Monday, July 11, 2011

MMRCA, Admiral Arun Prakash analysis of Indian military procurements

An extensive and very interesting Analysis of past and current Indian defense procurements can be read on LiveFist.

Admiral Arun Prakash especially focus on the fact that india is still very dependent on foreign sources for military hardware despite many attempts to aquire new technologies through transfer contracts. So far, the technology transfers conceded by foreign defense companies have been very desapointing :

[...] For far too long, have Indian defence PSUs claimed “transfer of technology” when they were only assembling components received from abroad using “screwdriver technology”. For the MMRCA offsets to be beneficial to India, they must be selectively chosen to fill known gaps in key technologies or provide high-end production-engineering skills lacking in our aerospace industry today. [...] 

As far as the Rafale is concerned we can quote 2 sentences :

[...] Having flown both the F/A-18 and the Rafale, I can say that while the former would certainly have met all the IAF requirements competently and economically, the breathtaking performance of the latter leaves one in no doubt that it is a “generation-next” machine. The Eurofighter Typhoon, by all accounts, is equally impressive.[...] comment.

[...] the line-up, in ascending order of price, shown in parenthesis, is as follows: MiG-35 ($ 45 m), F-16 ($60 m), F/A-18 ($60.5 m), Gripen ($82.2 m), Rafale ($ 85.5 m) and Typhoon ($124 m). [...]

It is difficult to know if the prices of this list can be directly compared. However, given they are more or less acurate, they reveal that the Gripen NG price would be very close to the Rafale. Conversely the Typhoon is quoted 45% higher which is a huge gap.
Interestingly, both the F-16IN and F-18E would have the same price despite being in 2 different weight class. It is also worth noting that they are 42% less expensive than the Rafale, which is exactly  the current Euro/dollar ratio. Once again, it would prove that the US aircraft prices are artificially low only due to an underestimated dollar value.


  1. It is worth noting that even if the exchange EUR/USD exchange ratio was going down (meaning that that the dollar would gain value against the euro), this does not mean that the Rafale price would go down by the same amount as this would also raise the import price of components for Dassault (international trade is done in US dollars).

    I am not sure why you think the dollar is underestimated. The notion of fair value of a currency is a complex one. But you definitely have a point in that it is hard to export if you have a strong currency vs the dollar. Airbus has the same problem to deal with. I don't know why Dassault does but a lot of companies try to offset this risk by buying some form of insurance against this currency risk.

    On an unrelated note, there have been some rumors that the UAE could buy some F-16s. Do you guys have any information on if this is true and how this could affect the Rafale deal?

  2. Well, if the $ walue is kept low, more or less on purpose to favor US exports, I should I've also said that the Euro is artificially high due to the European Central Bank policy which obey to German will.
    The result is a serious price difference between US and French plane fighter.

    The Rafale does have some US components, but that's a relative small share of the aircraft total price, so if the euro/dollar rate decrease, it will always be good for the Rafale export price.

    Regarding the additional F-16 for the UAE, that's certainly not good for the Rafale deal. No more informations than what have been said last week in the press. In a way, it recalls me the moroccan story 4 years ago...

  3. Yes, it is starting to look a bit like the failed Moroccan deal. Hopefully, this is just the UAE making Dassault sweat a bit.

    Wrt the EURUSD exchange rate, it is factually wrong to say that the US Treasury/Fed is making the dollar artificially low and the ECB the euro artificially high. These currencies are floating and are priced by the market. Neither agency has intervened to change the rate in a very long time, they are *not* actively affecting the rates. Many factors can explain the current rate though. The American stimulus package is a big one.

    Btw, Germany might like a strong currency but as the biggest exporter in the EU by far, they pay a big price for a strong euro.

    Anyway, I don't want to turn this into a FOREX discussion :)