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Life-cycle cost formula puts medium, multirole combat aircraft deal in limbo

Life-cycle cost formula puts medium, multirole combat aircraft deal in limbo
The total cost of this Indian contract for medium, multirole combat aircraft (MMRCA) was supposed to be upwards of $ 20 billion.

Still, it is yet to be signed and sealed despite overshooting its designed timeline by almost a year. Reason: The city is abuzz with rumours that negotiations have got bogged down in calculations of the new method introduced into military purchases of the country, life-cycle cost (LCC).

A senior Indian Air Force (IAF) source, who was involved in creating the formula for calculating the LCC and its process says, ‘The controversy that has been raised, whether there was a difference between the calculation provided by Dassault with its Rafale to emerge as L-1 (lowest priced on the tendering process) was incorrect, is invalid.’

According to him, the formula was given in the request for proposal (RFP) that was issued. All the participants of the RFPs had done their computations on the basis the formula. And in that Rafale and Eurofighter Typhoon had become L-1 and L-2 respectively.

Asked if the prices were calculated at the beginning, what are the negotiators doing now, the source explains, ‘They are getting the cost of ownership correctly. This includes the ‘direct cost of acquisition,’ ‘mean time before failures (MBTF),’ ‘spares’ etc. The cost of ownership is 40 years.’

Adding to that, he says, ‘If the aircraft is to fly for 8,000 hours, then it will require an engine change after every 4,000 hours; hence four engines for a twin engined aircraft. Similarly, the life-cycle of the radars. All these need to be negotiated in terms of whether they have been wrongly priced by the company during accounting for the LCC.’

The real reason, the high level source claims, lie elsewhere. ‘The RFP had provided for a lot of the sub-systems to be built in the private sector. But when Dassault began negotiating with Hindustan Aeronautics Ltd (HAL) for licenced production of 108 aircrafts, of the total of 126 Rafales, they wanted all sub-systems to be made by them. This created a kink in the contract.’
Pinaki Bhattacharya

Pinaki Bhattacharya

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