Procurement: Cheap Euros Change The Game

June 15, 2010: India is seeking 126 modern jet fighters, and is willing to spend over $10 billion to get what it wants. There are six aircraft competing for this contract. A year ago, France's Rafale fighter was dropped from the competition, for being too expensive and failing to meet technical requirements. But the Euro continued to decline, and France tended to the technical issues, putting Rafale back in the running. Some of the other five aircraft competing (U.S. F-16 and F-18, European Eurofighter, Russian MiG-29/35 and Swedish Gripen) are also benefitting from declines in their currencies (by about 25 percent) versus the dollar. The Rafale, Eurofighter and Gripen are now cheaper because of the currency declines.

The F-16 and F-18 were always considered frontrunners, partly because both aircraft have extensive combat records and a large number of satisfied foreign customers. But price may be the critical factor. However, the F-18 and F-16 are still very cheap compared to the Rafale, Eurofighter and Gripen, even after the recent currency shifts, mainly because the U.S. warplanes have been produced in large numbers. But because of the changes in prices, the American aircraft are no longer the clear favorites. Current prices for each aircraft are; Rafale $67 million, Eurofighter $91 million, F-16 $50 million, F-18 $58 million, Gripen $48 million, MiG-35 $39 million.

The competition may come down to what extras can be included (weapons, electronics and upgrades). Then there is the life-cycle cost (all costs, including maintenance, operating and upgrades) over the 30 year life of the aircraft. The Americans have an edge here, because of their track record with their own aircraft, particularly the F-16 and F-18. Finally, there is reliability, which, again is a matter of track record and reputation. The U.S. also has an edge here.

 

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