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Categorized | Economy, Equities

India boost for Dassault as jet is frontrunner

Posted on January 31, 2012

France’s Dassault has been awarded frontrunner status in the hotly contested $20bn race to supply 126 fighter jets to India, providing a much-needed boost for French economic and industrial prestige.

The Indian government said the French Rafale fighter jet had beaten the four-nation Eurofighter Typhoon to become preferred bidder to equip India with the multi-role fighter jets in one of the world’s largest military contracts. Dassault now enters exclusive talks with the Indian government.

The contract, estimated to be worth $15bn-$20bn, will help shape India’s air power for the next three decades and serve as the bedrock of a strategic partnership. It also has the potential to reinvigorate the French defence industry when military budgets are being slashed across Europe.

The decision is a blow for Eurofighter, whose Typhoon aircraft was seen as the clear frontrunner. But it is a huge boost for Nicolas Sarkozy, France’s president, and Dassault, which has yet to secure an export order for the Rafale. Shares in Dassault rose 18 per cent in Paris.

Mr Sarkozy faces an election in May and the declining strength of French industry is expected to be a crucial campaign battleground, with the incumbent trailing his socialist rival in opinion polls.

He seized on the announcement as “a signal of confidence in the French economy”. The deal “proves that if we have a good product France can win in extraordinarily competitive markets”.

David Reeths, a consultant at IHS Jane’s, said: “It’s of particular importance to Dassault as [this competition] is really their last, best chance to continue high-end fast jet production.”

India’s decision came after evaluating the life-cycle cost of the aircraft, the acquisition cost and so-called military offset considerations. The offsets include the level of technology that European companies will disclose to India and the share of investment they will bring to India’s defence industries.

The four companies in the Eurofighter consortium, led by the Franco-German EADS and including Britain’s BAE Systems and Italy’s Finmeccanica, have vowed to fight on given India’s recent history of stripping companies of their preferred bidder status after long, drawn-out negotiations.

“We are disappointed, but it’s not all over until the contract is signed. We don’t yet know the final decision,” one UK diplomat said.

India’s defence ministry said a final contract would be awarded in the financial year beginning April 2012. It said the Rafale was the cheaper of the rival bids.

“Rafale is the most competent contender,” said a person close to the negotiations at India’s defence ministry.

After trials last year, India selected the Rafale and the multinational Eurofighter Typhoon to compete in the final stages of the competition. It had discarded bids from Boeing’s F/A-18 Super Hornet, Lockheed’s F-16 Super Viper, Sweden’s Saab Gripen and Russia’s MiG-35.

The decision will be a setback to Eurofighter, which had strongly lobbied India to buy its aircraft and considered its bid stronger in terms of performance, security of supply and strategic alignment. It is also a blow for David Cameron, the UK prime minister, and Angela Merkel, the German chancellor, who both lobbied on behalf of Eurofighter.

Additional reporting by Girija Shivakumar in New Delhi and Hugh Carnegy in Paris