• Eyal Pinko

In the Indo-Pacific region, France's Naval Group is looking for new submarine contracts

Following the loss of its 12-submarine contract with Australia on September 15, France's Naval Group is refocusing its efforts in the Indo-Pacific area, searching for new contracts. However, the countries with the most robust possibilities are currently experiencing short-term fiscal limitations.

According to the highly publicized phone conversation between French President Emmanuel Macron and Indian Prime Minister Narendra Modi the week after the cancellation of Naval Group's contract with Australia in September, India now represents France's best chance of a commercial comeback. The contract had been hoped to serve as a springboard for further submarine orders in the Indo-Pacific region.

Because, notwithstanding political declarations, the commercial and industrial obstacles that France and the Naval Group face remaining unchanged. The Indian Navy has stated its desire to purchase six nuclear attack submarines. However, France's chances of securing the contract appear to be slim, given the strict international rules that govern the exports of nuclear submarine technology. Unless India chooses a contract similar to the one it signed with Brazil for the construction of the Alvaro Alberto nuclear attack submarine, in this arrangement, India would construct its own tiny nuclear reactors, which would be put in Naval Group-built hulls. However, the Indian Navy's ownership of nuclear submarines would cause huge geopolitical challenges, particularly in China and Pakistan. India has been leasing a nuclear submarine from Russia since 2019.

On the other hand, India has made a more specific request for six submarines with air-independent propulsion (AIP) for its Navy. Naval Group is competing for this contract against a South Korean consortium led by Daewoo and Hyundai, as well as the Spanish naval shipyard Navantia and Russia. For the time being, TKMS and its Swedish partner Saab have withdrawn from the competition due to its technical implications, but they will continue to monitor the project attentively. Russian negotiators recently visited New Delhi and stated that their AIP submarine would be ready to deliver to India next year, while Navantia stated that its system would be operational in 2026.

In Malaysia, where the Naval Group has a well-established sales network, the French business aims to sell two additional submarines to the Malaysian military to complement the two Scorpene-class submarines it has previously delivered. However, as Malaysia struggles to secure funding for its defense programs, the sale's prospects have diminished during the previous two years. Since 2018, consecutive governments, first by Mahathir Mohamad and later Ismail Sabri Yaakob, have repeatedly advised the military to curb its hunger for new purchases.

The scenario appears to be similar in Indonesia, where talks are stalling despite France's robust diplomatic and economic efforts since the beginning of the year. In response to competition from TKMS and others, Naval Group has proposed to supply four Scorpese submarines through its local partner PT PAL, whose director Kaharuddin Djenod Daeng Manyambeang has good ties with Indonesia's defense minister, Prabowo Subianto.

However, the country is having difficulty funding its armament procurement goals, notably in terms of obtaining loans. Most crucially, Indonesia is about to purchase a batch of Rafale fighter planes from France's Dassault Aviation, which is expected to take precedence over the naval deal due to the present funding crunch.

The Philippines, which is planning to buy two submarines in the medium term under President Rodrigo Duterte, is Naval's other big sales opportunity in the region. With presidential elections approaching, this project is likely to be postponed. Apart from financing issues, Manilla is eager to attract large American industrial conglomerates to the region and may decide to acquire submarines straight from the US.

The cancellation of the Australian contract will almost certainly impact the Naval Group's capacity to negotiate export contracts in France. The organization may try again to persuade the government to relax the anti-corruption requirements of the Sapin II law, particularly those relating to the use of sales agents in other countries. The shipbuilder, like other French defense companies, is struggling to make a profit without them, notably in the Indo-Pacific region.

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