The nuclear power of arms sales

Dassault Rafale at the Paris Air Show

Dassault Rafale at the Paris Air Show

The Indian government selected the French Dassault Rafale as a frontrunner in its Medium Multi-Role Combat Aircraft (MMRCA). Concluding (almost) a multi-year dog-fight between the Rafale and five other competitors: American Boeing F/A-18 Super Hornet and Lockheed Martin F-16, European Eurofighter Typhoon, Russian RSK MiG-35, and the Swedish Saab Gripen.

Toward the end of this battle only two jets stood to win the prize, the French Rafale and – well – the quarter-French EADS Eurofighter Typhoon. Dassault will now begin supplying India with 126 freshly-minted jets.

The size of the order may amount to $20 billion, enough to help bolster the French defense industrial base.

And France pulled out all the stops to secure this win. Three primary reasons explain its victory. The last one may surprise some. First, it was cost. Dassault won because it bid the lowest; a benefit of government subsidies. Losing this competition may have ended French indigenous military aircraft capability, which it clearly thinks is worth protecting.

The games are not over, however. From now until April 2012, the company and its puppet-master the French government are likely to engage in fierce negotiations over details. But winning the frontrunner spot in India still has its risks “until the contract is physically signed.” Negotiations will determine the details of the acquisition: price, life-cycle support, training, and offsets.

This leads us to the second point. France and its national champion were willing to provide a technology transfer package to India. The competitors (and especially the US ones) were not. Thus, 108 of 126 Rafale fighters will be produced at Hindustan Aeronautics Limited (HAL), India’s largest aerospace company. Not in France. As a reminder, virtually all Indian defense enterprises are state-owned.

And Nicolas Sarkozy’s government has agreed to more than just offsets and technology transfer. Software codes – source codes par industry lingo – will also be provided. This would “allow India to re-program radars and other sensitive equipment.” And in doing so, reveal how they work.

One cannot accuse India of nefarious corporate espionage practices (in fact France would rank far higher on that list) or of being a technology proliferator. But in this deal, India will gain substantial know-how and it will use it for its own competitive advantage in the future. Who can blame them?

Finally, we need to understand why Dassault really won. Price, competitive specifications, technology transfer, offsets, and source codes add to the mix. But it is nuclear cooperation between India and France, signed a few years ago, that sealed the deal.

Don’t underestimate nuclear power

This is of little doubt. France signed a nuclear agreement with India in 2008; a year after the initial MMRCA tender was announced. France’s other national champion, the nuclear energy powerhouse Areva was contracted to build at least two nuclear reactors in India.

During negotiations that took place from 2008 to 2010, France and India recognized that “it is in their mutual interest to broad-base economic relations” and agreed to increase their trade, especially in sovereign industries (or so I call them): arms and nuclear energy.

The $9 billion contract to build two nuclear power-plants in India, solidified France’s position in the country. France and Areva plan to build four more “reactors for the Maharashtra nuclear plant.” Both the nuclear and defense deals are negotiated at the highest levels and during the same meetings, suggesting interchangeability of objectives and tradeoffs.

Implications

First, price, technology transfer, and offsets are indicative of requirements that all emerging powers will require. Weapons platforms such as the F-35 would lose on all counts. And while the US has already entertained the sale of F-35s to India, everything about the Rafale win indicates that the door is closed.

When India decides that it wants to acquire a 5th generation fighter, it may opt-out for the Russian PAK FA T-50. This would be a shame.

Second, instead of building a strong industrial base, Europeans are destructively competing for international tenders. France – and even Dassault itself – is involved in the Eurofighter Typhoon. The second place finisher in the MMRCA competition.

Europe continues to govern itself by protectionist sensibilities over defense industries. These policies are grounded in realism, which I appreciate. If all other headlines from Europe are of any indication, then this will surely continue. And this is exactly why the US – while formulating its own security strategy – may hope for allied assistance, but should not rely on it.

Finally, there is one more international fighter competition that has been brewing. Brazil plans to soon acquire 36 fighters in its FX-2 fighter deal. The competition, however, will be fierce. A decision is due in the next several months. And once again, the French Rafale may win.

The announced victory in India will only bolster its chances. All the usual suspects – which Brazil wants and demands as much as India – such as technology transfers and offsets will be offered. In addition, France is working with Brazil on a nuclear submarine project. If the Rafale wins in Brazil, then it may be time for analysts to pay closer attention to whole-of-government (to adopt a term) competitive advantages and not just specifications, offsets, and costs.

Image source: taken by the author at the 2009 Paris Air Show


6 responses to “The nuclear power of arms sales

  • BSS

    MG,

    It might be comparing apples to oranges, but could China achieve what India did in terms of technology transfers? Has it?

    Will the US have to be more flexible in allowing defense technology transfers in order to compete for “big” contracts to places like India, Brazil, China….etc.?

    BSS

    • MG

      We do not sell any of these technologies to China. Neither do our NATO allies and other close partners, to my knowledge. China has certainly reverse engineered and even improved upon many sophisticated Russian platforms, however. And then there are dual-use considerations. Also, many manufacturing companies that work in industries that have defense applications (i.e. use the same widgets) outsource and even conduct their R&D in China.

    • MG

      And for the most recent example of what you highlighted above see: http://ow.ly/8RMZ3

  • Kama Hele

    I’d agree with you on the “nuclear-relations” being the clincher for this deal, but not necessarily in the same sense that you look at it. One of the foremost considerations for India when zeroing in on the Rafale was the steadfastness of France as a military ally contrasted strongly with that of the US. Where the US had decreed arms embargoes on India post the Nuclear tests conducted in May ’98 coupled with its legendary arms escapades with Pakistan, France not only was the only nation not to impose any such sanctions but also readily supplied requisite technological know-how during the Kargil War the following year. Add to that the fact that the Indian Air Force has been a longstanding user of French fighters like the Mirages and you have a perfect ouster for Lockheed Martin and Boeing. The Typhoon also lost out largely because of political considerations given the fact that it’s produced by a consortium of four nations, each of whom have varying foreign policies when it comes to weapons and arms. (Italy and Spain have never sold a major weapon to India. German pacifists raised eyebrows when India went to war with Pakistan making it another unreliable ally which only left UK’s BAE systems as a credible partner having former relations with India) If India were to go to war against any of these countries, one couldn’t be sure if it would still receive its arms supplies and spares. German law, for instance, prohibits delivery of weapons and arms at the time of war.

    Be those facts as they may, for a country that draws its poverty line at a measly Rs. 35 (that’s less than one dollar), and spends $20 billion on arms sure has its priorities mixed up. Given the tone of this blog, this may not be the most appropriate space for this, but I’ll take the liberty of leaving you with Oscar Sanchez’s Nobel prize acceptance speech as something to think about:

    “When a country decides to invest in arms, rather than in education, housing, the environment, and health services for its people, it is depriving a whole generation of its right to prosperity and happiness. We have produced one firearm for every ten inhabitants of this planet, and yet we have not bothered to end hunger when such a feat is well within our reach. Our international regulations allow almost three-quarters of all global arms sales to pour into the developing world with no binding international guidelines whatsoever. Our regulations do not hold countries accountable for what is done with the weapons they sell, even when the probable use of such weapons is obvious”.

    • MG

      I appreciate the detailed response. Thanks for taking the time. Your points are valid. Especially this one: “France not only was the only nation not to impose any such sanctions but also readily supplied requisite technological know-how during the Kargil War the following year.” These types of policies are exceedingly what could make the US defense industry less competitive abroad. The standing use of Mirage’s and the 4-nation obstacle that the Eurofighter posed is also spot on. But while these are political in nature they are also cost-based and programmatic. Thus slightly out of scope for my original post, although interesting discussion points.

      Not enough attention (from where I sit) is given to the geo-strategic intangibles. So while European countries (and especially France), are actively participating in broad-trade agreements that in my opinion matter, their competitors (in the US primarily) are focused on what can fly faster and shoot further… competitive market drivers.

      My argument that nuclear weapons matter, highlights how when it comes to these “sovereign” industries – broad national collaboration factors in. And one example isn’t enough to prove a point. The details of the FX-II competition will shed more light on my thinking.

      As far as the tone of this blog. I focus on defense industrial policy myself, but the goal is to expand this blog (one day) to more accurately portray its title from a variety of perspectives. And more importantly to challenge my thinking and foster debate. So please, if it’s relevant, keep on posting.

      I won’t claim to know India’s arms expenditure vis-a-vis it’s investments in education or healthcare. However, I do know that at under 40 billion (for a country that size and with real regional security dilemmas) and at less than 2 percent of GDP, India’s defense expenditure is – in proportion – well below the global average. In fact, its politicians have all the external pressures that would have driven other countries solely toward defense, which could have curtailed economic development. India has chosen not to pursue this path. Certainly interested in your thoughts on this.

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