Differences crop up in fighter aircraft deal

Serious differences have cropped up in the contract negotiations between the Defence Ministry and French firm Dassault Aviation selected for the 126 fighter aircraft deal threatening to delay the country's largest one-time military acquisition.

Dassault has made it clear that it was "technically and practically not feasible to stick to the present obligations", as it is wary of encountering the fate of British telecom company Vodafone, which is facing problems over taxation issues.

In the contract, Dassault wants to be held responsible for only the first 18 aircraft to be supplied by it along with the kits to be supplied by it for the remaining 108 aircraft to be produced by the HAL in India but the Defence Ministry wants it to take responsibility for the quality and timely delivery of all the 126 aircraft.

The Defence Ministry is insisting that Dassault takes the overall responsibility of the contract while the French firm has told it that it was "technically and practically not feasible" to stick to the present obligations, sources told PTI here.

The French firm also does not want to be held responsible for the delays in the delivery of the aircraft to be manufactured by the HAL and has told the Ministry that it cannot be held responsible for paying the liquidity damages in case there are delays by HAL, they said.

Dassault fears it may land up in a Vodafone-like situation in terms of taxation for transfer pricing if it agrees with present obligations and such a thing can impact it adversely in a big way, sources said.

Dassault has suggested an "umbrella contract" to be signed for the deal under which two separate contracts can be inked including one for payment in Euros for the French firm and the other with HAL for which payments would be made in Rupees, the sources said.

The Ministry has, however, expressed inability to agree on these terms as it would be in deviation from the conditions mentioned in the Request for Proposal (RFP) for the procurement. The base price for the deal was $10 billion and contractual negotiations are underway to determine the final amount to be paid by India for the aircraft. Soon after the Rafale fighter jet was shortlisted by IAF in 2012, Dassault Aviation has been raising questions about the capabilities and the role of HAL in the contract for 126 Medium-Multirole Combat Aircraft (M-MRCA).

The Defence Ministry had earlier also rejected Dassault's demand for making it the lead integrator for the 108 aircraft to be produced in India as the RFP for the tender has specifically given that responsibility to the HAL.