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India and France on Friday concluded an Inter-Governmental Agreement for the purchase of 36 Rafale fighter jets at a cost of €7.87 billion, the first fighter aircraft deal since the purchase of Sukhois from Russia in the late 90’s.

The deal was signed by Defence Minister Manohar Parrikar and his French counterpart Jean Yves Le Drian. Eric Trappier, Dassault Aviation Chairman and CEO, was also present. The deal comes after 17 months of tough negotiations since Prime Minister Narendra Modi announced the decision in April 2014 for direct purchase of the jets in fly-away condition, citing “critical operational necessity” of the IAF. “Rafale is a potent aircraft and will add to the capability of the IAF,” Mr. Parrikar told the media.

The Rafale is a twin-engine fighter, multi-role fighter aircraft. According to Dassault, it is capable of carrying out all combat missions: air defence, interception, ground support, in-depth strikes, reconnaissance, anti-ship strikes and nuclear deterrence.

The last part is of particular interest to India and these aircraft are likely to succeed Mirage fighters for nuclear warhead delivery as part of India’s nuclear doctrine. “The IGA does not put any restrictions on its use,” a senior defence official said in what would be welcome news for India’s strategic planners.

The basic cost of the aircraft is about €91 million or about Rs. 680 crore and little over Rs.1600 crore per aircraft for the whole deal. Defence sources said the agreement has many components which are better that the original deal and the best part is the weapons package.

The weapons package includes Meteor radar guided Beyond Visual Range (BVR) missile considered the best in the class with range of over 150 kms and Scalp long range air to ground missiles. Defence officials said that the Meteor has a superior range than anything available in the region. “Our air superiority will be retained,” one official observed.

The deal includes the aircraft in fly-away condition, weapons, simulators, spares, maintenance, and Performance Based Logistics support for five years. “For five years we do not have to spend on maintenance,” sources said. Warranty is extendable by two years by factoring inflation and further by another five years upon negotiation. For the entire deal inflation has been capped at a maximum of 3.5 % or current rate whichever is lowest.

Officials said that inflation in Europe is at one percent and expected to continue so, which means that there will be savings in the course of the deal.

Dassault will begin aircraft deliveries after 36 months and complete in 67 months. France will also provide logistics and ground support and ensure that there is 75 percent i.e. 27 aircraft are operationally available at any time.

“There will be steep penalties if they don’t adhere to timelines,” sources said. In contrast Su-30 fleet has an operational availability between 55-60 percent.

The aircraft will be customised as per the requirements of the IAF which include Helmet Mounted Displays, radar warning receiver, infrared search and track among others.

Unlike the practice in defence deals, this deal does not have an optional clause. Under optional clause another 50 percent of the contract additional units can be procured at the same price after conclusion of the main contract.

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Offset clause

There is a 50 per cent offset clause under which French industry will invest half the contract value back in the country which is expected to develop some expertise domestically in the aerospace sector.

Officials said 74 percent of the 50 percent offset value should be exported from India. This is expected to result in Euro 3 billion over the next 7 years. There is also a six percent technology sharing component which is being discussed with the Defence Research and Development Organisation (DRDO)