Thales Says Offset Demands Becoming Onerous as India Delays Jets

Thales SA, a member of the Rafale fighter consortium that’s waited three years for India to sign a 126-jet order, said emerging nations are tying increasingly demanding levels of employment and technology transfer to defense deals.

While arms-makers have had to meet “offset” requirements in countries buying their gear for decades, recent requests go far beyond simple revenue-creation stipulations that could be satisfied through activities not directly related to weapons deals, Thales Chief Executive Officer Patrice Caine said today.

The Rafale order, the world’s largest ongoing military-jet tender with a value of $11 billion, has been held up by issues concerning technology transfer and Indian demands that Dassault Aviation SA, the plane’s designer, guarantee the quality of work done in the Asian state, people familiar with the matter said last month. Thales supplies the Rafale’s radars and missile-guidance system, equivalent to about 25 percent of the aircraft’s worth.

“Clients expect a transfer of technologies, employment with added value, local implantation,” Caine said at a press conference in Paris after Thales reported full-year earnings. “We must accompany this movement, meet their demands.”

Dassault, Thales and Safran SA, which makes the Rafale’s engines, have been awaiting confirmation of the Indian contract since the model was chosen in January 2012 over the Eurofighter Typhoon, Lockheed Martin Corp. F-16, Boeing Co. F/A-18, Saab AB Gripen and MiG-35 from Russia’s United Aircraft Corp.

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Having originally indicated that it would sign off on the deal in a matter of weeks, India had said in August that closure would come by the end of last year. While the first 18 planes are due be manufactured in France, the other 108 would be made under license locally by Hindustan Aeronautics Ltd.

The price of the fighters may be a further sticking point, given that the proposal is based around a tender first issued in 2007, two Indian air force officials said in August.

The deal with India was announced as the first export contract for the Rafale, though following the delay it seems set to be superseded by this month’s purchase of 24 of the twin-engine fighters by Egypt.

BAE Systems Plc, Europe’s largest defense company, said last month that it has given India the option of making howitzers locally to help conclude a deal to equip an army strike force responsible for patrolling the Chinese border.

Caine, who became CEO two months ago, spoke after Thales posted a 12 percent drop in adjusted net income to 562 million euros ($630 million) following a 117 million-euro hit from warship-maker DCNS SA, in which the Neuilly-Sur-Seine-based company has a 35 percent stake.

Earnings before interest and tax should this year gain about 15 percent to at least 1.13 billion euros, he said.

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