Dassault Rafale, tender | News & Discussions [Thread 2]

[Picdelamirand-oil]

So that means the issue holding it up since January-cost- has been resolved?

Yes but it's a rumor.

 

[$@rJen]

Dassault Says it's Close to Rafale Deal With India
Sunday, March 13, 2016 by Indiandefense News

PARIS — Dassault Aviation is in the “final phase” of price negotiations with India for 36 Rafale fighters, with the company in talks with potential local partners to build a hoped-for 90 more units, chairman Eric Trappier said March 10.

“We are getting closer,” he said as the company presented 2015 results. “We are in the final phase.”

The talks continue after Trappier had in January set a four-week target, when France and India signed an intergovernmental agreement on New Delhi buying 36 fighters.

Dassault seeks to set up “a real partnership” with Indian industry rather a conventional offset, which requires investing in unrelated sectors, he said. That partnership approach would see Safran, Thales and other French suppliers working with local partners on the Rafale if New Delhi agreed the order for 36 and followed up with a further 90 units, he said. That second order was needed as the former figure was too small to justify a local build.

Dassault is waiting to see if Canada, which recently made its scheduled payment into the F-35 program, will cancel its order for the US fighter and launch a tender, Trappier said. Canadian companies have a stake in the American project, but Dassault would find local partners if there were a fresh competition.

Switzerland is now looking for a fighter to replace both the F-5 and F-18, and the multirole Rafale would meet the requirement, he said.

Saab’s Gripen won a previous competition to take over the F-5 but a public referendum led to a cancellation of that selection.

Talks on the Rafale are continuing with the United Arab Emirates, he said.

Dassault has opened an office in Belgium, which has asked for information on fighters for a planned acquisition. Discussions continue with Malaysia, with local maintenance an option, he said. The French fighter is competing with Boeing F/A-18, Saab Gripen and Eurofighter Typhoon for an order of 18.

Dassault last year delivered five Rafales to France and three to Egypt, with a further modified three to Cairo in January. That made up the annual output of 11 units, or one a month, except for August when the assembly line closes for holiday.

Monthly output could rise to three units if India and other countries signed up for the fighter, he said. Production for Qatar starts this year.

Dassault will deliver six Rafales to France this year, falling to one in 2017. Deliveries are due to rise in 2018.

France needed export deals to be signed, allowing deliveries to the French Air Force to be postponed and funding diverted to other programs.

Trappier welcomed the March 3 announcement by Britain and France at Amiens, northern France, of the launch next year of a demonstrator project for the Future Combat Air System, an armed drone.

That “really serves to anchor” the project, leading to an operational unmanned combat air vehicle when the budget is available, he said. “We hope as early as possible,” he said.

Dassault reported 2015 net profit of €482 million (US $ 540 million), up from €398 million in the previous year, on sales of €4.2 billion, up from €3.7 billion. The profit margin was 11.5 percent of sales, up from 10.8 percent.

The company expects sales to fall this year.

Orders for the Falcon business jet halved to 45 units from 90, and the company needs to cut costs in view of the competition in the market, Trappier said.

Orders rose to €9.9 billion from €4.6 billion, boosted by the orders from Egypt and Qatar. The order backlog rose to €14.2 billion from €8.2 billion. Cash holdings rose to €2.9 billion from €2.4 billion.

The company invested €431 million of own funds in research and development, 10.3 percent of sales.

The contracts with Egypt and Qatar, and the expected deal for 36 fighters for India “have transformed the medium-term outlook for Dassault’s military aircraft business,” said a Feb. 9 stock market research note from Agency Partners.

 

[Abingdonboy]

Dassault Says it's Close to Rafale Deal With India
Sunday, March 13, 2016 by Indiandefense News

PARIS — Dassault Aviation is in the “final phase” of price negotiations with India for 36 Rafale fighters, with the company in talks with potential local partners to build a hoped-for 90 more units, chairman Eric Trappier said March 10.

“We are getting closer,” he said as the company presented 2015 results. “We are in the final phase.”

The talks continue after Trappier had in January set a four-week target, when France and India signed an intergovernmental agreement on New Delhi buying 36 fighters.

Dassault seeks to set up “a real partnership” with Indian industry rather a conventional offset, which requires investing in unrelated sectors, he said. That partnership approach would see Safran, Thales and other French suppliers working with local partners on the Rafale if New Delhi agreed the order for 36 and followed up with a further 90 units, he said. That second order was needed as the former figure was too small to justify a local build.

Dassault is waiting to see if Canada, which recently made its scheduled payment into the F-35 program, will cancel its order for the US fighter and launch a tender, Trappier said. Canadian companies have a stake in the American project, but Dassault would find local partners if there were a fresh competition.

Switzerland is now looking for a fighter to replace both the F-5 and F-18, and the multirole Rafale would meet the requirement, he said.

Saab’s Gripen won a previous competition to take over the F-5 but a public referendum led to a cancellation of that selection.

Talks on the Rafale are continuing with the United Arab Emirates, he said.

Dassault has opened an office in Belgium, which has asked for information on fighters for a planned acquisition. Discussions continue with Malaysia, with local maintenance an option, he said. The French fighter is competing with Boeing F/A-18, Saab Gripen and Eurofighter Typhoon for an order of 18.

Dassault last year delivered five Rafales to France and three to Egypt, with a further modified three to Cairo in January. That made up the annual output of 11 units, or one a month, except for August when the assembly line closes for holiday.

Monthly output could rise to three units if India and other countries signed up for the fighter, he said. Production for Qatar starts this year.

Dassault will deliver six Rafales to France this year, falling to one in 2017. Deliveries are due to rise in 2018.

France needed export deals to be signed, allowing deliveries to the French Air Force to be postponed and funding diverted to other programs.

Trappier welcomed the March 3 announcement by Britain and France at Amiens, northern France, of the launch next year of a demonstrator project for the Future Combat Air System, an armed drone.

That “really serves to anchor” the project, leading to an operational unmanned combat air vehicle when the budget is available, he said. “We hope as early as possible,” he said.

Dassault reported 2015 net profit of €482 million (US $ 540 million), up from €398 million in the previous year, on sales of €4.2 billion, up from €3.7 billion. The profit margin was 11.5 percent of sales, up from 10.8 percent.

The company expects sales to fall this year.

Orders for the Falcon business jet halved to 45 units from 90, and the company needs to cut costs in view of the competition in the market, Trappier said.

Orders rose to €9.9 billion from €4.6 billion, boosted by the orders from Egypt and Qatar. The order backlog rose to €14.2 billion from €8.2 billion. Cash holdings rose to €2.9 billion from €2.4 billion.

The company invested €431 million of own funds in research and development, 10.3 percent of sales.

The contracts with Egypt and Qatar, and the expected deal for 36 fighters for India “have transformed the medium-term outlook for Dassault’s military aircraft business,” said a Feb. 9 stock market research note from Agency Partners.

Look how quickly the narrative begins to change. A few weeks ago "deal is dead", "deal unworkable", "only 36 to be ordered", "costs remain an insurmountable hurdle".

I wonder if the competitors have finally seen this as a lost cause so now their funding has dried up and the truth is actually coming out @PARIKRAMA

 

[$@rJen]

Look how quickly the narrative begins to change. A few weeks ago "deal is dead", "deal unworkable", "only 36 to be ordered", "costs remain an insurmountable hurdle".

I wonder if the competitors have finally seen this as a lost cause so now their funding has dried up and the truth is actually coming out @PARIKRAMA

He also goes on to say they're looking or a local partner for hoping to build 90 more units... !!

 

[BON PLAN]

You may be right.

Fair you seem !
It's un usual for a US people to have a critic view on F35.

 

[Armani]

JUST SIGN THE GODDAMN DEAL ALREADY !!

Uski baad jo hoga dekha jayega!

 

[BON PLAN]

JUST SIGN THE GODDAMN DEAL ALREADY !!

Uski baad jo hoga dekha jayega!

I miss your avatar

 

[Stephen Cohen]

@PARIKRAMA

Sir have you read the latest news about Rafale ; More problems
This time it is LIABILITY clauses

But the Inter Governmental Agreement was supposed to have been finalised

Law Ministry redflags liability issues in Rafale deal | The Indian Express

 

[randomradio]

@PARIKRAMA

Sir have you read the latest news about Rafale ; More problems
This time it is LIABILITY clauses

But the Inter Governmental Agreement was supposed to have been finalised

Law Ministry redflags liability issues in Rafale deal | The Indian Express

A lobby at work here.

 

[PARIKRAMA]

@PARIKRAMA

Sir have you read the latest news about Rafale ; More problems
This time it is LIABILITY clauses

But the Inter Governmental Agreement was supposed to have been finalised

Law Ministry redflags liability issues in Rafale deal | The Indian Express

No Sir Stephen
Yes my friend,
I had read that in the morning.. Apparently there seems to be a vested agenda here.. if you see article mentions few lines like

While pricing continues to be a bone of contention, Indian officials have also raised questions over key clauses, including liability of Paris in case of any shortfall in implementation of the deal, being heavily loaded in favour of the French.

The refusal of the French government to give any bank guarantees also remains a major issue. France has instead offered to provide a “comfort letter” from its prime minister.

Sources said since the contract involves huge pay-outs without actual delivery, this is a matter of concern. In the past, the practice has been submission of adequate government/ sovereign guarantees.

A senior officer involved with the matter said, “While many senior government functionaries, including those in the Ministry of Defence, have favoured out-of-box thinking to take the deal forward, when we examined the draft Inter-Governmental Agreement (IGA) and the draft Supply Protocols, we were left wondering as to how could India agree to all the stipulations suggested by the French side. In our opinion, the two documents were not drafted with the interest of the Government of India in mind. Many suggestions have been forwarded. But it is for the Prime Minister’s Office and the Defence Ministry to take a final view.”

The Law Ministry has objected to the watered-down liability clause, to be signed by the French government and the two French suppliers. The Defence Ministry has been advised that unless there is a joint and severe liability clause, India’s interests would remain compromised. Law Ministry officials have also redflagged the clause in the IGA that in case of material breach by French companies of their obligations under the Supply Protocols, the Indian side would first take recourse to legal route against the companies without involving the French government. While the initial agreement provides that in case of any dispute, arbitration proceedings can be initiated in Geneva (Switzerland), the Ministry of Defence has been advised that the seat of arbitration be in India, especially since the government hopes to turn India into a hub for international arbitration. -

Now apparently there are multiple parts which Indian express does not say at all and i wished they understood a bit before writing a story on this.

Firstly, the payouts if its huge will be partly used to facilitate the offset part where a manufacturing line is suppose to come up in India under MII

Secondly, certain customization like for example Engine customized for Indian Rafales has to be borne by India a lot in initial few payment tranches which goes towards the Safran R&D and unveiling of that engine within a stipulated time period.

Thirdly, For a large amount of spares which needs to be bought for maintaining high availability cannot be paid in tranches later but has to be adjusted within first few tranches as it goes hand in hand with accommodating the aircraft needs for such high availability needs


Fourthly, last time Guarantee/liability clause was an issue for HAL produced Rafales but as i remember a month back the news media reported that Dassault is ready for guaranteeing Indian produced Rafales when they are free to choose their partner in India and the issue is resolved.

Feb 18,2016
Source: No Rafale deal unless price is right: Parrikar | Business Standard News
So by questioning this aspect, the Indian Express is saying DM MP has made a false comment in public about this deal. I would any day trust DM MP statement over a source saying stuff who remains anonymous.


Fifthly, as far as jointly and severe liability clause is concerned, the JV will have an Indian partner and this part "in the IGA that in case of material breach by French companies of their obligations under the Supply Protocols, the Indian side would first take recourse to legal route against the companies without involving the French government."
needs to be understood a bit holistically. Taking a recourse involving a government would involve a sovereign guarantee state which will be difficult at any point of time. Imagine a simple case, in a corporate world the usage of Corporate Guarantee/CG is a complex issue where in case of potential delinquency situation and non performance of account, the CG is called for protecting the account going bad. Now why should a similar case be agreed by the government. If historically for MKI, Russian government provided a sovereign guarantee the same could be then called for saying a precedent. But what i searched and got is this

"Although delayed and with costs increased to more than double, Russia is also committed to deliver the refurbished Admiral Gorshkov aircraft carrier to the Indian Navy by December 2012. India has agreed to wave off any penalties for the delay so far and the Russian Government has given a sovereign guarantee to ensure the aircraft carrier's delivery by then."
..:: India Strategic ::. Air Force: India, Russia sign Fifth Generation stealth fighter project

The only guarantee now Russia is giving is setting the supply spare stuff for higher availability
Here:
As per the supply agreement, Russia will deliver spare parts for the Su-30MKI fleet to India at a much faster rate than before. The agreement is intended to last for the next five years.

The agreement aims to improve the existing process for ordering and delivering aircraft supply parts: up until now the recipient state has had to file a separate application for each individual spare part following which the order would pass through different phases that included licensing, clearance at the customs’ level, completing bank guarantees and more.
Source: India, Russia To Sign Defense Pact For Su-30 Fleet | Indian Defence News


So most corporates today like to give Letter of comfort and Letter of Introduction without taking a risk of recourse or a liability unless and unless the entity is their group company whose individual financial strength is not upto mark and thus requires the corporate guarantee backed comfort for the buyer/Banker and other customers to trust the company.

Here in this case, India is associated with Dassault for very long and DA has its own financial strength. So in what manner a Sovereign Guarantee should be provided for Dassault to India? What is the basis of asking the Sovereign Guarantee when objectively neither Dassault is unknown to GOI nor its financial position needs additional comfort.

Of course performance penalty for delays should be there but then asking for unnecessary things is just a way to create a road block.

++
If you see the aim of this article is again to create a wide view against Rafale.. This coupled with other articles few days back on Rafale seems to be signs of desperation by people to sabotage and discredit this deal.

 

[topgun047]

A guarantee with a penalty clause is needed so that Dassault does not pull a Cobham on India wherein Cobham of UK delayed the delivery of quartz nose thereby slowing down Tejas FOC considerably.They got away with it since nobody bothered to put a penalty clause in the contract.

The clown who negotiated that stupid contract should be fired asap and investigated for cutbacks.

What is wrong in asking for and indeed agreeing to a clause that punishes the seller for not providing the goods which are already paid for, within a stipulated time ?

 

[PARIKRAMA]

I am sorry to say, but your entire spin is absolute RUBBISH.

Why don't you explain clearly to all of us WHY any kind of guarantee is not required ?

Then pls enlighten us why a sovereign guarantee is required and what benefit it serves?

 

[PARIKRAMA]

It serves the same purpose as a bank guarantee.

It serves the same purpose as a Currency.

I hope you are aware that ANY currency is just a PROMISSORY NOTE. It is a promise backed by a sovereign guarantee.

Are you enlightened now ? As they say, common sense is not very common.



Any and all contracts have to be cleared by the legal department. Human error is normal, that is why we have due process.

Awesome
So lets start again from the basic

Sovereign guarantees are given by governments to assure primarily lenders and in certain cases Buyer countries that the government will take certain actions or refrain from taking certain actions affecting the outcome of the contracted deal/project .

A blanket sovereign guarantee of all risks is impossible to obtain in any financial transaction. In theory, the government is forced to accept risks such as exchange rate and political risk because it is better able to manage it through sound economic policies. In practice, however, the developing nations ask for a guarantee in order to ensure that the project and contracted deal remains as per the terms and conditions and deviations owing to delay in contract execution does not increase or cause any kind of burdens to their plans which were agreed too in the financial contract. In our case its IGA which explicitly states the number of Rafales and timeline of Delivery and terms and conditions which needs to be adhered too as per the agreed IGA between India and France

Where a sovereign guarantee is not obtainable, the host government may yet be willing to execute a somewhat watered-down document with limited enforceability, sometimes called a "comfort letter," or a "memorandum of understanding." These instruments cover limited matters like a policy statement acknowledging the importance of the deal to the nation's economy and strengthening of relationship with Buyer country. It also states that Government will not take any action which will hamper the execution of this contract and will give priority in hearing when an issue arises during the fly of the contract.

Historically India’s defence ministry, like weapons buyers everywhere, insists on writing “liabilities” into contracts for defence equipment. These are usually backed by bank guarantees that New Delhi can encash if the equipment’s delivery or performance is not according to the contract.

and i said the same here

Of course performance penalty for delays should be there but then asking for unnecessary things is just a way to create a road block.

But France wants to follow the Russia way of giving just the letter of Comfort. India's insistence is based on 2 aspects

1. Since its G2G deal and french government were forefront negotiating on the behalf of Dassault, they should guarantee that deal adheres to term of the contract at all times.
2. India wants to save deal cost of 3-4% charges on FBGs which DA has to incurr for the financial covenants by shifting the whole responsibility to France and Sovereign Guarantee costs nothings

The fear is that DA will escape like all other foreign arms dealers who find some loophole to run away from financial penalties.

Yet India under the FMS route with USA does not insist on such Sovereign Guarantees. India has been depositing 40 per cent of the contract value into an escrow account with the US Federal Reserve. This serves as a “termination guarantee”, in case the buyer government unilaterally terminates the contract. The “liability” is negotiated separately between the Pentagon and the vendor company.

So no one gives a Sovereign Guarantee in today's world. The liability will be executed between DA and French government separately like all other deals and India will get Letter of Comfort from French Government + Financial BGs from DA for adhering to covenants

 

[PARIKRAMA]

+++
And further adding to this in a new post, Why Sovereign Guarantees are not given? (i forgot to add as i am getting old now and brain is happily slowing down lol)

Sovereign Guarantees are to be declared in the annual financial accounts of the country under off balance sheet items.. They are a part of Contingent Liabilities. The contingent liabilities is a big source of scrutiny for every Rating Agency in the world. France government would have already provided an extensive Sovereign Guarantees for its Public Utilities and Banks and other economically important financial organisations. Adding even a small partly arms deal of few Billion Euros versus a Trillion Euro Plus contingent liabilities is not a big ask. But the risk of tomorrow the Sovereign Guarantee clause being called by India in case of non execution or any inordinate delay/issues, risks the quality aspect of all other sovereign guarantees too under contingent liabilities. The effect of crystallization and risk attached to this will force the Rating Agencies across the planet to downgrade the Country Risk rating. Also the quality of all individual Sovereign guarantees will be questioned implying the whole financial ecosystem of France will be viewed suspiciously. The cost of funds would overnight increase, the cost of debt will soar, the whole financial market of France will react with negative views, the government will find it hard to change the negative sentiments and may lose the next elections surely for supporting Dassault over Public utilities and Financial well being of the country's economy.

Thus, no country likes to give Sovereign Guarantee unless its for a public company and for the well being of Financial Ecosystem of their country.

France Contingent Liability quality has been very good and risk from it is touted as low as of now.. See some old data

Annexure 2 for France states
France
Guarantees: Data on guarantees only available for central government.

As you can see the case of Goverment Guarantees as of 2013 along with liabilities for government controlled entities.. The quality is assured with NIL NPA.

Now imagine a case where India uses this clause and declares the Dassault Rafale Deal as NPA, can you now imagine the contagion effect?

Now lets consider a simple more detailed view in case of India

What are the types of Guarantee

and the case of Guarantee Invocation

Look at our own government.. See how the nature of Sovereign Guarantee is skewed towards our economical needs and maintaining a sound risk ecosystem

This is the reason any government will be reluctant for Sovereign guarantee..

OTOH, I strongly advocate taking PBG/FBG (performance/Financial Bank guarantees) from DA.. Thats a standard industry practice.

 

[randomradio]

It serves the same purpose as a bank guarantee.

It serves the same purpose as a Currency.

I hope you are aware that ANY currency is just a PROMISSORY NOTE. It is a promise backed by a sovereign guarantee.

Are you enlightened now ? As they say, common sense is not very common.



Any and all contracts have to be cleared by the legal department. Human error is normal, that is why we have due process.

There is no French govt guarantee in the new deal. The guarantee is being given by Dassault.