Rafale deal in last lap, may cost Rs 60,000 crore for 36 fighters

[[Bregs]]

NEW DELHI: India is closing in on the final details of the Rafale fighter deal ahead of French President Francois Hollande's visit, with the cost of the contract for 36 fighters expected to cross Rs 60,000 crore, authoritative sources told ET.

A high-powered delegation, which includes National Security Advisor Ajit Doval, is currently in Paris. Doval was instrumental in India's decision to opt for the purchase of the French fighters last year. Most of the trickier parts of the deal - including offsets and the weapons package— are said to have been resolved.

While the final cost of the contract will be revealed after an inter-governmental agreement is signed, officials involved in the process pegged it at more than Rs 60,000 crore. It's not clear whether this will include the weapons package for the fighter deal.

To put things in perspective, when the process to find a new fighter jet started in 2007, IAF estimate was that for 126 aircraft it would have to shell out Rs 60,000 cr. However, the technical evaluation by the Air Force knocked out cheaper jets, including the Swedish Gripen as well as the American F16, leaving the most expensive fighter jets offered in the fray.

The final price will depend on the support package that is finally negotiated. The Air Force wants the French to guarantee that at any given point, at least 90% of the fleet should be fit for combat. This is against the 55% availability rate of the Russian Su 30 MKI fighter.

"The price would depend on the support package and the length for which the Air Force wants it. For a 10-year package, the cost will be higher as more spares will need to be sourced. India wants the same rate for the fighter that the French Air Force has," an official told ET.

Sources have told ET that several industry leaders are also in Paris as discussions are on to ensure that the inter-governmental agreement is signed. As reported by ET, India's largest foreign military deal is likely to bring in big business for the private sector with the French side looking to set up a production centre for the Rafale as well as a low-cost executive jet in India, besides sharing vital technology for Tejas Project

Read more at:
Rafale deal in last lap, may cost Rs 60,000 crore for 36 fighters - The Economic Times

 

[Khafee]

NEW DELHI: India is closing in on the final details of the Rafale fighter deal ahead of French President Francois Hollande's visit, with the cost of the contract for 36 fighters expected to cross Rs 60,000 crore, authoritative sources told ET.

A high-powered delegation, which includes National Security Advisor Ajit Doval, is currently in Paris. Doval was instrumental in India's decision to opt for the purchase of the French fighters last year. Most of the trickier parts of the deal - including offsets and the weapons package— are said to have been resolved.

While the final cost of the contract will be revealed after an inter-governmental agreement is signed, officials involved in the process pegged it at more than Rs 60,000 crore. It's not clear whether this will include the weapons package for the fighter deal.

To put things in perspective, when the process to find a new fighter jet started in 2007, IAF estimate was that for 126 aircraft it would have to shell out Rs 60,000 cr. However, the technical evaluation by the Air Force knocked out cheaper jets, including the Swedish Gripen as well as the American F16, leaving the most expensive fighter jets offered in the fray.

The final price will depend on the support package that is finally negotiated. The Air Force wants the French to guarantee that at any given point, at least 90% of the fleet should be fit for combat. This is against the 55% availability rate of the Russian Su 30 MKI fighter.

"The price would depend on the support package and the length for which the Air Force wants it. For a 10-year package, the cost will be higher as more spares will need to be sourced. India wants the same rate for the fighter that the French Air Force has," an official told ET.

Sources have told ET that several industry leaders are also in Paris as discussions are on to ensure that the inter-governmental agreement is signed. As reported by ET, India's largest foreign military deal is likely to bring in big business for the private sector with the French side looking to set up a production centre for the Rafale as well as a low-cost executive jet in India, besides sharing vital technology for Tejas Project

Read more at:
Rafale deal in last lap, may cost Rs 60,000 crore for 36 fighters - The Economic Times

Nearly US$250m a pop? Nice!

 

[Ankit Kumar]

90%? Its impossible. Th Globemasters we operate have an availability rate of 85%which is at par with the Americans. And that is one of the highest in the world for military aircrafts.

 

[cerberus]

Nearly US$250m a pop? Nice!

Thats All Life Cycle cost Including Spare,Weapon Package Parts + 18 at Same Price and 30 % Offset

 

[kaykay]

Another source stating 4 Billion USD. Indian media at best is confused.

 

[Khafee]

Another source stating 4 Billion USD. Indian media at best is confused.

That is a much more realistic figure!

 

[PARIKRAMA]

i did say 90% availability here

All Clear: India To Sign Deal For 36 Rafales This Month!!!!!!!! | Page 6

Source based info

• Support package price may force India to drop Meteor and use Astra Mk1 Mk2 as primary BVR weapons (with MICA)
• IAF has asked MOD to specifically put a clause in IGA for French Side to guarantee that at any point of time during the whole service period of Rafales with IAF, at least 90% of the fleet should be fit for combat. (wartime and peacetime both)
• This seems to suggest we have learned a tough lesson from MKI issues for want of spares and critical localisation.
• French side and Dassault says such a high number will require lots of localisation and support services to be based in India for which a substantial investment is needed. Their guarantee was 80%+ at war time.
• MOD said a "substantial fleet" will be purchased to provide comfort for the "substantial investment" but guarantee clause is 90% availability at all times.
• The localisation and inhouse spare and major repair hub in India is desired for ensuring this high number and will become benchmark for future acquisition
• This is the major clause which required repeated negotiations as the substantial fleet wording seems to suggest MOD has clearly given the indication to French side what number they are looking at.
• Also localisation, spares, services, major repair hub all indicate towards the inevitable long run target of a line in India.

I am saying now the 9 Bn figure consists of two parts

1. The cost of Meteors in the package which IAF may now forego with Astra as BVR and MICAs
2. MOST IMPORTANTLY thats for 54 birds full price confirmed methodology as 18 options are at the same prevailing price as 36 and is virtually assured to be exercised.

So figure should be down to what @kaykay mentions +/- another 1 Bn approx

 

[Spectre]

i did say 90% availability here

All Clear: India To Sign Deal For 36 Rafales This Month!!!!!!!! | Page 6

Source based info

• Support package price may force India to drop Meteor and use Astra Mk1 Mk2 as primary BVR weapons (with MICA)
• IAF has asked MOD to specifically put a clause in IGA for French Side to guarantee that at any point of time during the whole service period of Rafales with IAF, at least 90% of the fleet should be fit for combat. (wartime and peacetime both)
• This seems to suggest we have learned a tough lesson from MKI issues for want of spares and critical localisation.
• French side and Dassault says such a high number will require lots of localisation and support services to be based in India for which a substantial investment is needed. Their guarantee was 80%+ at war time.
• MOD said a "substantial fleet" will be purchased to provide comfort for the "substantial investment" but guarantee clause is 90% availability at all times.
• The localisation and inhouse spare and major repair hub in India is desired for ensuring this high number and will become benchmark for future acquisition
• This is the major clause which required repeated negotiations as the substantial fleet wording seems to suggest MOD has clearly given the indication to French side what number they are looking at.
• Also localisation, spares, services, major repair hub all indicate towards the inevitable long run target of a line in India.

I am saying now the 9 Bn figure consists of two parts

1. The cost of Meteors in the package which IAF may now forego with Astra as BVR and MICAs
2. MOST IMPORTANTLY thats for 54 birds full price confirmed methodology as 18 options are at the same prevailing price as 36 and is virtually assured to be exercised.

So figure should be down to what @kaykay mentions +/- another 1 Bn approx

90% availability seems to be quite high and would require substantial investment in Local eco-system for spares and service. This investment is not sounding feasible for just 54 jets hence hinting at a larger figure.

My confusion arises from the fact that if India is sure to place a larger order >54 then why not lock in the price like we did with +18 jets. We run the risk of exploitative price escalation later.Of-course at this juncture everything is speculation

@Taygibay

Regards

 

[cerberus]

1. The cost of Meteors in the package which IAF may now forego with Astra as BVR and MICAs

Its a Debacle if we Not Get Meteor Its Most Sophisticated BVR By MBDA till date it will cost us another billion for over 600 Missiles and Its come with Integrated Package
Mind it Astra Program will take another Decade to Reach that Sophistication

 

[PARIKRAMA]

90% availability seems to be quite high and would require substantial investment in Local eco-system for spares and service. This investment is not sounding feasible for just 54 jets hence hinting at a larger figure.

My confusion arises from the fact that if India is sure to place a larger order >54 then why not lock in the price like we did with +18 jets. We run the risk of exploitative price escalation later.Of-course at this juncture everything is speculation

@Taygibay

Regards

You hit the nail but with one small difference.
Imagine the production line in 2 places
1. In Merignac
2. In say an Aerospace SEZ in Maharastra or Andhra Pradesh - INDIA

In Merignac, the productivity rate and fixed assets already setup, depreciated and running on book value investment cost along with 600+ local OEMs with whom Dassault has build a value chain with over avg relationship age of 15 years

Over to India - A fresh setup, costs at market value of real time investments going to books and slow depreciation initiated for plant and machinery coupled with local ecosystem creation for Dassault value chain OEMs implies minimum of 30% higher cost than whats the cost in Merignac up till break even is achieved and economies of scale kicks in.


Now lets use Finance 101 analogy here,

Define few terms here
Selling Price per Unit
Fixed Cost per Unit
Variable Cost per Unit

We get Contribution per unit = Selling price per unit - variable cost per unit
PV Ratio =( Contribution per unit / Selling price per unit) x 100

Break even point = Fixed Cost / Contribution per Unit
Break even (in value) = Fixed Cost / PV Ratio


If Dassault does setup the local unit and supply chain OEMs, the variable cost would be a bit higher than Merignac thus Selling price per unit would also be higher per unit

The only way we can achieve the lowering of cost per unit or selling price per unit and decrease in variable cost is when we apply economies of scale or higher numbers beyond Break even units

Thus, we cannot fix the value of Indian made Rafales right now as variable cost is undetermined.

A simple rule like a 10-15 years tax holiday for all OEMs to setup shop can significantly bring down setup cost for individual OEMs and thereby decrease the variable cost angle of Dassault production line

If the Land is say government alloted the cost of acquisition may be minimal thereby reducing Fixed Cost aspect implying again it lowers the cost of production and finally decreases the selling price per unit along with tax holiday consideration

For this they require a far more clarity under Make In India scheme and the tax sops and other support government may give for the entire value chain and Dassault together.

I hope you are getting what i am trying to point here why its so difficult to lock in future rafale prices right now.. especially if its not Merignac production line..

Its a Debacle if we Not Get Meteor Its Most Sophisticated BVR By MBDA till date it will cost us another billion for over 600 Missiles and Its come with Integrated Package
Mind it Astra Program will take another Decade to Reach that Sophistication

Meteor is far costly bro, Astra 2 may come in sooner now with success of dual pulse motor in another missile (Barak8). We may buy meteor later or may be we may buy very limited quantity.

Having Astra 1 and 2 makes more sense for maintaining a common pool of armaments and also increasing the local produced missile numbers and requirements.

 

[egodoc222]

You hit the nail but with one small difference.
Imagine the production line in 2 places
1. In Merignac
2. In say an Aerospace SEZ in Maharastra or Andhra Pradesh - INDIA

In Merignac, the productivity rate and fixed assets already setup, depreciated and running on book value investment cost along with 600+ local OEMs with whom Dassault has build a value chain with over avg relationship age of 15 years

Over to India - A fresh setup, costs at market value of real time investments going to books and slow depreciation initiated for plant and machinery coupled with local ecosystem creation for Dassault value chain OEMs implies minimum of 30% higher cost than whats the cost in Merignac up till break even is achieved and economies of scale kicks in.


Now lets use Finance 101 analogy here,

Define few terms here
Selling Price per Unit
Fixed Cost per Unit
Variable Cost per Unit

We get Contribution per unit = Selling price per unit - variable cost per unit
PV Ratio =( Contribution per unit / Selling price per unit) x 100

Break even point = Fixed Cost / Contribution per Unit
Break even (in value) = Fixed Cost / PV Ratio


If Dassault does setup the local unit and supply chain OEMs, the variable cost would be a bit higher than Merignac thus Selling price per unit would also be higher per unit

The only way we can achieve the lowering of cost per unit or selling price per unit and decrease in variable cost is when we apply economies of scale or higher numbers beyond Break even units

Thus, we cannot fix the value of Indian made Rafales right now as variable cost is undetermined.

A simple rule like a 10-15 years tax holiday for all OEMs to setup shop can significantly bring down setup cost for individual OEMs and thereby decrease the variable cost angle of Dassault production line

If the Land is say government alloted the cost of acquisition may be minimal thereby reducing Fixed Cost aspect implying again it lowers the cost of production and finally decreases the selling price per unit along with tax holiday consideration

For this they require a far more clarity under Make In India scheme and the tax sops and other support government may give for the entire value chain and Dassault together.

I hope you are getting what i am trying to point here why its so difficult to lock in future rafale prices right now.. especially if its not Merignac production line..



Meteor is far costly bro, Astra 2 may come in sooner now with success of dual pulse motor in another missile (Barak8). We may buy meteor later or may be we may buy very limited quantity.

Having Astra 1 and 2 makes more sense for maintaining a common pool of armaments and also increasing the local produced missile numbers and requirements.

Meteor Integration is what makes rafale respectable in a air superiority role....
Not ordering meteor and comparing astra with it stupidity at best!!

 

[$@rJen]

No the total cost for 36 fighter is around 4 billion while DM is still working to reduce the cost as per the earlier reports by Mods... if its costing 250 million a piece then it's weapon and life circle costs are included. still a better option than MKI... high availability and lesser life cycling cost....

 

[Abingdonboy]

90%? Its impossible. Th Globemasters we operate have an availability rate of 85%which is at par with the Americans. And that is one of the highest in the world for military aircrafts.

i did say 90% availability here

All Clear: India To Sign Deal For 36 Rafales This Month!!!!!!!! | Page 6

Source based info

• Support package price may force India to drop Meteor and use Astra Mk1 Mk2 as primary BVR weapons (with MICA)
• IAF has asked MOD to specifically put a clause in IGA for French Side to guarantee that at any point of time during the whole service period of Rafales with IAF, at least 90% of the fleet should be fit for combat. (wartime and peacetime both)
• This seems to suggest we have learned a tough lesson from MKI issues for want of spares and critical localisation.
• French side and Dassault says such a high number will require lots of localisation and support services to be based in India for which a substantial investment is needed. Their guarantee was 80%+ at war time.
• MOD said a "substantial fleet" will be purchased to provide comfort for the "substantial investment" but guarantee clause is 90% availability at all times.
• The localisation and inhouse spare and major repair hub in India is desired for ensuring this high number and will become benchmark for future acquisition
• This is the major clause which required repeated negotiations as the substantial fleet wording seems to suggest MOD has clearly given the indication to French side what number they are looking at.
• Also localisation, spares, services, major repair hub all indicate towards the inevitable long run target of a line in India.

I am saying now the 9 Bn figure consists of two parts

1. The cost of Meteors in the package which IAF may now forego with Astra as BVR and MICAs
2. MOST IMPORTANTLY thats for 54 birds full price confirmed methodology as 18 options are at the same prevailing price as 36 and is virtually assured to be exercised.

So figure should be down to what @kaykay mentions +/- another 1 Bn approx

To get anything close to 90% availability there is no way you can have a fleet as small as 36-54 and no localised spare production- simply NO WAY. If this is true then it is the clearest indication that a very large IAF Rafale fleet is incoming with localised prodcution (to a large degree).

The C-17 commitment is very different as Boeing has a global sustainment program for its entire C-17 fleet that the IAF has signed up for, there is nothing comparable for the Rafale especially given the limited number of operators of the type.


Sukhoi (OEM) is willing to guarentee to the IAF 75% availibility rates from mid-2016 onwards, Dassualt on the other hand will offer 85-90%. THIS is where any price differential between the two can be justified in favour of the Rafale. The West is just in a different league when it comes to servicability, the Russians have always lagged behind and the IAF knows it.

 

[PARIKRAMA]

Meteor Integration is what makes rafale respectable in a air superiority role....
Not ordering meteor and comparing astra with it stupidity at best!!

i Don doubt that but then again if cost considerations are being done then its something i cannot comment upon.

Ideally i would have liked at least 5-6 meteors per Rafale too..

Anyways its source based so i would wait a bit more to see the details

BTW here is a small trivia
The cost of procuring Meteor is hard to come by. Limited figures came to light in Germany in 2013. The Luftwaffe will acquire 150 missiles at a cost of around $323 million, plus a further $175 million for integration.
thats approx $3.32 Mn per Missile.. But its a price worth it
Qatar i think has bought close to 150 meteors at an avg of 6 meteors a rafale jet for 24

 

[Abingdonboy]

i Don doubt that but then again if cost considerations are being done then its something i cannot comment upon.

Ideally i would have liked at least 5-6 meteors per Rafale too..

Anyways its source based so i would wait a bit more to see the details

BTW here is a small trivia
The cost of procuring Meteor is hard to come by. Limited figures came to light in Germany in 2013. The Luftwaffe will acquire 150 missiles at a cost of around $323 million, plus a further $175 million for integration.
thats approx $3.32 Mn per Missile.. But its a price worth it
Qatar i think has bought close to 150 meteors at an avg of 6 meteors a rafale jet for 24

Meteors will be procured on a need-basis seperately from the Rafale deal, this is what I have heard.