March 23, 2017
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New Rafale deal could create fissures between Ambani brothers

The MMRCA deal, once touted as mother of all defence deals, is now being replaced with Rafale deal but the new deal may fuel a fresh round of competition between two Ambani brothers who are vying for setting up a defence industrial portfolio.

Indeed, defence business or armament deals are quite alien to their known business acumen since it involves a huge investment and return risk, but both the brothers are keen to have the larger share of the pie as the growth prospect could be phenomenal.

The MMRCA deal, before it was dumped by the NDA government when Prime Minister Modi visited France and decided for 36 Rafale jets in fly away conditions, had one of them as offset partner and was already being negotiated with Mukesh Ambani for possible cooperation.

Had the MMRCA deal fructified, then shares of Reliance Industries would have sky rocketed at a time when Reliance Group of companies are facing rising debts and the main flagship energy business is suffering huge losses.    

Indeed, the MMRCA could have given an escape route for Mukesh Ambani who has shown off late interests in defence business and armament productions.   

But the new Rafale jet deal which has been suddenly clinched will have to go in favor of his younger brother Anil Ambani as a possible industrial partner for the French manufacturer Dassault Aviation.

Both the brothers do not see eye to eye due to their personal differences and business rivalry although lately they have patched up in some business ventures where if one constructs a power plant the other is ready to supply gas for the venture. This does not mean they are friends or bridged the gap entirely.  

On another front, this is quite awkward for Dassault to work with Anil Ambani now as neither of the brothers has any knowledge of defence industrial portfolio. Yet, the MMRCA was being negotiated with Mukesh but suddenly the company will have to change its dealings and restart afresh with Anil.

Industry insiders told STRATEGIC AFFAIRS that Mukesh Ambani is quite upset with the MMRCA deal facing a bleak future as the government will go for a fresh new deal with Dassault which will go to Anil Ambani.

No doubt, this will change the fortune of Anil Ambani once it becomes the industrial partner for Dassault Aviation in the new Rafale deal. India is all set to acquire 36 Rafale in first batch but it has an option clause which if the MoD exercises at a later stage then it could end up buying another 18.

In that case the total number of jets could stand at 44 and it may take 8 years for the full delivery and the deal reaching 10 billion USD.

While Mukesh Ambani’s loss could be Anil Ambani’s gain, this may fuel a stark competition between the two brothers which may spread to other areas of their business interests.

Since Mukesh is seeing a dark prospect for the energy business due to falling oil and gas price and instability in the entire MENA region, the debt will grow and growth will come to a halt, industry analysts believe. The defence business could have added a new portfolio into the group’s overall profile.

On the top of it, Mukesh was depending on a maverick defence manager, Dr Vivek Lall who was earlier with Boeing, to look after his defence business. But Lall, once getting impressed with Mukesh Ambani’s business forecast and new vision on defence production over a telephonic conversation, has left the Reliance Group in a hurry.

In contrary, Reliance earlier being an official offset partner of Dassault Aviation for last 4 years hardly even created an office space and recruited any potential candidate for the defence business. In fact, all the eyes were set on MMRCA deal to fructify first and then everything will move.

Now, it is perhaps the end of the show for Mukesh as far as defence business is concerned but a new dawn for Anil Ambani is waiting to test the warm waters of defence business.