether it is on the Indian border, in the South China Sea or elsewhere (the latest being in the Arctic).

India can’t afford to be slack; it needs to choose the plane which fulfils its needs. It is why the IAF selected the Rafale in the first place.

(The author is an India-based French strategic analyst)

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