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Cablegate: Lula Favors French Fighters -- Situation Serious

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FM AMEMBASSY BRASILIA
TO RHEHNSC/NSC WASHDC IMMEDIATE
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RUEHC/SECSTATE WASHDC IMMEDIATE 5040
INFO RUEHFR/AMEMBASSY PARIS 0498
RUEHSM/AMEMBASSY STOCKHOLM 0082
RUEHRG/AMCONSUL RECIFE 9905
RUEHRI/AMCONSUL RIO DE JANEIRO 8166
RUEHSO/AMCONSUL SAO PAULO 4518
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RHMFISS/CDR USSOUTHCOM MIAMI FL

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 001124

SIPDIS

STATE FOR T, WHA AND PM. OSD FOR USD/ATL.

E.O. 12958: DECL: 09/09/2019
TAGS: PREL MASC ETTC BR
SUBJECT: LULA FAVORS FRENCH FIGHTERS -- SITUATION SERIOUS
BUT NOT HOPELESS

REF: A. BRASILIA 1100
B. BRASILIA 1094

Classified By: Charge d'Affaires Lisa Kubiske. Reason: 1.4(d)

SUBJECT: Lula Favors French Fighters ) Situation Serious
But Not Hopeless

1. (C) SUMMARY. In a surprise announcement during the
September 7 visit of French President Sarkozy, President Lula
said Brazil would begin negotiations to purchase French-made
Rafale fighter aircraft. The President,s step short
circuited the Brazilian Air Force,s technical evaluation
process which was supposed to deliver a recommendation in the
next week. Since Lula,s announcement, GOB officials have
been engaged in spin control to convey the message that the
purchase from France is not completely certain; the intention
is simply to begin purchase negotiations. Nevertheless, the
September 7 message indicates that the Rafale is now the
strong favorite and underlines the importance of the
Lula-Sarkozy personal relationship. Because Lula cited the
French willingness to transfer technology as the basis for
his preference, and the USG has recently concluded the
Congressional notification process for Boeing,s F18 Super
Hornet, we may be able to use the final tech transfer
approval to seek a level playing field in the negotiation
phase. As this was a political decision, we will need
political-level support for the USG candidate to supplement
the Super Hornet,s superior package of technology and
offsets. END SUMMARY.

WHAT WE KNOW
-------------
2. (U) In a joint news conference with Sarkozy, September
7, Lula said that Brazil would begin negotiations with
France for the purchase of thirty-six fighter aircraft. Lula
cited France,s willingness to transfer technology and the
importance of &consolidating8 the strategic partnership
with France as the reasons for his decision. To bolster the
French case, Sarkozy reportedly promised to buy a dozen C390
cargo planes, to be developed by Brazil and to support Rio de
Janeiro,s bid to host the 2016 Olympic Games. The French
reportedly also promised to assist Brazil in exporting future
French-Brazilian aircraft to unspecified countries in Latin
America and Africa. Almost immediately after the news
conference, other Brazilian officials began giving their own
version of the announcement. Foreign Minister Celso Amorim
said that &there was a decision to negotiate with one
supplier. There was no decision in relation to the other two
(competitors).8 Later press reports indicated that Lula
&did not rule out8 the USG or Swedish planes.

3. (C) It is likely that Lula,s announcement came as a
surprise to the rest of the Brazilian government. Over the
past several weeks, Mission Brazil has heard the consistent
message that any decision would be made after Sarkozy,s
visit. Air Force contacts informed MLO Brasilia that they
would be submitting their technical evaluation to the MOD in
the week following the visit for review and preparation of a
recommendation to the President. The evaluation was never
completed or delivered, meaning Lula,s decision to favor the
French was taken without the benefit of over a year of work
by Air Force experts.

4. (U) September 8 press commentary shows the beginnings of
a debate on the issue. Several commentators, notably in
Folha Sao Paulo, have criticized the expense of the purchase
and the lack of transparency of the decision process. Coming
on the heels of criticism of the government for the
non-competitive purchase of French submarines (ref a), Folha
notes there seems to be a &strategy of silence for defense
purchases. Another op ed in the same paper, however,
trumpeted the deal as a means of avoiding an undesirable post
cold war unipolar world. All commentators, however, still
seem to believe that the USG is not reliable as a partner for
technology transfer and that a future administration could
decide to cancel any arrangements made by the current one.

5. (C) On September 8, USMLO Air Force Section Chief met
with the BRAF team responsible for the evaluation process and

BRASILIA 00001124 002 OF 003


reported that they have received direction to continue work
as usual and not to react to what is being aired in the
press. During another meeting with two 3-star General
Officers, Brig. Salmone (Deputy Commander of Aerospace
Technology Command) and Brig. Knupp (BRAF Finance
Secretariat), they indicated the BRAF are proceeding &as if
nothing happened yesterday,8 i.e. the Air Force will prepare
its recommendation as previously planned and deliver it to
the Minister; the USG should remain engaged as it was before
Lula,s statement. (They stressed the importance of this
moment for moving forward with the United States-Brazil
relationship.)

WHAT IT MEANS
-------------
6. (C) Above all, the September 7 press conference showed
that the fighter purchase has become a political decision in
which the Super Hornet,s superior capabilities and Boeing,s
offer of industrial partnership mean little. Lula,s
announcement of an intention to negotiate a fighter purchase
with France appears to have cut both Defense Minister Jobim
and the Brazilian Air Force out of the loop and ignored the
GOB,s official process for arriving at a decision. Despite
Jobim,s statement to Under Secretary Tauscher (ref b) that
he would give the U.S. a chance to match others, offers, the
process has passed Jobim by. Jobim,s intention was to play
a major role in the process, both to strengthen his authority
as Minister and to add an achievement to his resume should he
run for President in 2010. When the skipping of the
technical evaluation becomes known, it is likely that more
questions will be raised about the lack of a process. Given
the spate of scandals touching members of the Brazilian
government, it is also possible that there will be
allegations of corruption arising from the deviation from the
previously-announced procedure. The explanatory statement by
Amorim was clearly intended to leave an opening for the other
competitors, but Lula, through his announcement, has taken
charge of the process and set the terms.

7. (C) As the government did with the submarine purchase,
announced in December 2008 (ref a), Lula,s emphasis on tech
transfer, without any specifics on what technologies are
involved, provides an excuse to focus on a single preferred
supplier. The submarine decision was also announced during a
Sarkozy visit to Brazil, showing the power of the personal
relationship over such considerations as capability, cost and
benefit to the Brazilian economy. It is worth noting that
Brazil faces Presidential elections in 2010, and Lula will
not want to hand the opposition an issue with which to
criticize his government for wasting money or employing
questionable procurement processes. Should opposition in the
press and the Brazilian Congress grow, it is possible Lula
could turn to another option or put off the fighter
competition to be decided by the next President.

WHAT TO DO
----------
8. (C) The clear designation of the French as the front
runners means that the USG/Boeing bid faces a major challenge
in order to level the playing field. It will be critical to
counter the perception that USG willingness to transfer
technology is ephemeral and to get this message to Lula, who
has established himself as the only decision maker on this
issue. In doing so, we need to take advantage of Lula,s
definition of tech transfer as the key issue and the fact
that while negotiations are to open with France, they are not
yet closed to the other competitors. We can use the
completion of the thirty day Congressional notification
period for the sale on September 5 as a new fact in support
of the USG bid. By meeting Lula,s requirement for assured
tech transfer, we can argue that we should begin the
negotiation process for the same reason the French have been
invited to do so.

9. (C) Given that Lula,s decision to begin negotiations
with the French was made following a late dinner with
Sarkozy, the importance of personal relationships cannot be
overstated. Should President Obama speak with Lula in the
next few weeks, it would be important for him to mention the
fighter sale. Post recommends that any such conversation

BRASILIA 00001124 003 OF 003


could include such points as:

-- We understand you are negotiating with the French for the
purchase of fighter aircraft because they are offering
technology transfer. We are prepared to offer full transfer
of all necessary technology as well.
-- This decision has been made and passed through Congress.
I guarantee it will not change.
-- Since we are offering the same technology transfer as the
French, I ask that we also be included in the purchase
negotiations. I am confident that we will be able to offer a
better deal.

10. (SBU) Post also recommends that senior USG officials
make similar points to the Brazilian press. Additionally, we
should add that the USG is offering technologies the others
cannot (e.g. low observables, materials testing and proven
AESA radar). We should also note that both the French and
Swedish entrants contain USML-controlled technology and
require export licenses both for sale to Brazil and should
Brazil wish to transfer to third parties.

11. (SBU) On September 14, Boeing plans to host a suppliers
conference with Brazilian industry, which generally favors
partnership with Boeing. Post will engage with Boeing on a
positive message. If Lula,s tech transfer issues can be
addressed, hearing from business leaders that the Brazilian
economy would benefit most from partnership with Boeing could
be influential. Boeing expects substantial press coverage at
this event, and we should ensure that the USG is represented
to underline that we have completed our tech transfer
approval.
KUBISKE

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