- Hollande says financial terms to be finalized in `coming days'
- Dassault shares rise as high as 4.3 percent in Paris trading
India’s nearly decade-long quest to acquire new fighter jets may be just a month away.
In a joint briefing in New Delhi on Monday, Prime Minister Narendra Modi and French President Francois Hollande hailed the signing of a government-to-government deal for 36 Dassault Aviation SA Rafale warplanes. Dassault said it’s “actively supporting French authorities in their efforts to finalize a complete agreement within the next four weeks."
Dassault’s timeframe is the most concrete yet in a negotiation that has seen repeated delays since India picked the Paris-based company in 2012 to build 126 warplanes at an estimated cost of about $11 billion -- the world’s biggest fighter jet deal at the time. As talks stalled over price and quality guarantees, Modi flew to France last April and sought to directly buy 36 fighter jets from the French government in a bid to speed things up.
“The key step has been made," Hollande said on Monday. “In April it was a declaration. Today it’s an agreement between two countries.”
Hollande said the financial terms would be worked out in the “coming days," while a joint statement said talks on price would be resolved “as soon as possible." The memorandum of understanding included delivery dates, according to a French government official with knowledge of the document. The first plane is to be delivered within 3 years of the signing, and the last aircraft within 5 1/2 years, the official said, asking not be named because the details are not yet public.
Dassault’s shares rose as high as 4.3 percent in Paris on Monday, adding to its longest streak of gains since mid-December. The shares touched 1,113.75 euros, the highest intra-day level since Jan. 8.
India first sought bids for new fighter jets in 2007. About one third of the country’s air fleet is more than 40 years old and set to retire in the next decade, putting pressure on Modi to quickly acquire new warplanes to keep pace with neighbors China and Pakistan.
India and France have resolved what equipment, systems and weapons would go into the jet, a senior Indian defense official said this month, asking not to be identified because the information isn’t public yet. The two sides have agreed on “very large, non-financial areas," Indian Foreign Secretary S. Jaishankar told reporters on Monday.
"There has been considerable progress in these negotiations since last year," he said, calling the aircraft purchase an "important but somewhat complicated issue."
Despite the progress, skepticism remains. Modi’s move to scale down the deal may have inadvertently set India up for a protracted negotiation over price, according to Jon Grevatt, Asia-Pacific defense-industry analyst for IHS Jane’s.
"India’s put itself in a tricky situation," Grevatt said. “It’s declared its requirement for the Rafales. France knows India wants the Rafales. It’s no surprise that price has become an issue."
Last year, Modi and Hollande had announced the new terms would allow India to acquire planes as quickly as possible on better terms than those offered by Dassault, which had long struggled to find external buyers for its fighter.
Yet weeks later, Dassault won an order for 24 Rafale jets from Qatar, alleviating some of the pressure. It has also delivered at least three of 24 that it agreed to sell to Egypt last February, according to a July company presentation.
Talks are also now advancing to sell Rafale fighter jets to Malaysia and the United Arab Emirates, according to a French official traveling with Hollande who asked not to be identified because he wasn’t authorized to speak with the media. The French side now has more time to finalize the deal with India, the official said.
Hollande probably promised Modi a better deal last year in part because of "the eagerness of French to sustain Rafale orders at that time," said Anurag Garg, a director of defense at Strategy&, a consulting group of PwC. The Rafale helps employ 7,000 people and 500 subcontractors, according to Dassault.
The sales to Egypt and Qatar "may have increased France’s negotiation power versus India, which needs these planes soon," Garg said.
The cost of the 36 jets is expected to exceed 600 billion rupees ($9 billion), the Economic Times reported earlier this month, citing unidentified “authoritative sources." The final price would depend on the package to service the jets, it said.
Apart from the Rafale deal, both countries signed 13 other agreements including the manufacture of railway locomotives and cooperation between space agencies for India’s next Mars mission.
Bureaucratic complexities and premature announcements have slowed the Rafale negotiations, according to Deba R. Mohanty, chairman of Indicia Research and Advisory, which advises companies on investing in India’s defense industry.
“The new deal of 36 aircraft is still a bit away from eventual fruition," he said.