By Alonso Soto and Brian Winter
BRASILIA/SAO PAULO Dec 18 Brazil awarded a $4.5
billion contract to Saab AB on Wednesday to replace its aging
fleet of fighter jets, a surprise coup for the Swedish company
after news of U.S. spying on Brazilians helped derail Boeing's
chances for the deal.
The contract, negotiated over the course of three
presidencies, will supply Brazil's air force with 36 new Gripen
NG fighters by 2020. Aside from the cost of the jets themselves,
the agreement is expected to generate billions of additional
dollars in future supply and service contracts.
Saab did not immediately comment on the purchase.
In addition to Chicago-based Boeing Co, France's Dassault
Aviation SA was a contender for the contract.
The timing of the announcement, after more than a decade of
off-and-on negotiations, appeared to catch the companies
involved by surprise. Even Juniti Saito, Brazil's top air force
commander, said on Wednesday that he only heard of the decision
a day earlier in a meeting with President Dilma Rousseff.
Brazilian officials said the deal, one of the most coveted
emerging-market defense contracts, went to Saab because it
provided the most affordable option for the new jets, as well as
the best conditions for technology transfer to local partners.
The choice, Defense Minister Celso Amorim said, "took into
account performance, the effective transfer of technology and
costs - not just of acquisition but of maintenance."
Until earlier this year, Boeing's F/A-18 Super Hornet had
been considered the front runner. But revelations of spying by
the U.S. National Security Agency in Brazil, including personal
communication by Rousseff, led Brazil to believe it could not
trust a U.S. company.
"The NSA problem ruined it for the Americans," a Brazilian
government source said on condition of anonymity.
A U.S. source close to the negotiations said that whatever
intelligence the spying had delivered for the American
government was unlikely to outweigh the commercial cost of the
"Was that worth 4 billion dollars?" the source asked.
The lament echo's recent complaints by Cisco Systems Inc
, which said in November that a backlash against U.S.
government spying contributed to lower demand for its products
In a statement, Boeing called Brazil's decision a
"disappointment," but added that it would continue to work with
Brazil to meet its defense requirements.
Dassault, for its part, said it regrets Brazil's decision
and called Saab's fighter an aircraft that was inferior to its
"The Gripen is a lighter, single engine aircraft that does
not match the Rafale in terms of performance and therefore does
not carry the same price tag," it said.
Saab says the Gripen NG has the lowest logistical and
operational costs of all fighters currently in service.
Brazil coexists peacefully with all of its South American
neighbors and has no enemies elsewhere. The country, however, is
eager to fortify its military as it considers the long-term
defense of its vast borders and abundant natural resources,
including the Amazon rainforest and offshore oil discoveries.
"We are a peaceful country, but we won't be defenseless,"
Rousseff said on Wednesday at a lunch with senior officials from
Brazil's military, where she said the announcement was
forthcoming. "A country the size of Brazil must always be ready
to protect its citizens, patrimony and sovereignty."
Sweden's defense minister, Karin Enstrom, said in an
interview that the contract, "is a sign that the Gripen is a
well-functioning system which is cost efficient."
Under the terms of their agreement, Brazil and Saab will now
finalize contract details within a year. The first jet is
expected to be delivered two years later, with about 12 of the
aircraft expected annually after that.
Brazil's decision unexpectedly wraps up a tortuous and
prolonged decision-making process that had made the negotiations
the object of ridicule in some defense circles.
However, the deal was taken very seriously by the
French President François Hollande personally lobbied for
Dassault last week during a state visit. Boeing, for its part,
was so committed to winning the contract that it opened a big
corporate office in Brazil and named Donna Hrinak, a former U.S.
ambassador to the country, as its top executive there.
The timing of the announcement surprised many analysts, who
believed that the slowdown in Latin America's biggest economy,
coupled with Rousseff's expected bid for re-election next year,
would delay the purchase until 2015.
Indeed, the decision coincides with pressure on Rousseff
from economists, the private sector and political opponents to
curb public spending. Having initially increased government
spending in efforts to spur growth, the president now faces
growing criticism because of stubborn inflation and a worsening
outlook for the country's budgetary targets.
Still, the country's current fleet of Mirage fighters, which
the new jets will replace, is so old that the air force this
week is taking them out of service. And Brazil's government said
the money to pay for the jets would not come out of the budget
until 2015, after the contract is finalized.
Analysts said the Gripen's cost advantage stems from its
relative simplicity compared with the other jets.
"The Gripen is more accessible in terms of technology," said
Richard Aboulafia, an analyst at the Teal Group, a
Virginia-based research company for aerospace and defense. "It's
something Brazil could conceivable build itself."
At the briefing in which they announced their decision,
government officials said Brazilian aircraft maker Embraer SA
would be Saab's principal partner. The transfer of
technology is crucial to help Brazil develop future generations
of fighter aircraft.
"There isn't necessarily a need to produce all the parts in
Brazil," Amorim, the defense minister said. "What's important is
that specific aviation technology is transferred to Brazil so we
can develop it."
The delta-winged Gripen, Swedish for Griffin, was first
introduced into service in the late 90's and is currently flown
by the Swedish, Hungarian, South African, Thai and Czech air
forces, according to the company's website.
Saab shares rose 1.84 percent to 133 krona on Wednesday,
their highest close in 10 days. Earlier in the day, they rose as
much as 5.7 percent to 138 krona, the highest in five months.
Boeing shares fell 0.13 percent to $135.70 in New York,
while Dassault Aviation shares fell 0.4 percent to 920 euros in