Rafale wins MMRCA: The Cost

The selection of the French Rafale fighter aircraft manufactured by Dassault as the lowest technically qualified bid for the Indian Air Force (IAF) tender for 126 Medium Multi Role Combat Aircraft (MMRCA) has been one where the lesser of the two most expensive of the original six competing aircraft in the competition has apparently been chosen.

And while there is still very little information on the commercial bids and actual components of the cost of the two aircraft submitted by the Eurofighter consortium and Dassault, there is still data available, some of it fairly recent, from which one could attempt to arrive in the region of the anticipated cost to the Indian taxpayer, now that the Rafale has been selected.

StratPost has examined the costs calculated by the users of the aircraft, the French government. In this, two reports are relied upon; the first submitted by French Court of Audit and the second, a French senate review of its defense budget for 2012.

The audit report was submitted in February, 2010 and was based on numbers from 2009, while the report in the French budget was submitted in November, 2011.

The audit report indicates that according to figures from 2009, the Rafale cost France EUR 142.3 million (around INR 920 crore in today’s terms) per aircraft. The auditors arrived at this figure by, presumably, dividing the entire cost of the project, including development cost, by the number of aircraft ordered. According to the French Ministry of Defense, the cost of production of each aircraft was EUR 101.1 million (around INR 650 crore in today’s terms).

According to the French defense ministry’s cost of production, the cost to India would come to around INR 83,000 crore for 126 aircraft, almost double the 2007 Indian budgetary estimate of INR 42,000 crore. This is assuming that that development costs are not passed on to India.

The second, more recent report, submitted by the Committee on Foreign Affairs, Defense and Armed Forces says the Rafale program cost the French taxpayer EUR 43,567 million, which comes to around EUR 152.3 million or around INR 990 crore in today’s terms. This figure includes development costs. By this reckoning, 126 Rafales could cost India around INR 1,25,000 crore, almost thrice the 2007 estimate.

It is also important to note that the French government has provided subsidies that impact the cost of the aircraft. The benefit derived from the subsidy component of the cost would, presumably, not be passed on to India, either.

The MMRCA tender requires 18 aircraft to be produced by the Original Equipment Manufacturer (OEM: In this case, Dassault) and the rest of the 108 to be license produced under transfer of technology by Hindustan Aeronautics Limited (HAL). While production costs in India would likely be lower, the cost of transfer of technology and licensed production may render any benefit from domestic production irrelevant.

A cost escalation of 50 percent (INR 63,000 crore, in this case) or more, requires approval again from the Ministry of Finance, before the Defense Acquisitions Council (DAC) can proceed with it. With the cost of the tender for India safely ranging from INR 83,000 crore to 1,25,000 crore, the revision of the estimated expenditure on the MMRCA would require the approval of the finance ministry.

The ministry has been known to question defense acquisitions based on cost. When the IAF selected the Airbus A-330 MRTT over the IL-78 as it’s aerial refueler, the ministry objected since it was more expensive than its competitor, the IL-78, which was already operated by the IAF. The IAF is now conducting the tender process again, only this time, including Life Cycle Cost as a consideration, something which has already been taken into account in the MMRCA tender.