Russia Eyes India, Dassault Celebrates in Egypt

MOSCOW, NEW DELHI, PARIS AND WASHINGTON — When Egypt signed an agreement to purchase 24 Dassault Rafale fighters, it marked a milestone for the program: the first international sale of the jet, which has struggled to find a market outside of its home nation of France.

But what should be a celebratory attitude at the company's Paris headquarters has instead turned glum, as the crown jewel of its expansion plans — a $12 billion deal with India that has been in the works since 2012 — now appears in danger, with Russia hovering nearby in the hope of stealing the contract.

If Dassault can finally cement the Indian deal, it will add 126 fighters to a production facing domestic budget cuts. If Russia can come in and undercut Dassault, it would seriously harm the future of the French fighter, while exacting some measure of revenge on France's decision not to deliver to Russia a naval vessel following the crisis in Ukraine.

Such a guarantee puts a burden on the family-controlled Dassault, which thus far has declined to accept that agreement.

Red Dawn

Russia has begun a very public campaign to convince Indian officials that Moscow has a better solution on the table.

Sergei Goreslavsky, deputy director of Russia's arms export agency Rosoboronexport, told the RIA Novosti news agency on Feb. 16 that "if [India] needs additional Su-30MKI fighters, then we are ready to work out such an agreement," stressing that New Delhi need only ask.

Indian Air Force (IAF) Sukhoi-30 aircraft drop bombs Feb. 22, 2013, during the Iron Fist 2013 exercise in Pokhran.

Photo Credit: Getty

India already operates a large fleet of Sukhoi Su-30 fighters, some of which have been locally produced by HAL. That argument was pushed by Yuri Slyusar, the recently appointed head of the state-owned United Aircraft Corporation, during a Feb. 19 appearance in Bangalore.

"Which aircraft would better suit the needs of the customer? Our obvious competitive advantage is that India is already making these aircraft right here, right now," Slyusar said. "The factories have been built, the technology debugged, the documents transferred, the pilots, engineers and technicians have been trained."

"Russia has tried its best to explain to India, as the Eurofighter people have, that it is completely senseless to buy a platform designed in the 1980s for such a huge amount of money," Pukhov said, "especially since the full fleet won't be operational for, let's say, 10 years."

"This is totally Russian," François Lureau of consultancy EuroFLconsult and former head of the French procurement office. Until a contract is signed, he said, the Indian deal is seen to be open to competition and the Russians will push the message of French unreliability.

Aboulafia noted that the Russian position is fairly strong, given its industrial presence in India.

"You're looking at two groups who could each decide to walk away," he said of Dassault and the Indian MoD. "India says it loves the Rafale, but has a production line for the cheaper Sukhoi already in India. And while it would be a transformative sale for Dassault, they are essentially telling India it is asking for the impossible."

The strength of Dassault's position depends on whether the Egyptian sale represents a major change in the fortunes of the jet — Aboulafia describes its history as "25 years of trying and multiple defeats snatched from the jaws of victory" — or if the sale was a very specific case.

Indian workers at a Rafale fighter jet stall prepare an aircraft model Feb. 5, 2013, ahead of the 9th edition of Aero India 2013 at the Yelahanka Air Force station in Bangalore.

Photo Credit: Getty

The financing on the Egyptian sale, which may involve gulf nations and France providing very favorable terms to Egypt, could end up meaning the sale is a one off, rather than the start of a trend for the jet.

On the other hand, the Rafale is still alive in three major competitions in the gulf region. There is a potential agreement with Qatar, in discussion for as many as 36 jets, as well as a potential 60-ship sale to the United Arab Emirates and a smaller contest in Kuwait.

Landing any of those deals could boost Dassault's negotiating strength with India, or at least embolden the company to cut its losses.

Mistral Fallout?

Meanwhile, Russia's state-run media outlets last week were littered with statements from officials across Russia's defense industry boasting Russia's proven track record of technology transfer and product delivery.

These comments have been juxtaposed against France's refusal to deliver the first of two French-built Mistral-class amphibious assault carriers to the Russian Navy last year.

Under international pressure, France decided not to hand over the ship as a result of Russia's role in the crisis in Ukraine. The move greatly angered Russia, which has derided France as an unreliable business partner since.

Russian officials and pundits have gone out of their way in recent months to cast France as an unreliable trading partner, a supplier that may cancel deals at the last minute in accordance with the political whims of its puppet masters in DC, and have promised to pursue legal damages if Paris does not go through with the delivery.

The fact that Russia is pushing the Mistral issue as a marketing tool does not come as a surprise in Paris.

French Senator Daniel Rainer, who sits on the defense committee, said Russia is using the Mistral as a "commercial argument of circumstance." The circumstance is the suspension of the warship and the commercial interest is the Indian fighter contest.

Dassault, the Direction Générale de l'Armement procurement office and Defense Ministry are well aware of the Russian lobbying effort in India, he said.

Dassault's talks with its prospective Indian partner, HAL, "are on the right track", he said.

While the message of French unreliability may not be a major concern at the political level, public opinion about the Mistral suspension shows a different story.

An opinion poll commissioned by La Tribune business news website showed 64 percent in favor of handing over the two Mistral helicopter ships, with 77 percent concerned about a hit on French jobs. DCNS is prime contractor and STX France builder of the hulls.

Some 69 percent saw the Mistral suspension as helping foreign competitors, such as the UK, US and Russia. The poll found 56 percent saw the French reputation hurt by the decision to withhold delivery, La Tribune reported. IFOP polled 1,001 respondents Jan. 9 to 12 for La Tribune.

In comments made Oct. 29, procurement chief Laurent Collet-Billon told the French Senate defense committee that the Russians tell the Indians that the French are unreliable. "The English, too" say the same, he said.

The message does not appear to be working in New Delhi — yet.

An Indian MoD official said the government has full faith in France as a friend, and its surety to transfer technology as promised. That said, Delhi is also not going to turn its back on Russia. India-Russia defense and strategic ties remain intact with the current government under Narendra Modi as well.

"Russia remains a trusted, well-tried weapon supplier to India," the MoD official said.

By Aaron Mehta in Washington, Matthew Bodner in Moscow, Pierre Tran in Paris and Vivek Raghuvanshi in New Delhi. Andrew Chuter in London also contributed.

Twitter: @AaronMehta, @Mattb0401

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