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 5^th 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