January 12, 2010 / 3:38 PM / 9 years ago

Dassault under pressure to cut Rafale fighter price

PARIS (Reuters) - Dassault Aviation’s (AVMD.PA) Rafale fighter plane stands a good chance of winning its first-ever export contract with Brazil but it may have to make more price sacrifices, analysts said on Tuesday.

The Rafale, which analysts estimate could cost upwards of $100 million (61.8 million pounds), is at a price disadvantage when compared with rival planes such as the Swedish-made Saab (SAABb.ST) Gripen NG, which is seen as cheaper by some 30 to 50 percent.

The Boeing (BA.N) F-18, the third finalist in the bidding process, is also said to be cheaper than the Rafale.

A member of the Brazilian government told Reuters on Monday that if Dassault reduced the Rafale’s price, it would “close the deal soon.” Brazil wants 36 jets.

A spokesman for Dassault denied the Rafale was at a price disadvantage when compared with “equivalent” planes, adding the Gripen could not be considered equivalent because it only had one engine and weighed less than the Rafale.

He added price was only one of the factors involved in choosing combat aircraft, highlighting technology transfer, strategic partnerships and operational considerations.

He would not disclose the offer price of the Rafale.

Despite the perceived price pressure on Dassault, analysts are still confident the Rafale has a 50 to 75 percent chance of winning a deal with Brazil, thanks in part to political ties between France and Brazil.

“(A deal) would be on the basis of some kind of long-standing 20-year political agreement to do various things between the two countries as opposed to a pure one-off sale,” said Doug McVitie, founder of consultancy Arran Aerospace.

Brazil has a strategic defence agreement with France worth billions of dollars, including the local assembly of helicopters and submarines.

Unlike the Rafale, which is a finished product, the Gripen NG would be developed with Brazilian participation, according to an air force report cited by local newspapers.

The deal could initially be worth more than $4 billion.

DASSAULT TOO SMALL?

The relatively low rate of Rafale production, approximately one a month, also leaves little room for manoeuvre for Dassault to cut the price tag, analysts say.

“If you compare the (Rafale) production to that of Eurofighter or potentially the F-35, clearly Dassault is producing far, far less,” said Rupinder Vig, an analyst with Morgan Stanley. “Their ability to undercut is going to be very difficult.”

The Rafale’s high-specification design explains its high price tag, but it might also make it unnecessarily powerful for Brazil’s needs, argued Nick Cunningham, an analyst with Evolution Securities.

“It’s sort of questionable whether developing countries can justify the unit cost (of aircraft like the Rafale), and whether regionally there is a sufficient threat for them to need aircraft offering that kind of performance,” he said.

Dassault has a market capitalisation of some 5.5 billion euros and is expected to make a net profit of 285 million on revenues of 3.695 billion. EADS EAD.PA has a stake of 46.32 percent while family holding Marcel Dassault owns 50.55 percent.

The first Rafale flew in 1986 and is available in three versions. It is used by the French Airforce and Navy

Reporting by Lionel Laurent, editing by Marcel Michelson

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