Indian Defence Review

Rafale

Are we really paying three times extra for each Rafale? Has a private company being favoured at the cost of a public sector enterprise? These questions have been keeping our TV screens, mobiles, social media sites occupied for the last few months.

On 19th Sep 2018, Opposition party approached India’s Comptroller and  Auditor General (CAG) to investigate the deal and bring the truth in public domain. They submitted a memorandum to CAG covering the history of the procurement process since 2007 and the allegations.

Following main allegations have been made on the government: –

• Why 36 Rafales are being bought instead of 126 originally planned?
• The government is paid three times the cost for each aircraft.
• No Transfer of Technology (ToT) that will benefit Indian Aviation Industry.
• HAL’s exit and Reliance’ entry.
• Violation of the Defence Procurement Procedure (DPP).

Political parties are busy scoring political point using this deal. Tweaked figures and selected part of the truth are being used for political gains. The opposition party has been trying to turn Rafale deal into a Waterloo for the ruling party – a repeat of Bofors scam that sank Rajiv Gandhi Govt in the late 1980s.

Let us try to understand what happened in this deal in simple words.

1) Why 36 Rafales instead of 126 – In 2007, the Ministry of Defence (MoD) issued a tender to purchase 126 Medium Multi Role Combat Aircraft (MMRCA procurement programme). IAF tested six fighters over 600 parameters at sea level, high altitude, extremely hot and cold weathers and finally shortlisted Rafale and Eurofighter Typoon. In 2012, Dassault Aviation of France was declared as L1 (Lowest) bidder and negotiations started. Government of India (GoI) – both UPA and NDA – could not strike a deal with Dassault because of three main reasons –

•  Cost –Starting 2007, media started reporting that the total cost of MMRCA, the `mother of all deals` would be $10 billion. By 2013, it went upto $15 billion and in 2014, it started touching astonishing $30 billion. It had to because the initial quoted figure of $10 billion had no basis and the MMRCA was the first procurement programme that included the entire life cycle cost of the aircraft – from the procurement to the decommissioning roughly 40 years later.In 2014, it was not the same Rafale of 2007, it had Indian Specific Enhancements and upgraded radar (Rafale first flew with AESA radar in Oct 2012 and the RBE2-AESA radar got integrated with Rafale in 2013).

If procured, the total cost of 126 Rafales (including the total life cycle cost) would have chocked IAF’s budget for years, may be a decade considering the inflation and falling rupee (Euro got strengthened by almost 13% since Aug 2016). This would have seriously impacted IAF’s modernisation drive.

An added sour point was that the cost of Rafale made by HAL. It would have been much more than the one made by Dassault in France. Partially, this was understandable as HAL would have invested in the assembly line, training of the man power, engaging vendors etc but man-hours quoted by HAL to manufacture one Rafale was three times more than man hours quoted by Dassault. Neither MoD nor the IAF could ignore the increase in the manufacturing cost.

•  Guarantee – One of the requirements of the MMRCA was high serviceability of the aircraft (serviceability is the number of aircraft available for operations at any given time. Su-30MKI has a serviceability record of just 50-60%. It means at any given time, out of 240 odd Sukhoi’s, just 130-140 are available for operations, rest are undergoing maintenance). Dassault offered 75% serviceability for Rafale. Being a very expensive platform, GoI wanted Dassault to be the single point of responsibility for the whole Rafale fleet. Dasaault refused and was willing to give guarantee for 18 Rafales made in France but not for the 108 Rafales that were to be made in India by HAL. It was quite logical as Dassault would have no or very less access or Quality Control over the planes made by HAL. And surprisingly, HAL was not willing to offer the guarantee either.

      •  ToT (this will be covered in the next section of this write up)

Till 2015, both MoD and Dassault tried hard to find a middle way but without any luck and scrapping the whole deal would have meant the loss of at least 2-3 years that IAF could not afford. It was already down to roughly 35 squadrons, ready to phase out another 7 squadrons of Mig21 and Mig 27 by 2025 (bringing the strength to 28 squadrons), there was  nothing in the pipeline except aircraft for the last 3 squadrons of Su-30MKI (to be delivered by 2020) and an unknown number of LCA Tejas. IAF even tried to procure second hand Mirages from Qatar and second hand Mig-29s from Russia to make up the dwindling numerical strength. Mirages deal went off as Qatar asked for too much money and we are still working with Russians to get Mig 29s.

No Rafale would have converted a bad situation into a worst one for the IAF.

On the other hand, before PM Modi’s France visit in 2016, French had put its entire diplomatic weight to secure the deal. Because till then, Dassault could just secure two small orders from Egypt (24 planes) and Qatar (24 planes, Qatar placed a follow-on order of 12 planes in 2017). And the list of Dassault’s failed attempts was long – Brazil, Singapore, Libya, Kuwait, Switzerland, South Korea etc. French Air Force had already decreased its order of Rafale. Securing an order from a tough and reputed customer like IAF would have given a boost to Rafale’s international image as a costly but a very potent fighter aircraft.

Signing a deal for 36 planes was a good move as these 2 squadrons will give great technological leap in weaponry and electronic warfare field. But just 36 planes would become a pain point for IAF in the long run. To be able to exploit the full potential of the Rafale platform and the money invested, we need to have at least 5-6 squadrons, if we don’t want Rafale to become one of the reasons of IAF’s logistic nightmare.

2) Why 3 times the negotiated cost: -As explained above, the UPA government could never finalize the final price. However, media generated speculative reports skyrocketed the total price of the deal from $ 10 Bn to $ 30 Bn by 2014. Going by those reports, Price Per unit (ppu) would have been €210 million.

Lets see what finally happened.

Opposition party today blames the present Government to have increased the Rafale’s Price Per Unit (PPU) from the UPA negotiated of Rs 590 Crore to Rs. 1670 Crore. Though they never provided the basis of UPA finalized price of Rs 590 Crore.

To understand if the present deal has made a dent on tax payer’s pocket, we must see (i) what amount India has agreed to pay and what we are getting from Dassault. (ii) What other customers (Egypt and Qatar) have paid.

For fair analysis, the cost must be discussed in EUROs and not Rupee that has depreciated by 13% since the deal was signed.

•  36 Rafale would cost us around €7.8 Bn. GoI has not officially revealed the figures, however after signing the Rafale deal, a senior political leader of the ruling alliance, NDA held an off the record briefing with several journalists. On analysing deals struck by other customers of Rafale, figures given in that off-the-record briefing appears to be authentic.

Journalists were informed that IAF will get 28 single seat fighters (appr. €91.07 Million apiece) and 8 twin seat fighters (appr. €94 Million apiece). Total of just 36 Rafales (without weaponry, Indian Specific Enhancement, life cycle cost etc.) would cost €3.3 Billion.

India-Specific Enhancement (required by the IAF) would cost IAF €1.7 Billion. IAF will pay €1.8 Bn for spare parts and engines, €700 million for weaponry and €350 million for `Performance based logistics`, which will ensure that 75% of the Rafale fleet remains operationally available. All these add up to make the remaining €4.5 Bn.

This is the breakup of complete €7.87 (3.3 + 4.5) Bn deal – €218 PPU. The question still remains – if NDA paid more than the UPA negotiated deal?

The answer can be found if we get to see the similar break up of UPA negotiated deal. As per available information, UPA could never complete the negotiation.Neither they are producing any details of the allegedly finalized price of Rs 590 Crore a piece.

•  But if we compare our deal with Egypt or Qatar, we might get some answer. In 2015, Egypt signed a deal with France for €5.2 Bn for 24 Rafales, 1 FREMM warship (a Frigate) and weaponry (a number of short/medium range missiles). With no 75% Servicebility assurance, Special Enhancements, TOT or Offset clause, Egypt purchased Rafale at €210 million a plane. Qatar placed an order of 24 Rafales for €6.3 Bn but with extensive weapons, training (included training of 26 pilots and 100 technicians) and maintenance programme. Qatar paid €262 million apiece with no Special Enhancements, TOT or Offset clause. India on the other hand paid €218 million for each Rafale with 50% Offset, no TOT but with India Specific Enhancements.These enhancements include integration of Indian and Israeli equipment and as Vishnu Som explained – `the India specific upgrades include a Low band jammer, a towed array decoy system, additional modes and greater resolution in the main radar and the Front Sector Optronics System of the jet.`

These make Indian Rafales technologically superior to the Rafales in French Air Force. Had we placed an order with no Special Enhancement as Egypt or Qatar did, Total cost of the deal would have been €6 Bn and we would have got Rafale at approximately €171 million apiece, much cheaper than Egypt or Qatar.

The following table will make it easy to conclude who got the better deal.