Differences between Airbus and the Indian defence ministry resulted in a technical lapse in the procurement process of 14 choppers for the Coast Guard.
New Delhi: A Rs 2,000 crore ($300 million) chopper deal for the Indian Coast Guard, which was meant to be a key takeaway from French President Emmanuel Macron’s visit to India next month, has hit an air pocket and is on the verge of being cancelled.
Differences between the Defence Ministry and European manufacturer Airbus over commercial bids earlier this month have resulted in a technical lapse in the procurement process.
As far as defence projects on the bilateral agenda are concerned, this now leaves only a possible tie-up for the revival of the Indian Kaveri jet engine project with French developers.
Break down of negotiations
Negotiations on the EC 725 `Super Cougar’ chopper deal – which included a Rs 600 crore offset package for the Indian industry – broke down after Airbus refused to extend the validity of commercial bids that expired on 15 February.
“The commercial bid has not been extended,” an Airbus spokesperson confirmed to ThePrint.
While the company has been in discussions with the Ministry of Defence since 2012, when the global competition started, it has made at least nine extensions to its commercial bids. This means that the price it had quoted in 2012 remained valid until 15 February this year.
On being asked for a tenth extension, the company refused, possibly due to concerns about inflation and an anticipated increase in borrowing rates in Europe. The contract was to supply 14 of the choppers to the Coast Guard for a variety of roles, including surveillance, interdiction and transport duties.
The deadlock and technical lapse in the project has resulted in the Coast Guard deal being taken off the bilateral agenda. Sources said that last minute efforts were made by the Indian side to revive the process and take it forward ahead of Macron’s visit, but these have been unsuccessful.
The breakdown in negotiations is eerily similar to the Rs 6,500 crore contract for 16 multi-role helicopters for the Indian Navy, which was cancelled last year. The deal was cancelled after US manufacturer Sikorsky refused to extend commercial bids as the contract negotiations had dragged on for several years.
In both cases, the protracted process of procurement – which extended well beyond the time stipulated in the defence procurement policy – seems to be the culprit. Foreign manufacturers refused to sell equipment at prices quoted in the past, as they were no longer deemed commercially viable.
The delay in procurement has been a long-standing complaint and was even mentioned in a detailed presentation made by the Minister of State for Defence, Subhash Bhamre to the Prime Ministers Office in November last year.
For example, the Coast guard competition started in 2012 when the tenders were issued. While three competitors were in the fray, Italian firm Finmeccanica dropped out after allegations of graft against the group in 2014.
The Airbus EC 725 managed to beat the Sikorsky S 92 on pricing in 2015 after commercial bids were opened, but since then no progress has been made in concluding the contract. Airbus and the defence ministry have been negotiating the final pricing for the past three years.
The likely cancellation of the Coast Guard order is a triple whammy for Airbus in India as far as military sales are concerned.
In 2016, a $2 billion contract for acquiring new mid-air tankers for the Indian Air Force, in which Airbus had been selected as the winner, was cancelled. This was the second time that the mid-air tanker contract was cancelled after Airbus won it. Earlier in 2010, the finance ministry turned it down.
There has been little reason for cheer for Airbus on a project it has collaborated with the Tata Group on to manufacture medium-lift military aircraft for the Indian Air Force.
The project has been frozen for over three years now as the Indian side grapples with the enormous costs it would entail to manufacture the C295 transport aircraft domestically, given that the order book for around 60 planes does not make for economies of scale.