Hefty Rs 42,000-cr bill for combat aircraft may rise

For years, India’s proposed purchase of 126 medium multi-role combat aircraft (MMRCA) — the world’s largest overseas fighter buy for which the Typhoon, built by Eurofighter GmbH, and the Rafale, developed by French vendor Dassault, remain in contention — has been valued at Rs 42,000 crore, or almost $10 billion. Now, that valuation is set to rise dramatically, as the Ministry of Defence (MoD) carries out a process called benchmarking.

Benchmarking is the process of estimating the fair price for any purchase, and is completed before the MoD opens the price bids for any tender. This is done by an MoD committee which scrutinises similar tenders worldwide, especially recent sales, to arrive at a comparable — or as the name suggests, a benchmark — price. If all the vendors’ bids emerge significantly higher than the benchmark, the tender is cancelled and the process begun afresh.

For example, if the MoD committee that is benchmarking the MMRCA concludes Rs 42,000 crore is a decade-old estimation that should be increased due to inflation by 50 per cent, the benchmark for that contract will be pegged at Rs 63,000 crore. When the Eurofighter’s and Dassault’s bids are opened and if both turn out to be notably higher, the MoD will scrap the MMRCA tender. On the other hand, if the lower bid is less than or approximates the benchmark, that bid will be accepted.

The benchmark figure has become crucial for the Typhoon and the Rafale, acknowledged as the most expensive of the six fighters that competed for the IAF’s order. Watching from the sidelines and hoping that the procurement falls through are the four aircraft vendors who were eliminated from the MMRCA contest in April: Russia’s MiG; Sweden’s Saab; and American companies, Boeing and Lockheed Martin. Two of those vendors told Business Standard they believed Eurofighter’s and Dassault’s quotes would be far higher than the benchmark. If they are correct, the long process of obtaining sanctions, tendering, evaluations and field trials would be fruitless.

One eliminated contestant sources the Rafale’s price from the Brazilian media, which has keenly followed the contest between Dassault, Saab and Boeing to sell 36 fighters to the Brazilian Air Force. A detailed story in the Sao Paulo-based daily, Folha de S Paulo, pegged the Rafale bid at $6.2 billion (plus another $4 billion for maintenance over the next 30 years, according to the terms of the Brazilian tender). Quoting French sources, the daily reported the $6.2-billion bid was a discounted price, brought down from $8.2 billion after intense Brazilian pressure on Paris. Extrapolating these figures onto the Indian contract, Dassault’s quote for 126 MMRCAs could be as much as $20 billion, twice the initially estimated figure.