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A French navy Rafale manufactured by France's Dassault Aviation. The Rafale beat out the Eurofighter, made by a consortium of German, British, Italian and Spanish aerospace firms, to win the $20-billion (U.S.) contract to supply 126 combat aircraft for the Indian air force. (Remy de la Mauviniere/AP/Remy de la Mauviniere/AP)
A French navy Rafale manufactured by France's Dassault Aviation. The Rafale beat out the Eurofighter, made by a consortium of German, British, Italian and Spanish aerospace firms, to win the $20-billion (U.S.) contract to supply 126 combat aircraft for the Indian air force. (Remy de la Mauviniere/AP/Remy de la Mauviniere/AP)

A dogfight over Delhi Add to ...



Sir Stephen Dalton, the U.K.’s chief of air staff, hurtled down the runway behind the controls of a Russian-designed Sukhoi-30 at the Kalaikunda air base in West Bengal. The deafening roar of the engines of the mainstay of the Indian air force swept over a small band of observers gathered just over a year ago in the rising tropical heat.

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Minutes later, a Royal Air Force Eurofighter Typhoon built by a British, German, Italian and Spanish consortium took to the skies as part of a staged dogfight with India’s French Mirages and Russian aircraft, designed to impress officials seeking to modernize an aging fleet. Its near-vertical takeoff was met with awed admiration.

Within the sights of Sir Stephen, a veteran of the first Gulf war – as well as his political masters and hundreds of aerospace executives – was one of the world’s most sought-after jet fighter contracts. London, Paris and Washington were all vying to re-equip the world’s largest democracy with 126 fighters – about a 10th of the force – seeing it as a chance to put a seal on a defining bilateral relationship of the 21st century.

Worth up to $20-billion (U.S.), the deal to supply India – with its fast-growing economy and geopolitical status, and its concerns about the threat from Pakistan to the north and China to the east – offered a European defence establishment suffering shrinking military budgets back home the chance to reshape the industry landscape.

But the mock battle was the closest the Typhoon came to the target. New Delhi last week chose Dassault’s Rafale over the Eurofighter at the end of an 8-year competition. The significance of the agreement is being compared to that of the U.K.’s record al-Yamama deal with Saudi Arabia, signed in the 1980s. Optimists say it could be signed within eight months, joining a $9.3-billion agreement for France to supply India with two nuclear plants and another to build it a modern conventional submarine fleet worth $4-billion.

“This is a major win for France, and a major loss for the U.K. … French political backing has been essential in strengthening the French bid and the Rafale win is therefore also a major victory for President Nicolas Sarkozy,” says Endre Lunde, an aerospace and defence consultant at IHS Jane’s, a defence consultancy.

Rafale’s selection is a bitter disappointment for all four nations in the consortium, and highlights Indian doubts about a pan-European partnership at a time of financial and political strain on the continent.

It has a particular sting for David Cameron. The British Prime Minister identified the Indian market as one of the most important for Britain’s exporters – but this opening gambit to his premiership has shown scant return even though accompanied by £1-billion ($1.6-billion U.S.) of aid in the next four years.

The decision also deals a blow to Mr. Cameron’s attempt to style himself a champion of trade missions led by the private sector – unlike France’s dirigiste approach – and of Britain’s dwindling manufacturing base.

Eurofighter’s backers thought it the lead contender, bringing more advanced technology and strategic clout than the Rafale, which had not been sold outside France. Their confidence soared after U.S. rivals – Boeing’s F/A-18 Super Hornet and Lockheed Martin’s F-16 Super Viper – were knocked out of the highly secretive medium multi-role combat aircraft contest last year.

In London and Berlin, contractors salivated at the idea of harnessing via industrial partnership a greater share of India’s $36-billion annual defence budget – one of the world’s largest, and probably a third of China’s. A big European purchase would shift India away from reliance on Russia and show the U.S. was not the only alternative as Delhi sought to rearm itself in light of mounting concerns about a more assertive Beijing.

The executives of the consortium partners were convinced Eurofighter offered a superior so-called “4th generation” aircraft suited to aerial combat and able to strike targets on the ground. They were also confident they had priced it competitively, in spite of some analysts’ claims that the Rafale was up to 10-per-cent cheaper.

But they overlooked Indian misgivings about security of supply for an aircraft built by four countries across a continent in financial turmoil and amid worries about the aircraft’s radar capabilities. “The upside is that Eurofighter delivers you four countries as strategic partners,” says Douglas Barrie of the London-based International Institute for Strategic Studies, but “the downside is they have to negotiate with each other before they negotiate with you.”

They also underestimated the government-to-government nature of India’s arms dealings; its deep-seated fears over its energy vulnerabilities; and its hunt for a bargain. “Patience is a key aspect of doing business in India, as is price,” says Gunjan Bagla of California-based Amritt Inc, an advisory service. “The Indian approach is that so long as a product meets the minimum threshold of performance, then it seeks the best value for money. This should come as no surprise.”

Eurofighter executives want a “detailed explanation” from India’s Ministry of Defence of how calculations were made. They doubt that Dassault, which conducted its campaign from within the grey concrete walls of the French embassy, can deliver on its promises in terms of price and schedule.

Meantime, there is grim denial that the contest is over, and that India has overlooked a partnership that they say includes two of the more robust European economies, Germany and the U.K., in favour of one with a country recently stripped of its triple-A credit status. One veteran of the Eurofighter campaign vows not to give up until India makes the first down payment to the French, which might not be for years, claiming that arms deals of this magnitude are in play “until money is in the bank.” BAE, one of the Eurofighter group partners, yesterday signalled that it was prepared to drop the price.

Delhi’s version of events is that, in an era of corruption scandals and an activist Supreme Court, it has played the selection process entirely by the book. Defence officials say that once the two models passed technical trials, the deciding factor was always going to be which was offered at the lowest price. They say the choice of Rafale, which some say came in $5-million cheaper per aircraft, was one of the cleanest decisions in India’s arms procurement history, with the minimum of political interference.

Defence experts, however, say other factors came into play in the form of investment agreements, whereby they were required to invest half the value of the contract back into India, and technology transfer. “The deal is beyond the aircraft,” says Uday Bhaskar, a Delhi-based defence analyst. “If I was in the shoes of France looking at India, I would go beyond the fighter to the next big-ticket items of civil nuclear power and the [nuclear]submarine arena.”

Bharat Karnad, a defence expert at the Centre for Policy Research in Delhi, says a likely bargaining chip was the prospect of the use of nuclear testing facilities in Bordeaux to shore up the thermonuclear shortcomings of India’s nuclear arsenal. Such collaboration would give them more confidence in their own deterrent in the long-running standoff with nuclear-armed Pakistan. “The Indian government can’t be blamed for misleading anyone. It was government-to-government from the very beginning. We wanted to know what things we would get with the fighter,” he says.

Competitors suspect the nuclear element played a part in the decision. “Dassault got very aggressive on price and then Sarkozy rounded out the deal at the very end, possibly with some side-deal involving nuclear energy,” one German official says.

Mr. Sarkozy, months away from a presidential election that promises to be a bitter fight, and Dassault are quietly triumphant. He has underlined his determination by saying the final negotiations had “the full support of the French authorities” and would include technology transfers “guaranteed” by the state.

Two years ago, even skeptical senior Indian diplomats expressed pleasure at a visit by Mr. Sarkozy that placed nuclear energy at the centre of French engagement. Mr. Sarkozy appeared determined to leverage the loyalty Paris earned in 1998 by not showing opprobrium at Delhi’s nuclear tests, which circumvented the nuclear non-proliferation treaty.

More recently, stalled deals in Brazil and the United Arab Emirates had put Dassault under intense pressure to give the Indians an attractive price, particularly on the lifetime cost of supporting and upgrading the aircraft. Gérard Longuet, defence minister, threatened to end Rafale production unless a foreign sale was secured.

“Sarko is willing to give them whatever [technology]they want,” says a French defence industry executive. “It’s fair to say the technology has been around a while now so is not quite leading-edge. Remember we were talking about selling the Rafale to [Moammar]Gadhafi in Libya, so there are no qualms really.”

Internal critiques on how the deal was lost will almost certainly heap blame on Germany – and, in some quarters, deepen existing regret that Britain, India’s former colonial master, did not take the lead role in a more dynamic bid.

The German-led bid was excessively technical and lacked glossy display of what the Typhoon could do in conflicts, according to one critic. While Dassault’s bid was captured in 20 pages, Eurofighter’s ran to 150.

“The German government was very German. It helped as best it thought it could,” explains one Berlin official. “But it was always trammelled by German public aversion to arms sales, and by the fact that it doesn’t pursue a statist industrial policy like Paris … The fact that some countries do packages and the Germans don’t is a fact you have to accept.”

Yet the most outspoken criticism has come from analysts who believe that India should leap straight to 5th-generation “stealth” fighters with Russian Pak-Fa and American F-35 and F-22 fighters.

“It’s a terrible deal,” says Ajai Shukla, defence columnist for India’s Business Standard newspaper and a fierce critic of India’s sluggish procurement processes.

“The air force has been tempted into buying an outdated fighter. We should be matching our capabilities against China. Our military advantage over China is our air power.”

Additional reporting by Gerrit Wiesmann and Carola Hoyos.

Copyright The Financial Times Ltd. All rights reserved.

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