01/31/2012 07:49 EST | Updated 04/01/2012 05:12 EDT

India to buy 126 Rafale fighter jets in $11B deal with French aviation company Dassault

NEW DELHI - India is buying 126 French-made combat aircraft in a massive $11 billion deal that will update its military with the first exported Rafale jets, officials said Tuesday.

Dassault Aviation said it was honoured to extend co-operation with India, which has a fleet of its older Mirage jets, and French President Nicolas Sarkozy welcomed India's decision.

Dassault snapped up the €8.4 billion deal with the lowest bid in a two-way competition against the Eurofighter Typhoon aircraft, said an Indian official, who spoke on condition of anonymity because he was not authorized to speak to reporters about the sensitive defence deal.

India has become the world's biggest arms importer as an economic boom has allowed it to push modernization of its military, and it is being wooed by major international arms manufacturers as it replaces its obsolete Soviet-era weapons and buys new equipment.

Growing concerns in New Delhi about China's fast-expanding military might, as well as India's decades-old mistrust of Pakistan, have fueled India's impetus to add heft to its defence forces.

India's air force, with around 700 fighter aircraft before the Rafale deal, is the world's fourth largest, after the United States, Russia and China.

The deal is the 1st foreign deal for Dassault's Rafale fighter jets.

Planes from Boeing Co. and Lockheed Martin of the United States and from Russian and Swedish makers were dropped from consideration earlier for technical reasons.

Eighteen fighter aircraft will be delivered in "fly away" condition within 36 months and the remaining 108 are to be built by state-owned Hindustan Aeronautics Ltd. through technology transfers.

Defence ministry experts were still fine-tuning pricing details, including the cost of on-board weaponry and royalties for producing the aircraft in India. Sarkozy said contract negotiations will begin "very soon."

The French have for years been trying to get an export deal. Just last month, French Defence Minister Gerard Longuet warned the Rafale program could be stopped if foreign buyers don't materialize.

Longuet maintained the Rafale is an "excellent plane" but acknowledged it is handicapped by its price.

The Rafale, in service for the French Air Force since 2006, has been flying air support roles in Afghanistan since 2007, and was a big part of the NATO air campaign against Moammar Gadhafi's forces in Libya in 2011.

For years, political leaders from different countries had made a strong pitch for their aviation companies at meetings with Prime Minister Manmohan Singh and other Indian leaders.

"The reported $5 million difference between the candidates is exceptionally small, and indicates this was a very close race — practically a photo finish," said Endre Lunde, a consultant with IHS Jane's Defence Weekly.

French political backing was essential in strengthening the French bid, and the Rafale win is therefore also a major victory for President Nicholas Sarkozy, Lunde said.

He described the deal as a "major win for France, and a major loss for the UK."

Indian analysts said it was ultimately India's familiarity with French fighter jets such as the Mirage that swung the deal in Dassault's favour.

Dassault won a $1.4 billion contract to upgrade India's Mirage fleet last year.

Analysts also cautioned that the deal could yet unravel over details as both sides pore over the fine print on pricing.

"This is just the first step — Rafale has been selected as preferred bidder but any student of Indian procurement knows that this means nothing until the contract is physically signed," said James Hardy, Asia Pacific Specialist at IHS Jane's Defence Weekly.

Financial pressures on India's government could seriously complicate the chances of a contract being signed any time soon, he said.

"That and the standard contractual wrangling that occurs during Indian procurement deals could cause delays stretching to years," he said.

Rahul Bedi, a defence analyst in New Delhi, said the price of the aircraft was likely to go up significantly.

"Given India's currect financial difficulties with the rupee and the political wobbliness of the government, the government would hesitate to sanction such a huge amount," Bedi said.


Associated Press writers Greg Keller and Jamey Keaten contributed to this report from Paris.