In a statement released here late Monday, the European company announced that "detailed negotiations" would now begin for "the award of a final production contract for an envisaged six aircraft".
The decision follows a lengthy and thorough selection process including the completion of extensive flight demonstrations in India by the A330 MRTT during which the aircraft refuelled multiple types of IAF fighters and operated from the high-altitude IAF base at Leh, it said.
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IAF sources told India Strategic magazine that the twin-engine MRTT was found to be cheaper in overall costs against its competitor, the Russian
IL 78 MIDAS.
The Airbus Military aircraft was also a much modern machine in comparison, easy to fly with a fighter-like joystick and also easy to change in configuration from a refueller to a transporter.
The Airbus Military MRTT had been selected earlier also but the Indian finance ministry did not accord approval as the company demanded an extra sum for a requirement that the government considered inappropriate.
In the re-tender, it has won again.
The official estimated value of the project is Rs.8,500 crore ($1.55 billion at current conversion rate).
Negotiations for a formal contract should begin within this financial year, by March 2013, and hopefully end by the end of calendar year 2013, India Strategic reported.
IAF has six IL 78 refuellers, designated MARS or Mid Air Refuelling System at present.
They are built on older Il 76 platforms, which are actually not made any more.
Their engines consume too much fuel too. Russia is likely to introduce a newer version of the IL 76 some time in 2014 but then that means a different timeline for production for delivery.
The choice of the Airbus Military 330 was made in November after an assessment of the operating costs and life cycle costs.
Both the Airbus and Il 76 qualified though on technical grounds. Only the announcement though has been made now.
Airbus Military CEO Domingo Urena Raso said: "We are grateful for the confidence shown in our company by the Government of India and the Indian Air Force."
India's selection of the A330 MRTT makes it the fifth nation to commit to the type following Australia, Saudi Arabia, the United Arab Emirates and Britain which have ordered a total of 28 aircraft.
The Airbus statement said MRTT can also be used as a pure transporter to carry 300 troops or a payload of up to 45 tonnes or to accommodate up to 130 stretchers for medical evacuation.