With French firm Dassault Aviation on the brink of signing a multibillion-dollar order to supply 126 Rafale fighter jets to the Indian air force (IAF), the Indian government may choose to enlarge the contract by adding 60 more aircraft.

The size of the Medium Multi-Role Combat Aircraft (MMRCA) contract could eventually increase, as there is a provision for boosting the order by 50% without any increase in unit price, a defense ministry official says.

Rafale jets, which will replace the aging MiG-21 fleet, are likely to be inducted into the force starting in 2014. The aircraft is expected to remain in service for more than three decades.

The French government said Feb. 1 it was expecting talks between Dassault and Indian officials to be completed within six to nine months.

Indian Defense Minister A.K. Antony said earlier that the deal was not likely to be signed in the current Indian fiscal year.

The deal is a win-win for India and the French company, as it is expected to salvage Dassault’s assembly line for the fighter, which was in danger of shutting down. Until now, French authorities had been unsuccessful in selling the Rafale, which was created to replace seven types of jets used by the French military, including the Mirage series.

For India, the MMRCA contract is extremely important because the offset clause obliges the vendor to reinvest 50% of the contract value into Indian industry. With the deal’s value likely to reach $16 billion, India’s defense sector is expected to receive about 400 billion rupees ($8 billion) as offsets.

However, analysts warn that to derive the maximum benefit from the offsets, Indian industry must be in a position to absorb major technology infusions. And benefits could be lessened if the Indian government focuses only on state-run defense units like Hindustan Aeronautics Ltd. (HAL) and ignores the private sector.

While the first 18 aircraft will be bought off the shelf in flyaway condition within 36 months, the remaining 108 will be manufactured in partnership with HAL.

Aviation expert Ajey Lele, who works with the New Delhi-based Institute for Defense Studies and Analyses, says the deal “means a lot for India’s defense preparedness. The IAF will emerge stronger, as the 126 aircraft will augment India’s squadron strength.”

India’s defense ministry chose Dassault’s Rafale after the French firm emerged as the lowest bidder, satisfying all technological parameters provided by the IAF (Aerospace DAILY, Feb. 1).

“The decision will definitely strengthen France’s relations with India,” Lele adds.

France, which has landed a number of major defense contracts from India, including a deal to upgrade 51 Mirage 2000 multirole fighter aircraft with new avionics, radars and electronic warfare suites, and a deal with MBDA to equip the Mirage 2000 with 500 air-to-air missiles. The French government was predictably elated by the fighter decision.

“This announcement comes at the end of a very high-level, fair and transparent competition involving two European finalists,” the French government says in a statement. “The Rafale has been selected thanks to the aircraft’s competitive life-cycle costs, after the April 2011 preselection on the basis of its top-level operational performance. The negotiation of the contract will begin very soon and has the full support of the French authorities. It will include important technology transfers guaranteed by the French government.”

The negotiations also will include the cost of onboard weaponry and royalties for producing the aircraft in India.

While India’s defense ministry has not made any official announcement so far, Dassault, in an emailed statement from Paris, says the firm is committed “to meet the operational requirements of the Indian air force and underline their pride in contributing to India’s defense for over half a century.”

The deal will also help the French firm consolidate its presence in the Indian defense sector. In 2005, France’s Thales bagged a 190 billion rupee order to supply Scorpene submarines. India has also been flying Dassault’s Mirage fighter jets since the 1980s.

Cassidian, the defense and security division of Eurofighter consortium partner EADS, expressed disappointment over the government’s decision.

“India took the decision to select our competitor as the preferred bidder in the MMRCA tender,” Cassidian says. “Although this is not yet a contract signature and contract negotiations are still ahead, we are disappointed. However, we respect the decision of the Indian Ministry of Defense.”

Saying that with the Typhoon, Eurofighter had offered the IAF the most modern combat aircraft available, the company says, “Based on the Indian government feedback, we will now carefully analyze and evaluate this situation together with our European partner companies and their respective governments.”

The Eurofighter consortium comprises Italy’s Finmeccanica SpA, U.K.-based BAE Systems PLC and EADS. EADS also has a 46.3% stake in Dassault.