India's $15 billion Rafale deal faces delays: sources

NEW DELHI Fri Apr 5, 2013 6:56am EDT

1 of 2. A Dassault Rafale combat aircraft, which has been selected by the Indian Air Force for purchase, performs during the inauguration ceremony of the 'Aero India 2013' at Yelahanka air force station on the outskirts of the southern Indian city of Bangalore February 6, 2013.

Credit: Reuters/Stringer

NEW DELHI (Reuters) - India's plan to buy 126 fighter-jets from Dassault Aviation (AVMD.PA) could be delayed as the two sides struggle to reach an agreement over the role of state-run Hindustan Aeronautics Ltd (HAL), two sources familiar with the matter said.

India picked the Dassault-made Rafale jet for exclusive negotiations in January 2012 after a hotly contested bidding war with rival manufacturers, but it is still to finalize the $15 billion deal, one of the world's largest defense import orders.

Under the initial terms of the proposed deal, Dassault was expected to provide 18 fighters in "fly-away" condition, and then let HAL manufacture the rest in India.

However, Dassault now wants two separate contracts to be signed - one for the ready-made ones, and another for the rest to be built by HAL, but India opposes that proposal, an Indian Defense Ministry official told Reuters.

"Dassault says HAL does not have the capacity and capability to assemble the aircraft," said the official, who declined to be identified because he is not authorized to speak to the media.

"HAL is our main public sector partner. And if needed, capacity and capabilities can be improved. But the proposal for two contracts is not agreeable to the government of India," he said.

The source said the dispute would likely delay finalizing the deal but not derail it. Indian Defense Ministry officials had earlier expressed the hope that the deal could be finalized by July.

"This kind of deal is complex. This issue is slowing down negotiations. The disagreement is on who guarantees the quality of the planes produced in India, HAL or Dassault," another source close to the matter said.


Dassault has declined to comment on the substance of the negotiations but has said it expects the deal to be signed before the end of 2013.

Dassault has agreed to supply manufacturing kits and equipment to HAL on time, but will not play a further role in manufacturing after that, the Indian Express newspaper said on Friday.

Negotiations between the company and the Indian government have completely stopped over the disagreement, the paper reported, without identifying its sources.

A Defense Ministry spokesman did not have any immediate comment.

According to a preliminary agreement between Dassault and the government, HAL will make 108 Rafale jets in India, while parts will be delivered by Dassault and its partners, Thales (TCFP.PA), Europe's largest defense electronics group, and aerospace group Safran (SAF.PA).

India, the world's biggest arms importer, plans to spend about $100 billion over the next 10 years upgrading its mostly Soviet-era military hardware.

However, a recent push by the Defense Ministry to increase local manufacturing of military equipment has renewed concerns about whether Indian companies have the advanced technology and trained staff to build sophisticated Defense equipment.

Dassault has previously expressed doubts about the technological capability of HAL to manufacture the Rafale. A HAL program to manufacture advanced jet trainers is running years behind schedule.

Rafale defeated the Eurofighter Typhoon to win the Indian government deal. The Typhoon is developed by a consortium of BAE Systems (BAES.L), Finmeccanica (SIFI.MI) and EADS EAD.PA.

(Additional reporting by Cyril Altmeyerhenzien in PARIS; Writing by Anurag Kotoky; Editing by Ross Colvin and Robert Birsel)

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Comments (4)
jeddah wrote:
After the fiasco with Novartis and the Indian governments’ denial of an extension to Novartis’ patent in favor of their generic drug manufacturers, this situation looks like India is trying to acquire the technology on the cheap. From generic drugs to generic fighter aircraft. Copycating seems to be in vogue
A recent study in Europe showed that the efficacy of generic drugs was less than the proprietary drug manufacturers product. A simple example was antibiotics for things as common as a staph throat. Where the original drugs had achieved their suppression of the problem in 3 days, generic drugs took 5 to 6 days to accomplish the same result. A problem that may indicate why drug resistant bacteria are becoming more common.

Apr 05, 2013 10:46am EDT  --  Report as abuse
seymourfrogs wrote:

I guess you mean Strep throat.
But what you say is true.
Some of the generics are poor – bit like Greene’s The Third Man.

And this ‘ordered capitalism’ is a problem. A company spends squillions getting to the drug that works, and then the media say ‘Everyone should have access.’ Similarly, in Europe, electricity producers are told to cut prices for the benefit of all, then invest more to keep the current flowing.

Jaguar (IMO) have messed up putting factories in China and now India (I know TATA bought Jag). But if Jag had to get ahead, Italy knows how to build cars, at least.

Apr 06, 2013 2:14am EDT  --  Report as abuse
Pterosaur wrote:
India only needs to buy 2 or 3 Rafale to reverse-engineer it. Even paying them twice as much, it is still cheaper than doing the research by India itself.

Apr 06, 2013 2:30pm EDT  --  Report as abuse
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