MRCA: Special Funding and Advanced Negotiations

SHAH ALAM: Reuters made a big splash on July 28 when it reported that Malaysia was on the verge of buying the Dassault Rafale. The story stated that Malaysia and France are “advanced negotiations” for the sale of the Rafale fighters.

This should have been posted earlier but I was distracted by the chase to land the Starstreak story.

Anyhow, reading the Reuters story one might be forgiven to think that a deal for the Rafale was imminent, though the story also cautioned that the Malaysian deal might be delayed due to fiscal troubles.

The Reuters report:

“By Cyril Altmeyer

(Reuters) – France is confident of winning two more foreign orders for its Rafale fighter jet by the beginning of next year as it seeks to extend a spate of recent export successes, a source familiar with the matter said on Tuesday.

Rafales in Egyptian Air Force colours. Rafale
Rafales in Egyptian Air Force colours. Rafale

After failing for years to win an order for its warplane, France has sold 24 Rafales each to Egypt and Qatar in recent months and is in talks to finalise the sale of another 36 to India.

“There should be two other export contracts for the Rafale by the beginning of next year,” not including India, the source said.

“The most advanced discussions are with Malaysia and the UAE,” the source added.

In a further development, the source said that France was negotiating with India for options to supply further aircraft on top of the 36 Rafales the country has provisionally agreed to buy.

In April, Indian Prime Minister Narendra Modi said he had ordered 36 “ready-to-fly” Rafale fighters to modernise his country’s warplane fleet, dealing directly with the French government after three years of inconclusive negotiations with the plane’s manufacturer, Dassault.

India has signaled any further purchases will come though government channels, raising doubts over the future of the stalled commercial negotiations with Dassault for 126 jets


The recent spate of Rafale export orders has shaken up the global defence market and given fresh momentum to the French warplane as available production slots begin to dwindle.

Analysts and diplomats say the appetite for the jets has also risen as a result of the United States’ diminishing influence in the Arab world along with wider security concerns.

However, Dassault still faces tough competition from U.S. and European rivals.

Advanced Super Hornet. Boeing photo
Advanced Super Hornet. Boeing photo

Kuwait is expected to announce soon an order for 28 Boeing F/A-18 E/F Super Hornets, a $3 billion-plus deal that will keep the jets’ St. Louis production line running well into 2019, according to people familiar with the deal.

Malaysia, which wants to replace its fleet of Russian MiG-29 fighters, is looking at the Rafale, the F/A-18, Swedish firm Saab’s Gripen and the Eurofighter Typhoon.

Typhoon taking off with the latest P2E software, recently, BAE Systems
Typhoon taking off with the latest P2E software, recently, BAE Systems

While a Malaysian decision had been expected this year, aviation industry executives have warned that fiscal troubles due to lower oil and commodities prices could lead to delays in placing the order.

Indonesia, which needs to replace ageing U.S.-built F-5s, is reported to be studying the Rafale, Eurofighter and Russia’s Sukhoi Su-35 as well as Sweden’s Gripen and the Lockheed Martin F-16. The Eurofighter consortium comprises Airbus Group , representing Germany and Spain, Italy’s Finmeccanica and Britain’s BAE Systems. (Reporting by Cyril Altmeyer; Writing by Tim Hepher; Editing by Michel Rose and Pravin Char).- Reuters.

I am not blaming the reporter – I have been in the same situation before – but relying on a source which- is obviously a patriotic French person carries a lot of risk. That said I am not saying that Malaysia is not in advanced negotiations with the French over the MRCA programme.

Indeed a couple of my industry sources confirmed such talks are on-going. However what the anonymous source failed to inform Reuters is the fact that the advanced negotiations are also being conducted with two other countries namely the US and UK for the sale of what else, the Super Hornet and the Typhoon.

Dassault recently delivered 3 Rafales to Egypt. Dassault
Dassault recently delivered 3 Rafales to Egypt. Dassault

So in reality, if we live in a perfect world, we could be signing for the Typhoon or the Super Hornet and not just the Rafale. But that is the reality of it, with the Rafale seeming on song a well timed leak always create the bigger buzz.

Buzz notwithstanding, my sources pointed out that the countries which had chosen the Rafale in recent months – Qatar, Egypt and India – are all long term operators of Dassault fighters so it was not conceivable that they would again choose a French fighter for their needs. And Malaysia is not.

Advanced Super Hornet
Advanced Super Hornet

They pointed out that another air force which had considerable experience with US fighters, Kuwait Air Force looked increasingly likely to choose the Super Hornets to replace its legacy Hornet fleet. Although Typhoon is also competing for the same deal, my sources again pointed out the Kuwaiti experience with US support and maintenance would probably be a tipping factor for the Super Hornets.

It is for this reason, they said the Super Hornet was probably the favourite for the MRCA programme with the two European fighters lagging behind. Could the Rafale or Typhoon be chosen, instead, of course, my sources said.

One thing going against the Rafale at the moment is – ironically – its own recent successes. Even India with 36 Rafales selected, though not signed, are fearing that its aircraft will not be delivered on its schedule. The supply bottleneck will be further exacerbated if the UAE – another operator of legacy Dassault fighters – finally decides to go French again and signed the contract before the Indians!

Typhoon with P2E soiftware taking off for a flight test recently. BAE Systems
Typhoon with P2E soiftware taking off for a flight test recently. BAE Systems

However, in the case of both the Super Hornet and Typhoon, the aircraft could be delivered quickly to Malaysia if the contract is signed in the immediate future as the production line is much more fluid at the moment thought it will not be so forever. Indeed Dassault had indicated it will ramped up production of the Rafale to meet the new orders but at the moment, the French air force and navy are taking a back seat due to the export sales.

Anyhow, so why we are negotiating for the MRCA when it is not listed under the RMK11 funding? The title of this post of course; Special Funding.

Although call Special Funding, if exercised, it will become part of the Security sector allocation of RMK11 or specifically defence. Huh? Yes even though the current allocation for RMK11 for the security sector does not include funds for the MRCA programme, if the Special Funding is passed, it will be added later under the plan as part of the mid-term review.

For example, if the allocation for the security sector for RMK11 is RM16 billion (a hypothetical figure of course as it had not been announced), by adding RM2 billion for the MRCA, the final allocation will be RM18 billion. As usual any shortfall for the programme could be covered in the next Malaysian plan or the next (you get my drift)

As it is not a firm funding yet, it is called “special”. It must be noted that such special funding had been done in the past and its not specifically meant for the security sector only. It could also and had been given to other sectors including education or any other needs that the government sees fit.

Will the Finance Ministry commit to the special funding, which will allow for the signing of a deal within one year or so (according to my sources)? I am still not convinced yet. With historic low oil and commodity prices coupled with a declining Ringgit and the current political imbroglio, I am not too optimistic.

We could however be blessed with a couple of billions in donations of course, but the donor must specifically stated MRCA for that to occur. I am willing to be the person to receive the donation, as my contribution to national service. My email is in the About page (in case any one with a couple of billions to spare is reading this).

Anyhow check back with Malaysian Defence on regular basis, hopefully I will get more updates on the MRCA programme.

— Malaysian Defence

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