French defence supplier Dassault Aviation, whose Mirage 2000 fighters played a vital role for India during the Kargil conflict in 1999, has emerged as the lowest bidder for the $11-billion ( 55,000 crore) contract to supply 126 fighter jets to the Indian Air Force. It will now enter into exclusive price negotiations with the government and contract for the world’s second-largest open military tender is likely to be inked next fiscal.

Dassault’s Rafale fighter edged out the Eurofighter Typhoon in the final round of a prolonged selection process that saw jets from American firms Boeing and Lockheed Martin, Russia’s MiG 35 and Swedish jet Saab Gripen getting eliminated in technical evaluation rounds. EADS, the European consortium that makes Airbus passenger jets, is a major shareholder in both Eurofighter and Dassault Aviation.

While the defence ministry made no official announcement, executives of Dassault and Eurofighter have been informed of the decision, which was welcomed by French President Nicholas Sarkozy.

The negotiation of the contract will begin very soon with the full support of French authorities. It will include major transfers of technology guaranteed by the French state,” he said. The massive contract going to a French firm comes as a boost to Sarkozy, who faces elections in April in the backdrop of a stuttering economy.

Defence minister AK Antony told agencies that no deal would be signed before the end of March. It will need clearance from the Defence Acquisition Council and will be ultimately signed off by the Cabinet Committee on Security headed by the Prime Minister.
The decision is far from a purely commercial one as it involves years of strategic cooperation. In April, US Ambassador Timothy Roemer resigned a day after it emerged that American fighters were out of the reckoning in the contest.

The contract for the medium multi-role combat jets comes with a 50% offset clause, which means half the value of the contract must be spent in India. This will spell good news for public and private defence contractors.

“This deal, along with the new offset policy retrospected, will get $6 billion through offsets and $6 billion through technology transfers. It will be a force multiplier for small and medium enterprises tapping industries such as defence, aerospace and homeland security,” said S Ravinarayanan, the chairman of Axis Aerospace & Technologies and head of industry lobby group Ficci’s task force on defence offsets.

For Dassault Aviation, whose stock went up 21% on Tuesday, the deal is a shot in the arm. Having failed to find a foreign buyer thus far, French officials had gone on record saying the programme will wind up if the project fails to land export orders. This would not have happened before 2021, when the last of the 180 planes ordered by the French Air Force is scheduled to be delivered.

With this deal, the French have consolidated their presence in the Indian defence space. In 2005, French firm Thales won a 19,000 crore deal to supply Scorpene submarines.