Rafale ruckus: How is Airbus linked to Dassault?

The near-daily release of new allegations of impropriety by the Narendra Modi government over the Rafale deal on Tuesday exposed Indians to the complex, confusing world of European corporate relationships. A world where national interest, budgetary constraints and the need to preserve jobs often clash and coexist at the same time!

On Tuesday, the Congress circulated an email, purportedly between officials of European aerospace giant Airbus in March 2015, that claimed industrialist Anil Ambani had knowledge of an MOU that would be signed during Modi's visit to France in April. The Congress has alleged that the email showed Airbus and Ambani knew of Modi's decision to buy 36 Rafale fighters from France's Dassault Aviation, which was announced on April 10, 2015.

A question that has since emerged is how Airbus is linked to Dassault as both have been perceived to be rivals in India. This can be attributed to the fact that Airbus is famous for being the manufacturer of the Eurofighter, which is still being offered to the Indian Air Force. In fact, Congress chief Rahul Gandhi has been accused by the BJP of opposing the Rafale deal in order to benefit the Eurofighter.

Airbus, which has multi-national ownership, is much larger than Dassault, in which the French Marcel Dassault family has a majority stake. In 2017, Dassault had approximately 11,400 employees and reported revenue of euro 4.8 billion, while Airbus had nearly 129,000 employees and turnover of over euro 60 billion. Since the Second World War, Dassault has emerged as France's pre-eminent aerospace manufacturer and is currently its sole manufacturer of combat aircraft—a capability Paris has sought to preserve.

What has been overlooked is the fact that Dassault and Airbus have very close links, with Airbus holding a 46 per cent stake in Dassault till 2014. But more on that later.

The original Airbus project to build a Pan-European commercial aircraft was commenced by the governments of the UK, France and West Germany in 1967 and soon became a company. In 2000, three aerospace companies—Aerospatiale of France, DaimlerChrysler Aerospace of Germany and Construcciones Aeronáuticas SA of Spain—merged to form a European conglomerate called European Aeronautic Defence and Space Company (EADS). Aerospatiale, which was owned by the French government, had a 46 per cent stake in Dassault, which was carried over to EADS.

EADS was formed as European governments perceived the cuts in defence spending in the continent after the Cold War would put their companies at a disadvantage against larger US rivals.

In 2014, EADS—which was by then the majority shareholder in the original Airbus and having interests in civilian and military aircraft and helicopters and space—re-branded itself Airbus. Since 2014, Airbus has been attempting to streamline its operations and cut the stakes of various governments. At the time, Modi announced the plan to buy 36 Rafales in 2015, Airbus had a 23 per cent stake in Dassault, which was reduced to 9.87 per cent as of December 2018.

It is not just shareholdings that bind Airbus and Dassault together. The two companies announced in 2018 that they would work to develop an advanced fighter called the Future Combat Air System (FCAS) to replace the Eurofighter and Rafale in service with Germany and France, respectively, starting from 2035. On Monday, Spain, an original Eurofighter consortium member, also announced its participation in the FCAS project. Airbus and Dassault are also cooperating with Italian company Leonardo to develop a “fully European” medium-altitude long-endurance drone.

While it would be too early to draw conclusions about Airbus having a link to the controversial Rafale deal based on an email, the peculiar relationship between Dassault and Airbus also offers lessons to India on pragmatic strategic policy. Lessons such as balancing need to preserve sovereignty with need for industrial cooperation with like-minded partners...