“There are three kinds of lies: lies, damned lies, and statistics.” – goes the popular phrase. Nothing exemplifies this more than the conduct of many in the English Main Stream Media (MSM) when it comes to reporting the Rafale deal.
Latest in the series of such ‘analysis’ is a piece in The Hindu by none other than N. Ram, the former editor of The Hindu. I guess with articles and analysis by run-of-the-mill ‘journalists’ and newly minted ‘defense experts’ on online portals, the ecosystem has become desperate and had to deploy the big guns! The thinking here seems to be that if the numbers by themselves don’t stick, the fact that they’re coming from N. Ram himself, should give the analysis some weight.
But here’s the problem, he doesn’t even get the basics right!
Same Plane, Mr. Ram?
Right of the bat, the article gets its facts wrong and makes a blunder which is akin to losing your opening batsmen in the first over. In a Test Match.
The article says and I quote:
This article, based on information exclusively available to The Hindu, focusses on the interesting question of how and why the price per Rafale fighter jet of the F3-R standard, with practically the same configuration and capabilities, changed substantially over three points, in 2007, 2011, and 2016
Tell me something, aren’t journalists supposed to cross-check the information they get from their sources? It obviously wasn’t done in this case. And here’s why.
The base plane which participated in the 2007 tender was F3 standard. F3R standard Rafale simply could’ve NOT participated in the 2007 tender.
You know why?
Because F3R standard was qualified in 2018!
Here is an official press release from Dassault and I quote:
“On 31 October 2018, the F3-R standard of the Rafale was qualified by the French defense procurement agency (DGA). The development of this new standard, launched at the end of 2013, was successfully completed by Dassault Aviation and its partners in full compliance with contractual performance, schedule and budget.”
Unless we’re talking about time-machine here, an aircraft standard, whose development started in 2013 and was completed in end-2018, could not have been there in 2007 or 2011.
F3 Standard + Euro 1 Billion = F3R!
French government paid Dassault Euro 1 billion to develop the F3R standard for the Rafale aircraft. Yes, while the baseline aircraft are same, F3R represents a quantum jump in capability over F3 standard.
And what does F3R standard involve? In the words of Dassault:
“The F3-R standard is an evolution of the Rafale F3 standard, with the exceptional versatility being further reinforced. It is part of the ongoing process to continuously improve the aircraft in line with the operational requirements and the feedback from experience of the pilots.
It enables the Air Force and Navy Rafale aircraft to carry the following equipment and weapons:
- The European Meteor long-range air-to-air missile produced by MBDA. This high-performance missile achieves maximum effectiveness thanks to the “active array” radar which equips all production Rafale aircraft delivered since mid-2013.
- The Thales Talios new-generation laser designator pod. Primarily used for air-to-ground strikes, in daylight or darkness, this pod further enhances the high degree of precision that the Rafale has shown since its first engagements (in 2007 in the Afghan theatre).
- The laser homing version of the Safran AASM Air-to-Ground Modular Weapon. This family of weapons, with GPS primary guidance and an additional booster, is unmatched. It enables the Rafale to destroy targets at ranges of several tens of kilometers with metric precision. The laser homing version is particularly adapted to moving targets.
F3 R also includes upgrades to the Rafale sensors and to systems ensuring total interoperability
The Meteor Air-to-Air missile mentioned above is today reckoned as the best air-to-air missile in the world. The missile is considered so potent that UK has awarded a contract to MBDA (missile’s manufacturer) to integrate the missile on its F-35 stealth aircraft fleet. Apart from F-35, most air forces operating 4.5 generation fighters from European manufacturers (Rafale, Eurofighter, JAS-39 Gripen) are looking forward to integrating Meteor with their fighters.
Long story short, we’re getting a more capable place at marginally higher cost and not 41% more expensive, as we’ll see in subsequent sections.
Sensational headline OR boring numbers!
In a desperate bid to give an impression of some great scoop which no one was so far aware of, the article suspends common sense and chooses to build a headline along an absolutely illogical and irrelevant number.
Let’s see why.
First, the story accepts that the flyaway price of the Rafale aircraft had escalated from Euro 79.3 million in 2007 to Euro 100.85 million by 2015. And that the present government has contracted a flyaway cost in 2015 of Euro 91.75 million, which is 9% cheaper than the escalated flyaway cost in 2015 of 2007 tender.
Second, it also accepts that the upfront, non-recurring, India Specific Enhancement (ISE) cost in 2007 tender for 126 aircraft was Euro 1.4 billion while the same for 36 aircraft deal in 2015 was Euro 1.3 billion. Then, it goes on to make the following claim and I quote:
“Dassault claimed a €1.4 billion cost for the ‘design and development’ of 13 India Specific Enhancements, that is, additional capabilities in the form of hardware as well as software that had been specified by the Indian Air Force all along, and this cost was negotiated down to €1.3 billion. What it meant was that the design and development cost, now distributed over 36 Rafale fighter jets, shot up from €11.11 million per aircraft in 2007 to €36.11 million when the deal was struck in 2016.”
Taken as it is, the above analysis is correct. Per aircraft ISE cost did go up in the second deal.
Before we proceed further, let’s quickly summarize the numbers and analysis presented in the article.
|Flyaway Cost/aircraft in 2007||79.3||Euro Mn|
|2007 Flyaway Cost/Aircraft in 2015 after Escalation||100.85||Euro Mn|
|ISE Cost||1.4||Euro Bn|
|Per Aircraft ISE Cost||11.11||Euro Mn|
|2015 Flyaway cost/Aircraft||91.7||Euro Mn|
|ISE Cost||1.3||Euro Bn|
|Per Aircraft ISE Cost||36.11||Euro Mn|
However, where Mr. N. Ram loses the plot and which shows the desperation behind this article, is in how he chooses to use these numbers. This is where the sleight of hand becomes obvious.
Using the above numbers, the article comes up with this gem:
What the Law Minister’s statement failed to say was that when the ‘non-recurring’ design and development cost claimed for the India Specific Enhancements was factored in, the per unit price negotiated by the NDA government for the 36 Rafale fighter jets worked out to €127.86 million, which was 41.42% higher than the price quoted by Dassault in 2007.
When the escalation formula was applied, the price per aircraft agreed to by the NDA government turned out to be 14.20% higher than the proposed price per aircraft when the commercial bid was opened in November 2011 under the UPA government.
By what yardstick and logic is the 2007 per aircraft price (Euro 79.3 Mn + Euro 11.11 Mn = 90.41 Mn) is being compared with 2015 per aircraft price (Euro 91.7 Mn + Euro 36.11 Mn = 127.81 Mn)?
If at all the comparison has to be made, the second one is more relevant.
Where you compare sum of escalated 2007 flyaway cost in 2015 and ISE per aircraft (Euro 100.85 Mn + Euro 11.11 Mn = Euro 111.96 Mn) with 2015 per aircraft price (Euro 91.7 Mn + Euro 36.11 Mn = 127.81 Mn).
Whatever happened to apple to apple comparison?
But then, the purpose of the article in The Hindu was never to undertake objective analysis. It was meant to create an impression of unhealthy deal. A scam. And what better way to grab reader eyeballs than by making extravagant, even if wrong, claim in your headline?
After all, if the headline had read:
“Modi’s decision to buy 36 Rafale shot the price of each jet up by 14%”
“Modi’s decision to buy 36 Rafale shot the price of each jet up by 41%”
no one would even bat an eyelid. I mean, 10%-15% difference in a multi-billion dollar deal separated by couple of years is hardly news.
But then, The Hindu wasn’t trying to share news with the readers. It was hunting for a sensational headline and a number to attack the current government with. It very well knows that in the current political environment, none of the so called defence experts or journalists or eminent intellectual will call it out for this skullduggery.
But then again, is the present aircraft deal even 14.2% costlier?
Before we come to that, here’s an interesting thought someone shared with me on reading the article:
If The Hindu would’ve been genuinely trying to do an analysis, the first thing it would’ve commented upon was that Modi government managed to get a lower ISE cost (Euro 1.3 billion) than 2007 deal (Euro 1.4 billion). And this when the older number and new deal are separated by a gap of almost 8 years!
The biggest flaw in the price comparison done by The Hindu is that it picks-up only two price components of the overall deal. The fact of the matter is that the overall cost per aircraft consists of other components as well.
I had done a comprehensive price analysis and benchmarking a few days back which showed that considering all the cost components, the per aircraft price of 36 Rafale fighters is only 10.2% more expensive than per aircraft cost of 18 aircrafts to be made in France as per old deal.
And mind you, we’re getting a better aircraft with better weapons and much more enhanced support package.
Let’s look at the overall price comparison between the two deals.
But be aware that since old deal had only 18 aircraft coming directly from France, comparison is actually between prices of these aircraft as against the 36 coming directly from France in new deal.
Before we proceed, let me summarize the key data-points which are used in the price comparison analysis.
|Parameter||2007 Tender||2015 Tender|
|Aircraft directly from France||18||36|
|Winning Bid or Deal Size||19.5||7.85||Euro Bn|
|Price per Aircraft||154.76||218.06||Euro Mn|
|Flyaway cost/Aircraft||79.3||91.70||Euro Mn|
|Total Flyaway cost of fighters in the deal||9.99||3.30||Euro Bn|
|India Specific Enhancements (ISE)||1.40||1.30||Euro Mn|
|ISE per Aircraft||11.11||36.11||Euro Mn|
|Balance Cost (Deal Size – ISE – Total Flyaway Cost)||8.11||3.25||Euro Bn|
|Balance Cost/Aircraft||64.35||90.24||Euro Mn|
|Price increment/annum from 2007 to 2015||3.05%||Not Applicable|
|Flyaway cost/aircraft of 2007 deal in 2015 after escalation||100.85||Not Applicable||Euro Mn|
The most important takeaway from various open sources like The Hindu article, Indian Express report, interview of Arun Jaitley and recent parliamentary debate is that there was an escalation clause in the winning bid submitted by Dassault in 2007.
Because of this winning bid, the basic flyaway cost of an aircraft rose from Euro 79.3 million in 2007 to Euro 100.85 million in 2015. Working backwards, the escalation comes out to 3.05% per annum.
Does the escalation apply to only flyaway cost?
Considering the figures at hand, the 2007 winning bid numbers can be divided into two broad categories – Flyaway Cost /aircraft and Balance Cost/Aircraft.
We’ve already applied the price escalation to Flyaway Cost/aircraft. What about the price escalation for the balance part? Does it apply to the other components of tender?
The balance component of the 2007 bid would’ve consisted of ammunitions, spare parts, logistics, training and other paraphernalia. Common-sense tells you that the price of all these items will also see escalation.
Just like cost of producing a new aircraft would increase over time, cost of producing ammunition and spare parts would also increase.
And there is enough precedence within India of price increase in defense contracts with time being the deciding factor.
For example, when India first envisaged interest in the US made M-777 ultra-light weight howitzers, the same were offered in 2010 at $647 million. However, the deal could not go through because of myriad reasons.
When the deal was revived in 2013, the price had increased to $885 million. However, the deal was not concluded by the UPA-2 government. After the NDA-2 government came in 2014, it revived the negotiations and concluded the deal in in 2016 at $ 750 million.
Let’s assume two scenarios.
- Scenario 1 assumes the 3.05% price escalation applies to Flyaway & Balance Cost while ISE Cost remains static.
- Scenario 2 assumes 3.05% price escalation in all the price components of the deal, including the ISE cost.
Scenario 1 – ISE Cost does not see escalation
The following graph gives the total price of the aircraft after considering escalation in per aircraft flyaway cost and per aircraft balance cost; per aircraft ISE cost is kept constant and sees no escalation.
- Escalated total aircraft cost in 2015 – Euro 193.79 Mn
- Flyaway Cost + ISE Cost = Euro 111.96 Mn
Scenario 2 – ISE Cost with escalation
The following table gives the total price of the aircraft after considering escalation in per aircraft flyaway cost, per aircraft balance cost and per aircraft ISE cost.
- Escalated total aircraft cost in 2015 – Euro 196.81 Mn
- Flyaway Cost + ISE Cost = Euro 114.98 Mn
Now that we’ve factored in the price escalation bit, let’s compare the price in the old deal and the new.
Price Comparison 1
In this comparison, we compare the overall per aircraft cost as per 2015 deal with escalated overall per aircraft cost as per 2007 deal but keeping the ISE cost constant.
The 2015 deal for a much more advanced plane with more modern avionics and weapon suite, and enhanced support package is only 12.5% more expensive than 2007 deal for 18 direct purchase aircraft.
Price Comparison 2
In this comparison, we compare the overall per aircraft cost as per 2015 deal with overall escalated per aircraft cost as per 2007 deal; ISE cost also sees escalation.
If we consider an escalation in India Specific Enhancement (ISE) cost as well, price difference between the 2015 deal and escalated cost of 2007 deals narrows further to only 10.8%.
Let’s Suspend Logic!
For fun sake, let’s suspend logic and undertake price comparison like the Hindu article.
- In this case, we’ll compare the sum of flyaway cost and ISE cost in the two deals.
- Here we’re considering an escalation in ISE cost as well.
- The Hindu article has already said that escalated flyaway cost with constant per aircraft ISE cost (Euro 90.41 Mn) is only 14.2% more expensive than the new deal at Euro 127.81 Mn.
- Using the above logic of comparison, we find that aircraft under new deal is only 11.2% more expensive than the 2007 deal.
In the end, we find that in whatever way you look at the new Rafale deal, it is extremely beneficial to the country and the Indian Air Force. Unless, of course, you’re someone who’s sole idea of analyzing the deal is to using dubious logic and come with faulty but eyeball grabbing headline. Like Mr. N Ram did in The Hindu.
[This article was first published at OpIndia on 18th January, 2019]