April 13, 2015 / 1:13 PM / 3 years ago

India order for Rafale jets signals end of larger deal

NEW DELHI (Reuters) - Any future Indian purchase of Rafale jets will come through direct talks with the French government, the defense minister said on Monday, effectively killing commercial negotiations for a larger deal with Dassault Aviation.

A Rafale fighter jet, built by French aircraft manufacturer Dassault Aviation, flies over Halim Air Base during a display for Indonesian defence and military officials in Jakarta March 25, 2015 in this photo taken by Antara Foto. REUTERS/Antara Foto/Widodo S. Jusuf

India’s Prime Minister Narendra Modi on Friday announced a plan to buy 36 planes from Dassault through the government-to-government route, after three years of price negotiations for local assembly of the aircraft produced no results.

Defense Minister Manohar Parrikar said Modi’s decision came after commercial negotiations went into a “vortex”. He stopped short, though, of saying the government had scrapped talks on a contract with Dassault for 126 planes worth up to $20 billion.

“This had to be done to break the vortex,” he said, adding that the preferred method was now to talk directly to the French government, rather than return to commercial negotiations.

“Instead of going through the RFP (Request For Proposal bidding process), where there is lot of confusion, chaos, it is now the situation that 36 will be procured ready to fly. What is to be done with the rest will have to be discussed,” Parrikar said.

A decision to abandon commercial talks would end what had been touted as one of the world’s biggest defense deals and could give hope to rival manufacturers, experts said.

“The government has bought time now,” said Muthumanickam Matheswaran, a former Air Marshal in the Indian Air Force. Future purchases “could be that aircraft, or it could be another aircraft”, he said.

“That is an indication that the RFP that has been hanging for more than three years is finished,” said Matheswaran, who advises Hindustan Aeronautics.

Under the original plan, India’s Air Force was to buy 126 Rafale fighters. Of those, 108 would be produced at a state-run Hindustan Aeronautics plant in Bengaluru as part of India’s efforts to build a domestic military industrial base. But the two sides could not agree on the terms.

The value of the deal was estimated to have grown to about $20 billion from an initial $12 billion in the meantime.

Parrikar also said the Rafale was an expensive aircraft and buying 126 planes would have cost the country 900 billion rupees ($14.43 billion).

He said the French jet was a top-end aircraft and that India’s indigenously-made Light Combat Aircraft (LCA) is intended to replace the Russian-made Mig-21, which forms the bulk of the air force’s fleet.

India’s air force needs 42 squadrons to face a two-front challenge from Pakistan and China. It currently has 34, several of which have planes that need to be phased out.

Parrikar said a MiG upgrade program, the induction of the LCA and the 36 Rafales would help bridge the gap. The decision to buy the planes quickly after years of negotiations has been welcomed by the military.

But experts said the decision had come at the cost of Modi’s Made-in-India campaign to develop a domestic defense industry.

Bharat Karnad, a professor at the Centre for Policy Research in New Delhi, told Reuters the Rafale deal was an “unmitigated disaster” that would not solve the needs of the air force, offers India nothing in the way of technology transfer and diverts funding from building an Indian-made fighter jet.

“If there was a critical requirement to make up fighter squadrons quickly, then there is no better way than putting an indent with the Russians for more Su-30MKIs,” he said.

Additional reporting by Tommy Wilkes and Nigam Prusty; Editing by Larry King

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