Éric Trappier, the chief executive officer of Dassault Aviation, a subsidiary of Dassault Group, has built his entire career at French military and business jet maker. After his military service in the French Navy as an officer, Trappier joined Dassault Aviation in 1984 as a system engineer at the design office. He is officer of the French Légion d'Honneur and Knight of the Ordre National du Mérite.
A graduate of Institut National Telecom, Trappier said Dassault thought Reliance Defence was the best who could deliver what we wanted. He said Dassault picked up Reliance Defence as they had land near the Nagpur airport to set up a production facility. Trappier said to CNBC-TV18 that production has already started in India for the Rafale aircrafts and the joint venture with Reliance Defence is operational. Edited excerpts: Q: Let us start by talking about the time when this deal was announced on April 10, 2015. When Narendra Modi announced India’s intent to buy 36 aircrafts through a government to government deal, when was Dassault told or when did Dassault get to know that India is not taking forward Medium Multi-Role Combat Aircraft (MMRCA) deal and is buying 36 aircrafts through a government to government deal?
A: Yes, maybe to say a few words on what was it. The MMRCA deal – first of all, it was a request for proposal in 2007 and we were the winners of this big competition in February 2012. Then, we have been discussing and negotiating from 2012 up to 2015. During the visit, you are just mentioning, that there were discussions between the two governments. It's a government to government discussion. Dassault was not involved at that stage into the discussion during the visit. We were told like many of us during the press conference in the evening that 36 aircrafts should be now be an option to be bought by India.
Q: This was a 8 billion euro deal. Dassault is a major perhaps the biggest aerospace company in France and the government did not inform you?
A: It was a long day. It was a discussion between the two governments about many subjects and one of the results of the discussion between the governments was to announce the deal. If we look at in 2015, there was an urgent requirement for the Indian Air Force and that was told to us at the same time at the press conference.
Q: Has the Indian government then explained to you why this 126 aircrafts deal on MMRCA was not taken forward or was it Dassault which told the Indian government that this deal is not working out, let us have some other format?
A: We were discussing and we are very keen to get 126 aircrafts contract and we have been working so hard to reach an agreement about these 126 aircrafts. For many reasons, this deal didn’t go through.
A: The request for proposal was very clear in 2007 and we won this request for proposal.
Q: What were these reasons as you already had a discussion going on with Hindustan Aeronautics Ltd (HAL) and we understand that in 2014 there was a work-share agreement that was signed between you and HAL, that is what the media reported in India in 2014. So what kind of discussions you had with HAL between 2012 and 2015? The deal was that we had to make an agreement with HAL as the company was officially the lead production agency for manufacturing.
So, we had to talk to them as they were in-charge of the local production assembly line of the aircraft in their premises. So, we had discussions with them for a long time.
Q: Two days before this deal was announced here in Paris, the then foreign secretary S Jaishankar in a press conference said, "My understanding is that there are discussions between the French company that is Dassault, our ministry of defence and Hindustan Aeronautics Ltd.” So Dassault was still in discussions technically with the Indian government and HAL.
A: I will not say that we were in discussions as in the last few months, before this announcement, the discussions were not very active. HAL was part of the government of India. We had discussions with government of India, discussion with HAL and we had a detailed work-share with HAL. And HAL, I have to say has always been a good partner with Dassault and myself – I know very well HAL. I worked with HAL from 1990. So I have great respect for this company.
Q: Why the discussions between HAL, you and an ministry of defence come to a standstill as that is what you were indicating before a couple of months?
A: You have to ask the government of India. For us, if we could have signed a deal, we would have been happy to sign a deal for 126 aircrafts.
Q: So, there was actually HAL-Dassault work share agreement. Clearly you were getting ready for medium multi-role combat aircraft (MMRCA) deal?
A: There was a kind of discrepancy. I was ready to take the responsibility to transfer (5:17) as a license and we took the responsibility for the first Rafale to be produced in India. But not for 126 and this should have been responsibility of HAL.
Q: So guarantee by HAL was an issue in discussion?
A: Guarantee was an issue, maybe between HAL and government of India, I don’t know that.
Q: I will come back to HAL and issues related to that. But to focus the discussion on your partner Reliance Group. About one and half years after the deal was announced here in Paris, there was formal announcement regarding the joint venture that is Dassault-Reliance Aero Space Limited. Now, once Modi made the announcement in Paris that there will be a government to government deal, did you start talking to other Indian companies regarding a potential joint venture or did you directly go to Reliance regarding talks for a potential tie-up? As I said before, we are very proud to be the supplier to India for the last 65 years, so it was important.
But when we started to work in 2007, we knew we had to set up facilities in India by ourselves.
A: Yes, that was with MMRCA. We started to discuss with local companies before the announcement of the success of 2012 year or so. We started the discussion with Reliance in 2011. We signed the first agreement with Reliance in 2012 to be precise as I know you would like us to be precise.
Q: But that was for the MMRCA deal? We signed Dassault agreement with Reliance Defence in February 2012, so that was a long time before Hollande was president of France, it was in February 2012.
We decided with Reliance Group as Dassault wanted to set up facilities in India for different reason. They want to to produce, maybe one day the Rafale, but also to produce Falcon aircraft as we believe that India is a good country for us to develop our supply chain with our partners. So we signed that agreement already in February 2012.
Q: How is it that you were talking to HAL and Reliance at the same time?
A: We were simultaneously talking to HAL and Reliance Defence to be our partner. HAL was supposed to be the lead production agency.
Q: What does it mean – the lead production agency?
A: That means they are in charge of delivering the aircraft produced in India to India Air Force under certain share of responsibility between HAL and Dassault. But at the same time, we were totally ready to setup facilities with Reliance at that time to produce wings and certain number of parts. If Dassault India wants to produce certain number of parts as there are many companies, which are in India to develop their own capacity, so we wanted to develop our own capacities in India to produce our own products in the country. We were in discussion with HAL and with Reliance at that time.
Q: HAL was also aware that you are in talks with…
A: Yes, of course, but they wanted to talk to us, which was quite normal. However, when there was a change in the policy to say, now it’s urgent, we have to go ahead with 36 aircrafts. This was told to us by the French government and then the government sent a proposal in July 2015 on behalf of the French government to government of India and for us, it didn’t change anything. I still wanted today to setup facilities in India to produce my own parts in India as the India could be a very interesting country for effectiveness.
Q: Dassault has over 100 years of experience in aviation. You have a certain kind of SOP (standard operating procedure) that you follow, when you produce products. It’s an aerospace sector, which means that absolutely no margin of error. The company has to have R&D, the company has to have a good idea about the kind of products that are being produced. Why is it then that Dassault decided to go with a company which was primarily into infrastructure sector, because they did not have any experience in manufacturing sector and specifically in aerospace? Why is it that you decided to take a company without any experience as a partner in India for producing complex structures for an aircraft like Rafale, which is 4.5 generation fighter aircraft?
A: It’s not only for Rafale, it’s also for Falcon.
Q: But Falcon will come later?
A: At the very first day, we had the plan to produce Falcon and this is how our company is organised. When I produce wings of Falcon, I also produce wings of Rafale. It’s the same standard, workers, design and people. So, when I wanted to setup facilities in India, I wanted to start from scratch as we will transfer our knowhow, we will take industrial lead, we will guarantee that the lead time will be the best one, because for Falcon I cannot wait. I have customers who want their aircrafts. I wanted to setup facilities, which I could manage in terms of industry. So what I needed is a partner, which could give me land available in India very close to an airfield, which is a case in MIHAN (Multi-modal International Cargo Hub and Airport at Nagpur) and that was the choice we made. If I take an example of Dassault System, which is a software, they have their own subsidiary in Bengaluru. I want Dassault India to have. But we joined with a company, which is a big company in India.
Q: That point is taken. You wanted to start from a scratch, you wanted to produce complex aerospace structures for the Falcon, for the Rafale, which is an advanced aircraft. But I am still not getting what you say regarding choosing your partner without any experience. Is that how you choose your supply partners?
A: One day you have to start. This company, Reliance, which is a big group, said I wanted to start in aeronautics and we believe that the private sector in India should develop. I said I want to produce some parts and it's my interest. If I start with Falcon, it's not only to get contracts for Rafale, I need to be on time with quality standards as these are Falcons in the international market worldwide.
So, I wanted it to be like a factory of Dassault. So for me, Nagpur is a factory of Dassault, but I took a partner who want to develop also in this field for the benefit of India.
Q: The way I see it from your response is that what they brought into the table is real estate, land close to a runway and at that time, the issue was servicing an offset contract and making parts. But for that, you do not need a runway, you only need a factory. Again, my question to you is, how does a company then contribute to a joint venture like Dassault Reliance Aerospace Limited (DRAL), where experience is needed. The choice of Reliance is mine. I had the choice of Reliance in 2011. We signed first MoU in 2012.
We continue to have discussion with Reliance. We, when the contract was announced for 36 aircrafts, continued to have agreement with them as Dassault policy is to set up facilities in India and I want to produce from scratch, a Falcon 2000 in India including the assembly line of the Falcon 2000, including the flight testing production flight testing in India. For that I need an air-field. How can I do an assembly line without an air-field? Bengaluru is very busy, it's a very busy city, it's a big city, but there are no lands available. The same story in Mumbai, same story in New Delhi. I found that Nagpur is in the middle of India, where land is available and we can build new hangars, facilities and the manufacturing of Falcon parts, of Rafale parts including when the assembly line would be a very good idea for my company.
Q: This is a 51:49 joint venture (JV). 51 by Reliance, 49 by Dassault Aviation.
Q: But you are telling me that it’s actually Dassault Aviation, which would have taken the lead, would have transferred the technology...
A: For some commercial reasons, we decided in our discussions with Reliance that as we are in India, it would be better that an Indian company got the majority, so the 51 percent. In this, 51 percent and 49 percent, the share is almost equal. I send my knowhow of industry in this company and Reliance organised the setting up of the facilities as they know better the country than I know. However, starting from scratch, we were asked to join the company. The CEO of the company is someone who has 25 years of experience in aeronautics.
Q: The CEO of DRAL?
Q: But the press release said that you are the chairman, I mean press release that Reliance said...
A: I have to tell you few words maybe its problem of English. The chairman is a representative of the shareholders. So, I am the shareholder of the joint venture. Like Reliance is the shareholders of the joint venture, but you need operating officer, the CEO is a chief executive officer, a man who is running the joint venture is an Indian engineer, who has 25 years of experience. He started to get workers. We have already 50 workers now and we are training them in force. We have on the job training there and this joint venture should be up to 800 people within 5 years from now.
Q: I want to understand before I go on to the next topic. You said Nagpur was a critical place and Reliance offered you land next to an airport. But there are other defence companies in Nagpur as well like Mahindra, which has got significant experience in defence, has got land in Nagpur. Yet you chose a company which is...
A: There are many companies. For example, our idea in 2008-09 was to go with Tata as we have had very good experience with Tatas.
Q: So why didn’t you go ahead with Tata?
A: At that time, Tatas also had no experience. Tatas was in discussiion with other American companies. For MMRCA before 2012, everyone has been approaching the private sector and even we has been approached by another competitors. So for us it looked like Reliance could help us to get what we wanted. Producing Rafale at that time was more with HAL. But for us, it was important to setup facility as a French company to be in India and to produce the parts for my requirements. However, it’s not only Reliance. If you want to talk about offset, it included many other companies.
Q: So let us discuss this offset part as there have been several figures going around. Press release upon press release and presentations by Reliance. It says that DRAL is the key offset partner for 36 aircraft deal. What actually will be the share of DRAL in this 3.5 billion euro offset package?
A: It’s a key partner. I will produce aircraft as I said before, but it’s not the only one. Roughly we need to perform 50 percent of the value of the contract is our obligation in terms of offset – this is low and this is what we called in your country - DPP. So, we have to be in line with DPP. To be precise again, we follow the DPP 2013 rules. Out of 50 percent of our obligation today, 40 percent is already identified in order to create the value to answer to this requirement. Among this, for 40 percent, we had already signed 30 agreements with companies, not joint ventures. There is only one joint venture. We have 30 other companies, which we have already signed today and we are in discussion with 70 others and it's all around India. It’s not in Nagpur, it’s in Mumbai, Bengaluru and New Delhi. We also are starting discussions in order to have technology and development.
Q: How much of this Rs 30,000 crore goes to DRAL?
A: DRAL is only 10 percent. 10 percent of the 40 percent today.
Q: So that comes to around in terms of euro around...
A: Make your computation and that is up to you. What I may say is the value of the contract.
Q: It's not Rs 30,000 crore, it's not 3.5 billion euros.
A: It's government to government contract. So, this information shall be released by the two governments, not by me. I am only behind the French government to perform the Rafale contract. As far as I said, I know the obligation, I know the value, it's as per contract, and contract is also between the government of India and Dassault.
Q: So 10 percent of 40 percent of this offset package
A: I know you are looking at what we are doing in the joint venture. The capital of joint venture today is roughly Rs 70 crore and may go up to Rs 850 crore. Share of Reliance Defence is 51 percent and the rest 49 percent is with us and this is the capital investment. This company will produce manufacturing parts for Dassault. We will produce about 10 percent of the value of the offset obligation and we had already set up.
Q: When will this production start?
A: It has already started.
Q: In Nagpur?
A: We started very quickly. When we signed the deal in 2017, immediately we started the work. We signed, created joint venture in the beginning of 2017. It was according to our previous agreement including the initial agreement in 2012, we decided to go fast to build up a temporary hangout in order to put our new workers and to train them. We did it, but the big hangout we need to build, first we had to select companies to build up the hangout, the specification of hangout and that was launched last summer and it should be operational next year. But, the first part of Falcon, which is going to be totally produced in India is before the end of this year 2018.
Q: You said around Rs 850 crore will be the capital investment in this facility. But this group has been under tremendous financial stress, wasn’t Dassault aware of that?
A: Look, I am talking to the group and Reliance is a big family group, like Dassault, which is also a family group. They have some activities going well, they may have some other activities, which is not going well, but the group is a financial group.
Q: But your JV has to be financed?
A: But it's. Look it's working.
Q: So there has been no problem as far as...
A: Look, don’t mix up what is done today, it's done. We are going to produce and the capital is there.
Q: But I am not asking about Dassault, it will put in the capital, what about from the Reliance Group side?
A: 50-50 roughly. So the land is there and it's good. We don’t have to buy the land and we have the capacity to operate. So, it's really operational, with the capital investment I told you.
Q: So going by whatever public information was put by Reliance Group regarding this offset package, saying that they are a lead company, but do you think they went a bit overboard by not explaining this that you have told me?
A: They are not saying they are the leader companies, they are saying they are the major...
Q: They are saying they are key offset partner?
A: Key offset partner, I agree. Of course, they are going to produce parts of aircrafts, so it’s key.
Q: But there so are other companies?
A: There are 30 and I have the list. I may give you the list of the 30 companies already signed today. You know that we have some time...
Q: So what is the difference between the key partner and these companies?
A: We have some time to perform offset in front of us and we are in discussion with 70 others. We have set up offices in Bengaluru in order to get our supply chain. As you know, I met you last time when I was in New Delhi, I was the chairman of French Association including all the French companies, not only the big ones, but also the SMEs and the equipment manufacturers. To know the complete supply chain, I visited India with 80 companies in order to support them, to find out partners in India and we went to Bengaluru to Mumbai and to New Delhi.
Q: So they are also key partners?
A: They are partners, key partners is because of aircraft.
Q: As the aircraft will be manufactured in their facility, which means that for any future deal that you may have with Indian Air Force, it needs 110 aircrafts, 56 is for the Navy and clearly Dassault will be bidding for them. Will DRAL be the preferred company through which you will be taking this or are you open to look at other companies as well for future opportunities?
A: Today, we have 36. These 36 would be manufactured in France, but we will start facilities in India for my own request which is for Falcon and for the parts of Rafale and this will contribute to offset policy of India.
Number two, obviously, we want to go ahead with more than 110. We have requested for more on Navy's 57 or Air Force's 110. We are not yet at the time of contracting neither to get request for proposals. We will see the rules and rules of the previous contact was DPP 2013, we follow the rules. Now, the rules I don’t know. So we will see.
Q: So you will have to manufacture the aircraft in India?
A: I am ready to manufacture Rafale in India – I want to do it, I wanted to do within the MMRCA deal, so still I wanted to do it.
Q: Will DRAL be the preferred company to take any future manufacturing or are you open to taking with other companies, be it private companies?
A: For me, it will be logic. If I start manufacturing Falcon in my joint venture and as I told you before, it has to follow the French manufacturing standards in India also. If I am able to produce wings for military aircraft, I can do the same for my civilian aircrafts, so why not to do the same in India? Before I tell you what I will do, I need to know the rules.
Q: A quick question on price part. Again this is one issue, which has been questioned a lot. The Congress government who was there at that time, the party now claims that the price of the MMRCA deal per aircraft was around Rs 526 crore. For the new deal, it's around Rs 1,617 crore, almost 3 times more. What explains this increase in price between MMRCA deal and the new deal?
A: We didn’t increase the price. I explained to you. I don't want to come into the litters of the prices as I said, it’s a government-to-government deal and this is up to the two governments to disclose information. But what I am saying today to those who are listening to you is, we had 126 aircrafts in the MMRCA, and among them, 18 was supposed to be flyway. The price of the 18 per aircraft is same as for the 36, when we delivered the first proposal. So, no increase of the price and then we started negotiations. During the two years, from 2015 up to 2016 of the signature of the contract, we had tough negotiations with the ministry of defence as usual. We were able to decrease 9 percent on the total package. Number one, I repeat, same price for 36 as before for the 18, same unit price and then rebate of 9 percent on the total package of the contract. So, those who said that we have multiplied by 3 the price of the aircraft, I cannot understand.
Q: Was your package for the MMRCA deal and is the package for the new deal in terms of equipment and weapon system that will be used – are they same or different?
A: Very close to if you are discussing about the 18. If you are discussing about 126, it's different. As you have gigs, tools, you have documentation, you have licence fee, you have many other matter, which were not any more in the 36 deal as it was flyaway. So if you compare flyaway to flyaway, unit price of the aircraft including the support, including the adaptations of certain request of Indian Air Force to Rafale, this is exactly the same and it was same at the beginning...
Q: And the Indian aircraft was supposed to be more and expensive?
Q: When the Indian aircraft was to be produced in HAL under MMRCA.
A: That is something else. If you have a licence yes, of course, the aircraft manufactured totally in India. The 126, if you take an example, should be less expensive than the first one. As it's in the hands of HAL, it's not anymore in my hand and the aircraft is not manufactured in France, it's manufactured in India. Therefore, if you compare apple to apple, there was no increase of the price, more than that, there was a decrease of the price. There was a tough negotiation, minus 9 percent on the total package of the contract. As you said, do you believe that civil servant of ministry of defence did not discuss with us, but with the government of France as the French government was in front and we were behind to support government of France.
Q: There were sensitivities from even the ministry of defence on the price that was negotiated for the government-to-government deal. From the ministry of defence, some officers dissented on their price.
A: I know what I know.
Q: How much money Dassault will invest in India for DRAL. What kind of investments are you looking at?
A: What I told you.
A: The maximum we should go is Rs 850 crore for the JV. Half of it's with me, so half of Rs 850 is Rs 425 crore investment into JV.
Q: Around Rs 400 crore?