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The French Connection

Selling arms to all the wrong people.

11:00 PM, Mar 4, 2008 • By REUBEN F. JOHNSON
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INDIA IS ONE OF THE MOST important customers for two of the world's major arms producers: France and Russia. Both nations have recently had fairly good success in this market and are competing there along with four other U.S. and European suppliers for a large export contract for fighter aircraft.

Russia's record in India as of late has not been stellar, but for all of their mistakes the arms brokers in Moscow have been smart enough to realize the cardinal rule of success in this huge market: you cannot sell to India and Pakistan at the same time. Unfortunately for firms like Dassault Aviation SA, officials in Paris have not yet learned this lesson. It may be the costliest mistake--both financially and diplomatically--since the fracas over French opposition to the U.S. invasion of Iraq.

Tales about Russia's state arms export agency, Rosoboronexport (ROE), and its predecessor organizations managing to do more to prevent arms exports by Russia's defense industry than to promote them have been legion in post-Soviet Russia. Like any other export product that generates large amounts of hard currency (gold, caviar, diamonds, sable furs, natural gas) the foreign sale of weaponry has been tightly controlled so that the profits all ends up in the hands of a select few.

But this cabal of former (and active) intelligence officers and ex-military officials generally receives poor marks from many in the Russian defense industry and is credited with little more than the capacity to line their own pockets. One of the 1990s arms export organizations that ROE was born out of was called Rosvooruzheniye, which is a combination of two words that meant "Russian armaments." Russian defense industry officials almost immediately began referring to the employees of this organization as "Rosvori," which sounded like a catchy little abbreviation of the agency's name, but actually meant "Russian thieves."

Not surprisingly, some of the high-profile contracts that ROE previously signed with one of Russia's most important customers, India, are now in deep trouble--behind schedule and way over budget. Officials in New Delhi now talk more often about "diversifying their supplier" base, which is an oblique way of saying they are fed up and want to find another nation besides Russia from which to purchase arms.

In theory, French industry should be best positioned to benefit from ROE fumbling the ball in India. France has already sold submarines, fighter aircraft, and a host of other weapon systems to New Delhi, making it one of the top three sellers of defense exports to the subcontinent.

Like ROE in Russia, France's Délégation Générale pour l'Armement (DGA) is the state agency responsible for regulating and promoting defense exports. But, DGA is, in theory, an agency that is quite a bit more professional in its orientation than its Russian counterpart. The function of DGA is to offer "packages" of weapon systems from several arms producers to create synergies that would not be possible if the individual French defense firms were all marketing the materiel independently.

However, real-world practice has turned out to be quite different. When asked if DGA has at times been as counterproductive to industry's efforts at selling abroad as Rosoboronexport (ROE) has been to Russian defense firms, several French company representatives replied "that is not an entirely inaccurate or bad analogy."

Dassault Aviation SA, producers of several generations of the Mirage-series of fighter aircraft, have probably suffered more than others in this regard, having been roundly frustrated in their efforts to sell the firm's next-generation Rafale omnirole fighter abroad. Last year the company saw defeat snatched from the jaws of victory in Morocco, where the sale of the Rafale had been thought to be a foregone conclusion.

In what appears to have been a classic case of the left hand not being aware of what the right hand is doing, DGA made one of its packaged offers to Morocco, which included two frigates and 18 Rafale fighters.

Unfortunately, DGA forgot to inform Dassault and its industry partners that it had tendered the offer to the Moroccans. Dassault, et. al. only learned of the DGA offer when they made their own proposal to Morocco for 18 Rafales some weeks later. They then discovered that DGA's proposal was €500 million less than what the standard kitted out complement for this number of aircraft should be.