Rafale Deal : An Incisive Analysis Covering A to Z of the Controversy

( Ajai Shukla of Business-Standard is an authoritative voice on Indian Defence. If you read his articles here and there you might mistake him sometime for a BJP or at other times a Congress sympathiser. But his cogitative accounts are above party affiliations and rather imbued with keen observation and incisive journalistic sense. Since last year there is a surfeit of news on India’s Rafale deal and it has become difficult to sift fact from fiction. Here in a series of 3 articles Ajai Shukla discusses some serious issues related to Rafale deal. While he contends that both Qatar and Egypt bought Rafales either at the same price or paid more than IAF, he also poses some tricky questions to the BJP Government )

🔴 Rafale deal faces turbulent weather

Prime Minister Narendra Modi — on April 10, 2015, in Paris — stunned the global military aerospace industry with the announcement that India would buy 36 Rafale fighters in a government-to-government arrangement with France, effectively ending an eight-year global procurement process for 126 fighters. There is controversy, too, over how the deal was announced — by the PM himself, during a state visit to France — without clearances from his Cabinet or defence ministry.

That announcement resulted in a € 7.8 billion (Rs 58,000 crore) contract for 36 Rafale fighters, signed in June 2016. It has led to charges of corruption and nepotism, levied by the Congress against the Bharatiya Janata Party (BJP)-led government. The Congress alleges Dassault, which builds the Rafale, is being paid far more than the price earlier negotiated. And, that largesse, in the form of defence offsets, is flowing to Reliance Defence, headed by Anil Ambani, a Gujarati industrialist with no experience in aerospace manufacturing but perceived to be close to the PM.

The BJP’s riposte, delivered last Friday by Defence Minister Nirmala Sitharaman, accuses the Congress of delaying the Rafale procurement for 10 years during 2004-14, while heading the United Progressive Alliance (UPA) government. Sitharaman says that Modi, worried about a precariously under-equipped Indian Air Force (IAF), boldly went ahead in the national interest, following all procedures, to buy the Rafale.

⏩ Questions still arise

Beyond political mud-slinging, four major questions arise.

First, did the PM follow due procedure in announcing, alongside then French president François Hollande, that France would supply 36 fully-built Rafales? Or was this Modi’s decision alone?

Second, rather than serving the deal on a platter to a single vendor — French firm Dassault — could the PM have brought in another vendor, creating a competitive environment for price discovery and cost negotiation?

Third, was the UPA guilty of a full decade of foot-dragging between 2004 and 2014 on the eventually-aborted procurement of 126 medium multi-role combat aircraft (MMRCA), leading to such a fighter shortage in the IAF that an emergency purchase of 36 Rafales became essential?

Fourth, does the per-fighter cost in the contract work out lower than what France had offered in its MMRCA bid, which was a key condition of the purchase?

⏩ Due diligence done?

Addressing the media on Friday, a feisty Sitharaman insisted the PM had followed due process, with the purchase of the Rafales having been cleared by the Cabinet Committee on Security (CCS). “In September 2016… the Inter-Governmental Agreement for buying

36 Rafales was signed in the presence of the defence ministers of France and India”, she stated, underlining that one of her predecessors, Manohar Parrikar, was on board.

In fact, Parrikar wasted no time in distancing himself from the decision after the Modi-Hollande announcement. “Modiji took the decision; I back it up”, he told Doordarshan on April 13, 2015. Elaborating to NDTV, he described the decision as “the outcome of discussions between the prime minister [of India] and the president of France”.

In fact, Parrikar had learned about Modi’s impending announcement precisely a week in advance. As Business Standard reported (September 23, 2016, “As Rafale pact is inked, many concerns remain”), Parrikar was driving to the airport on April 3, 2015, to catch a flight to Goa, when he received a call summoning him to the PM’s office. There, Modi sprung the bombshell about the proposed announcement and tasked Parrikar to manage the media during Modi’s nine-day tour of France, Germany, and Canada. Both Sitharaman and Parrikar point out the defence procurement procedure (DPP) permits regular procurement procedures to be bypassed on strategic grounds. Indeed, Paragraph 71 of the DPP caters for “occasions when procurements would have to be done from friendly foreign countries which may be necessitated due to geo-strategic advantages that are likely to accrue to our country”.

However, Paragraph 71 also stipulates that this requires prior clearance. It says: “Such procurements will be done based on an Inter-Governmental Agreement after clearance from CFA (competent financial authority)”, in this case the CCS. Further, Paragraph 73 of the DPP says: “Decisions on all such (strategic) acquisitions would be taken by the CCS on the recommendations of the DPB (Defence Procurement Board)”.

No ministry or Cabinet body was consulted before Modi committed India to the Rafale purchase on April 10, 2015. The CCS sanction was processed and obtained later.

⏩ Putting Dassault in the driving seat

A key criticism of this procurement is that Modi’s Paris announcement effectively handed Dassault a single-vendor contract, ignoring the readily available option to bring in one more vendor. Says a then senior defence ministry official who recently retired and requested anonymity: “The PM chose Rafale based on the IAF’s technical evaluation and flight evaluation trials in the MMRCA process. Why did he ignore the second fighter, Eurofighter Typhoon, which had also passed the IAF evaluation? If the government wanted to truncate the MMRCA contract into a 36-fighter buy, India’s interest clearly demanded that both Eurofighter and Dassault be asked for new price bids. That would have created a competitive procurement, with two rivals bidding against each other. Instead, the PM inexplicably handed Dassault a walk-over with a single-vendor contract”.

Interestingly, Eurofighter had kept its India office open, even after India declared Dassault the winner of the MMRCA procurement in 2012. Asked why, a top Eurofighter official told Business Standard in 2013: “If India decides, for whatever reason, to re-evaluate its MMRCA decision, it is our duty as the L-2 (second lowest bidder) to provide India an alternative option.” As it turned out, India did re-evaluate that procurement, but inexplicably ignored the opportunity that Eurofighter presented. The resulting financial loss is hard to assess, but aviation industry analysts assess it was at least in the hundreds of million dollars.

⏩ Why did UPA stall Rafale?

Sitharaman cites the UPA’s “inability” to conclude the MMRCA deal as justification for Modi’s buy of 36 Rafales. Repeatedly blaming the Congress for having failed to buy fighters “for an entire decade between 2004 and 2014”, Sitharaman alleged this “act of omission” led to severe fighter depletion in the IAF.

In fact, Sitharaman’s accusation of a decade of neglect is chronologically inaccurate. The MMRCA tender was issued in 2007. For the next four years, the IAF conducted technical evaluation and flight trials; only in 2011 were the Eurofighter Typhoon and Rafale declared to have met the IAF criteria. Only on January 30, 2012, was the Rafale declared the L-1 bidder. If there was Congress foot-dragging on the Rafale, it was for two years and three months till the May 2014 transfer of power, not for a full decade. Notwithstanding Sitharaman’s exaggeration, the question remains: Why did the UPA drag on cost negotiations for over two years with Dassault? And why did two NDA defence ministers — Arun Jaitley, then Parrikar — also fail to conclude the contract for a year.

The incredible answer — given that Modi bought 36 Rafales based on the logic that Dassault had won the MMRCA tender — was that the defence ministry had realised as far back as 2012 that Rafale might have been erroneously declared the lowest bidder. Defence ministry sources in the Cost Negotiating Committee (CNC) — a multi-member body that evaluated Dassault’s commercial bid — say the sketchiness of Dassault’s bid forced them to make certain costing assumptions in declaring its bid lower than Eurofighter’s. These assumptions related to a new model of bidding based on Life Cycle Costing, which was being tried out for the first time in a tender. This sharply divided the CNC in 2012-13, when three members wrote a dissenting note demanding the costing assumptions made for Dassault’s bid should be officially approved at the competent level, rather than leaving the onus on the CNC.

When Dassault itself presented different costing figures for Rafales built in Hindustan Aeronautics Ltd — a tender stipulation — it became clear, including to the then defence minister, A K Antony, that Dassault had been incorrectly named the L-1 vendor.

Parrikar himself has substantiated this account. On April 13, 2015, three days after Modi’s Rafale announcement, Parrikar stated on Doordarshan: “There is another reason why the (tender) for the Rafale is stuck. When the CNC determined the L-1 vendor, many people raised questions on the Life Cycle Costing model that was used to compare bids. In this connection, the last defence minister issued a directive to go ahead with the CNC negotiations, fix a price, and then come back and verify whether L-1 determination was correctly done.” Asked to confirm this during her press conference on Friday, Sitharaman declined to comment.

Says a retired secretary-level defence ministry official about the CNC’s assumptions that led to Dassault being declared L-1 in the MMRCA contest: “In my view, a vendor’s commercial bid that has serious gaps should be treated as an incomplete bid and the vendor disqualified. Costing assumptions can be made only on minor issues.”

⏩ The Question of Cost

Said Parrikar on Doordarshan on April 13, 2015, explaining the conditions of the 36-Rafale buy: “Our deal is being finalised on very clear terms: ‘Better terms than those existing’. It will be on cheaper terms than those quoted in (Dassault’s bid in the MMRCA tender).” The BJP insists this condition has been met. However, the government has released no figures for Dassault’s earlier quote, nor did it release a cost breakdown of what Dassault is being paid for 36 Rafales. On Friday, asked for cost breakdown by the media, Sitharaman promised: “We will give you the figures that you want.” She ordered Defence Secretary Sanjay Mitra, who was sitting beside her, to provide them. Despite repeated enquiries, no figures have been released so far.

🔴 Clouds over fighter jet: How much did Rafale actually cost?

Has the Indian Air Force (IAF) paid more per Rafale fighter than what Prime Minister (PM) Narendra Modi had undertaken in Paris whilst announcing his agreement with French President Francois Hollande to buy 36 aircraft from French vendor, Dassault?

On April 10, 2015, standing beside Hollande, Modi declared: “Keeping in mind the critical operational necessity of fighter aircraft in India, I have discussed with the [French] President the purchase of 36 Rafale fighters in ‘fly-away condition’ at the earliest through an Inter Governmental Agreement. We have both agreed that these would be supplied on better terms and conditions than were offered to India in a separate procurement process.”

The “separate procurement process” Modi referred to was an on-going tender the IAF issued in 2007 for 126 medium multi-role combat aircraft (MMRCA). In response to that tender, Rafale had submitted a commercial bid in 2008-09, quoting a price for 18 Rafale fighters “in fly-away condition”, and 108 fighters to be built in India.

Now the Congress Party alleges that the Modi government, in buying 36 Rafales for €7.8 billion ($9.2 billion, Rs 58,000 crore), paid more than what Dassault had quoted in the MMRCA tender. If that is the case, the PM’s public commitment was violated.

In the absence of government figures, analysts must extrapolate from other available, if less authoritative, sources. Defence Minister Nirmala Sitharaman committed at a press conference on Friday that the Rafale bid figures would be publicly released. Despite subsequent requests from Business Standard, no figures have been forthcoming.

A full breakdown of figures is essential because the total cost of a fighter contract includes — besides the cost of the aircraft — costs related to technology transfer, spare parts, weapons and missiles, added-on equipment and maintenance costs. A valid comparison, on an apples-to-apples basis, requires “non-aircraft” costs to be isolated from the price being paid for the aircraft.

⏩ Cost of the current deal

Fortunately, authentic figures are available for the €7.8-billion contract, signed in 2015, for 36 Rafales. Soon after the contract was signed, a senior political leader in the National Democratic Alliance (NDA) held an off-the-record briefing in New Delhi for several journalists, including this correspondent.

It was divulged that the contracted price averaged out to €91.7 million (Rs 686 crore) per Rafale. This included the purchase of 28 single-seat fighters, for €91.07 million (Rs 681 crore) each; and eight twin-seat fighters, each priced at €94 million (Rs 703 crore). That puts the cost of each of the 36 “bare bones” fighters at €91.7 million (Rs 686 crore) — totalling up to €3.3 billion.

Besides this, the IAF paid €1.7 billion for “India-specific enhancements”, €700 million for weaponry such as Meteor and SCALP missiles, €1.8 billion for spare parts and engines, and €350 million for “performance-based logistics”, to ensure that at least 75 per cent of the Rafale fleet remains operationally available. All this added up to another €4.5 billion, taking the cost of the contract up to €7.85 billion.

A key question is: How much of the “additional costs” are actually part of the aircraft? Most aerospace industry executives agree the “India-specific enhancements” are a part of the Rafale operational platform and should be included in its price. These enhancements include a “radar warning receiver” to detect enemy radar and “low band jammers” to foil it; a radio altimeter, Doppler radar, extreme cold weather starting-up devices for airfields like Leh, and “helmet mounted display sights” that let pilots aim their weapons merely by looking at a target.

Adding the €1.7 billion for “India-specific enhancements”, the payment made for the aircraft goes up to €5 billion, averaging out to €138.9 million (Rs 1,063 crore) per Rafale fighter.

⏩ Cost of 126-aircraft deal

While it is inadvisable to directly compare the two differently structured contracts — one involving manufacture in France and the other, manufacture in India with transfer of technology — an apples-to-apples comparison can be made with Dassault’s pricing in the MMRCA tender, that quotes for 18 fighters in fly-away condition.

Other than that, the only authoritative indicator of Rafale’s bid in the 126-fighter MMRCA contest has come from Manohar Parrikar, while he was the defence minister. Talking to Doordarshan on April 13, 2015, he quoted a figure: “The Rafale is quite expensive. As you go into the upper end, the cost goes up. When you talk of 126 aircraft, it becomes a purchase of about Rs 90,000 crore.”

While this figure would include elements of technology transfer and manufacturing infrastructure creation, Rs 90,000 crore for 126 Rafales translates into an indicative cost of Rs 714 crore per fighter — significantly lower than what India is paying now.

“The most valid comparison is with 18 fly-away Rafales in the MMRCA tender. The government should make those figures public,” says an aerospace company executive.

⏩ French pricing for Rafale

The French Senate periodically issues authoritative figures for Rafale pricing. The most recent figures, from 2013-14, put the acquisition cost per Rafale at €74 million (Rs 566 crore) for the Rafale B (twin-seat version); €68.8 million (Rs 527 crore) for the Rafale C (single-seat version); and €79 million (Rs 605 crore) for the Rafale M (aircraft carrier version). These prices are significantly lower than what the IAF is paying for the Rafale.

The reason could be that France expects India to pay a significant share of the Rafale’s development costs. A Business Standard analysis of official French Senate figures indicates that the €45.9-billion cost of the Rafale programme consisted of two components: €25 billion for design, development and testing costs, and €20.85 billion for building 286 Rafales for the French air force and navy.

Without factoring in export orders and assuming the French military will eventually buy 286 fighters (so far, it has only ordered 180), it amounts to a developmental cost of €87.5 million (Rs 670 crore) per Rafale — more than its manufacturing cost.

Loading design and development costs onto the manufacturing cost of the aircraft, the French cost per Rafale  to an average of about €160 million (Rs 1,225 crore). In paying close to €138.9 million (Rs 1,063 crore) per fighter, the IAF is obtaining only a €21 million (Rs 161 crore) discount on the Rafale’s fully discounted price. The IAF, therefore, is effectively subsidising French aerospace  R&D and industry.

⏩ Egypt, Qatar deals

Can the price the IAF has paid for the Rafale be compared with the price the other two buyers — Egypt and Qatar — have paid? While such a comparison would face the same pitfall of not knowing what each of those contracts includes, on the face of it, both those buyers are paying prices similar to, or higher than, the IAF.

The Egyptian Air Force has paid €5.2 billion for 24 fighters and is reportedly considering buying 12 more, a “fully loaded cost” of €217 million per Rafale. Similarly, the Qatar Air Force has paid out €6.3 billion for a similar number of aircraft, with a “fully loaded cost” of €262 million per fighter.

🔴 From light fighter to nuclear delivery platform: Long road to Rafale

Since the turn of the century, when the Indian Air Force (IAF) began its quest for cheap, light fighters to replace the Soviet-era fleet of light MiG variants, the IAF’s specifications for the replacement fighter have changed so much as to be almost unrecognisable.

From supporting development of an indigenous fighter to adding more fighters to the Mirage-2000 fleet, the IAF switched tack to buying medium, multi-role combat aircraft (MMRCA) through competitive global tendering; to eventually buying 36 Rafale fighters in a government-to-government deal with France.

In the newest twist, after Prime Minister Narendra Modi announced on April 10, 2015, in Paris that India would procure 36 Rafale fighters from Dassault, the justification for acquiring such a high-end fighter transformed into veiled hints that it be a platform for delivering nuclear weapons in wartime.

Three days after Modi’s Rafale announcement, then defence minister Manohar Parrikar said on Doordarshan: “It is a strategic purchase and should never have gone through an RFP (Request for Proposals, or a competitive tender).”

Most nuclear strategists have taken “strategic purchase” to mean that India would rig Rafale fighters to deliver nuclear weapons — in place of the Mirage 2000s and Jaguars that currently do the job — as the airborne leg of its nuclear triad. In the calculations of many analysts, there could be no other valid reason for an air force that already operates seven types of fighters to buy just 36 aircraft of an entirely new type, further complicating a logistical nightmare. Furthermore, nuclear strategists say in the era of highly reliable land-based and submarine-launched ballistic missiles, delivering nuclear weapons by aircraft is a dispensable option.

Says Vipin Narang, nuclear strategist at the Massachussetts Institute of Technology: “Given India’s diverse and capable land and sea-based missiles, it is worth considering whether one even needs a replacement delivery platform for nuclear gravity bombs. If India is committed to a triad, a more cost-effective solution may be to make Brahmos a nuclear missile and use the Sukhoi-30MKI to deliver it, obviating the need to replace Mirage and Jaguars. It is hard to justify $225 million a plane for an increasingly obsolete mission.”

If indeed the Rafale’s nuclear capability led to its purchase, it remains unclear why the government does not publicly state it? The commitment to a nuclear triad — of delivery of nukes by land, sea and air — is publicly enunciated in India’s nuclear doctrine. It would be reasonable to state that the IAF is paying such a heavy cost to have the most seamless transition from the Mirage 2000 to another French platform, says Narang. However, there would be questions over whether the Rafale needs to do that job. The Mirage 2000 and the Jaguar are both being upgraded, and can act as airborne nuclear vectors till 2030-35.

⏩ Shifting Goalposts

The nuclear talk is the latest example of the IAF shifting goalposts on its fighter purchase over the past two decades.

Since the early 1980s, when the IAF had 42 fighter squadrons but 30 of them were light MiG variants that faced obsolescence, it was decided to develop the indigenous Tejas Light Combat Aircraft (LCA) to replace them. In 1981, the IAF defined a requirement for a light, single-engine to replace the MiGs from the mid-1990s. But the LCA eventually flew only in 2001. The IAF, happy with the performance of the Mirage 2000 in the Kargil war, began lobbying for buying the Mirage production line that Dassault was closing down, and re-establishing it in Hindustan Aeronautics Limited (HAL) to build the excellent Mirage 2000-5 fighter. “As an air force we were very familiar and comfortable with the operational and tactical handling of the Mirage 2000,” said Air Marshal (Retired) Pranab Kumar Barbora, who was Vice Chief of Air Staff till 2010.

That would have given the IAF large numbers of inexpensive yet sophisticated, single-engine fighters, ideal for replacing the MiGs. But the National Democratic Alliance (NDA) defence minister, George Fernandes, under fire after the Tehelka exposes on defence procurement corruption, shied away from a single-vendor buy from Dassault — ironically, considering what eventually happened with the Rafale purchase 15 years later.

In 2002, Fernandes ordered the IAF to float a global tender. Specifications were framed for a light fighter, and the IAF floated a “Request for Information” to four global vendors in 2004. However, in 2005, Dassault – apparently miffed at having to compete instead of being awarded a single-vendor contract – foreclosed the option of transferring the Mirage 2000 line to India.

It took the IAF three more years to draw up specifications of a new fighter. On August 28, 2007, when the IAF issued an international tender for what was dubbed the MMRCA, the MiG-replacement fighter had morphed into a high-tech, medium-to-heavy fighter that could have one engine or two, and would inevitably cost far more than what was envisaged. When responses to the tender came in, there were six aircraft in the fray: Saab’s JAS-39 Gripen — C; Lockheed Martin’s F-16 Super Viper; Russian Aircraft Corporation’s MIG-35; Boeing’s F/A-18E/F Super Hornet; Eurofighter’s Typhoon and Dassault’s Rafale.

Defence Minister A K Antony, while chairing a meeting of his Defence Acquisition Council on June 29, 2007, outlined three guiding principles for the MMRCA procurement: “First, the operational requirements of IAF should be fully met. Second, the selection process should be competitive, fair and transparent, so that best value for money is realised. Lastly, Indian defence industries should get an opportunity to grow to global scales.”

A decade later, none of these objectives have been met. With the IAF’s operational requirements still unmet with the procurement of just 36 Rafales, fresh tendering is underway for 114 “single-engine fighters”. Instead of a “competitive, fair and transparent” selection, the decision to buy the Rafale remains opaque. And, with the “Make in India” component of the deal scrapped, indigenous defence industry remains ignored.

⏩ The Dassault Advantage

Through the five years it took the IAF to conduct and conclude the MMRCA selection process, the buzz within the defence aerospace community was that the contest structure favoured Dassault.

To win, a fighter first had to meet the IAF’s requirements in technical evaluation and flight tests. In the second stage of evaluation, commercial bids would be opened of those vendors whose fighters had met the IAF’s norms. Based on a “life-cycle costing” matrix, the lowest bidder would be declared the winner.

After lengthy flight trials, the IAF eliminated four fighters in April 2011 – the Gripen-C, F-16, F/A-18E/F and the MiG-35. Coincidentally, these four were significantly cheaper than the Rafale. Only the excellent, but expensive Eurofighter Typhoon went into a commercial bidding contest against the Rafale. On January 30, 2012, Dassault was informed it was the lowest bidder.

Among the fighters the IAF eliminated were the F-16 Super Viper and F/A-18E/F Super Hornet, the world’s most combat tested and proven fighters that form the backbone of the world’s most formidable air force. Ironically, the IAF is now pursuing two fresh acquisitions — for single-engine fighter and multi-role carrier-borne fighters, respectively — in which the F-16 and F/A-18 are hot contenders. Evidently, the purchase of 36 Rafales has changed little for the IAF.


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