India to buy 126 Rafale fighter jets in $11B deal

NEW DELHI (AP) -- India is buying 126 French-made combat aircraft in a massive $11 billion deal that will increase the might of the world's fourth largest air force with the first exported Rafale jets, officials said Tuesday.

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

Dassault Aviation said it was honored to extend cooperation 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 lower 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 defense deal.

India's air force has around 700 fighter aircraft and is exceeded in size by the United States, Russia and China.

Growing worries about China's fast-expanding military and the decades-old mistrust of Pakistan have fueled India's impetus to add heft to its defense forces.

"India needs to bolster its fighting capabilities, particularly with long-range strike aircraft," said Rahul Bedi, a defense analyst in New Delhi.

"India's concern is not just Pakistan, but the longer term threat posed by an aggressive China," Bedi said.

The Indian agreement is the first 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 three years and the remaining 108 are to be built by state-owned Hindustan Aeronautics Ltd. through technology transfers.

Defense 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 Defense 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 favor.

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

Klaus Eberhardt, head of Aerospace and Defense Industries Association of Europe, said the fact that India shortlisted two European aircraft while eliminating the U.S. candidates showed that European defense firms could successfully compete with Boeing and Lockheed Martin because they were better at technological innovation.

"Where are the U.S. giants in that competition?" Eberhardt told a conference of European defense officials and industry representatives.

Analysts still cautioned the deal could yet unravel 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.

Bedi said the price of the aircraft was likely to go up significantly.

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

The Rafale has struggled to find an export market because of its high cost and complexity — a marked shift from France's last big-name fighter jet, the Mirage, whose Mirage 2000 model was a strong export. Competitors from the United States and Russia — such as the General Dynamics F-16, McDonnell Douglas F-15 and the Sukhoi Su-27 — also have grabbed a large slice of the market.

In 2007, the French bungled talks with Morocco, which instead opted to buy an F-16 from Lockheed Martin Corp. The same year, Libya's Moammar Gadhafi himself began exclusive talks with France to purchase 14 Rafales.

The French jet is also competing against Sweden's Gripen NG from Saab AB and U.S.-based Boeing Co.'s F-18 Super Hornet for a planned $5 billion purchase by Brazil — though that order is being delayed by budget cuts. The United Arab Emirates has approached French officials about the possible purchase of 60 Rafales, and Switzerland is considering the purchase of 22 fighters — either Rafales or Saab's Gripen.

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Associated Press writers Greg Keller and Jamey Keaten in Paris and Slobodan Lekic in Brussels contributed to this report.