EADS Still Waiting in the Wings - The Source - WSJ
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EADS Still Waiting in the Wings
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Executives at Dassault Aviation, Thales and Safran may have cracked open the champagne this week when the Indian government chose Dassault’s Rafale multirole combat aircraft over the Anglo-German-Italian Eurofighter to supply the Indian Air Force with 126 jets. But like Grand Prix racing, one podium finish doesn’t a champion make.
To be sure, the news that Dassault and New Delhi are now in exclusive talks about delivering the Rafale was welcome for the French. Dassault has still to win an export contract for a plane that the company is marketing as a Swiss army knife for the world’s air forces, capable of air-air, air-ground and land and carrier-based roles.
But Dassault has been here before. Over the
years, it has been reported to be in the final
stages of winning contracts with South Korea,
Morocco, Switzerland, Brazil and the United Arab
Emirates only to see these deals disappear like a
desert mirage.
Not only that, the Indian defense ministry says
the proposal by Dassault involving a technology
transfer on an unprecedented scale for the plane
maker was cheaper than the Eurofighter. That
raised some eyebrows in French government
circles where at least one minister has said that,
while the Rafale may be the most sophisticated
combat aircraft on the market, its complexity
comes at a price.
Indeed, in international arms deals of this
magnitude, it’s not clear what the notion of
“price” is.
The tough negotiating on the Indian contract
starts now, and it could take six months to a year
to iron all the details, especially those governing
technology transfer. The deal as it stands calls for
Dassault to supply the first 18 planes out of a total
of 126 off the shelf while India is setting up a
production line for the rest.
The Team Rafale negotiating the finer points of the
deal comprises specialists from Dassault, Thales
(which supplies radars and avionics) and Safran
(which makes the two M88 engines). The issue of
how much technology can be transferred
without risk to the loss of intellectual property will
be central in these talks.
It remains to be seen how much technology
India’s aeronautical industry can absorb,
especially as the three French contractors may be
obliged to offer offsets equivalent to 50% of the
estimated $10 billion to $15 billion value of the
contract.
Indian defense company Hindustan Aeronautics
Ltd, which is likely to get the work, already has its
work cut out managing cooperation programs
with many other aircraft manufacturers, notably
Russia’s Sukhoi with whom it is developing a
new fighter jet.
Meanwhile, local rules in India forbid foreign
companies from owning more than 26% of a
joint-venture. The Rafale contract, even if it
materializes, could also disappoint for other
reasons further down the runway.
Doing business in India is notoriously difficult for
foreign companies. According to a World Bank
survey, India is second only to East Timor in its
poor record for enforcing contracts.
Then there are the losers. Dassault can expect
considerable interference from its competitors as
they try to derail the French bid. U.K. Prime
Minister David Cameron told Parliament this week
that he will do everything he can to get the Indian
government to change its mind and buy the
Eurofighter Typhoon made by BAE Systems,
European Aeronautic Defense & Space Co and
Italy’s Alenia Aeromacchi, a unit of Finmeccanica.
Whatever the outcome, EADS is a winner of sorts
from the Indian competition. It owns 46.3% of
Dassault Aviation, and it has a 46% stake in the
Eurofighter consortium, acting as the prime
bidder for the Indian contract. Still, this is an
expensive way of winning new business.
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