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Cablegate: Fx2 at the End of 2009

VZCZCXYZ0001
RR RUEHWEB

DE RUEHBR #0003/01 0051940
ZNY CCCCC ZZH
R 051940Z JAN 10
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 0263
RUEKJCS/SECDEF WASHINGTON DC
INFO RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEHBR/AMEMBASSY BRASILIA
RUEHFR/AMEMBASSY PARIS 0001
RUEHRI/AMCONSUL RIO DE JANEIRO
RUEHSM/AMEMBASSY STOCKHOLM 0001
RUEHSO/AMCONSUL SAO PAULO

C O N F I D E N T I A L BRASILIA 000003

SIPDIS
STATE FOR T, PM AND WHA

E.O. 12958: DECL: 2020/01/05
TAGS: PREL ETTC MASS BR
SUBJECT: FX2 at the End of 2009

REF: BRASILIA 1124; IIR 6 809 0156 10

CLASSIFIED BY: Lisa Kubiske, Charge d'Affaires a.i.; REASON: 1.4(D)

1. (C) As 2009 comes to end, Brazil's FX2 competition remains undecided. It had been expected that President Lula would make a decision before the end of the year, so as to be able to complete the sale during his tenure. Practically speaking, however, even if a Presidential decision were to be made immediately, the time needed for contract negotiation and appropriation of funds means that the final decision to buy the planes will fall to the next President in 2011. Embassy contacts in the Ministry of External Relations and Ministry of Defense believe that Defense Minister Jobim will meet with Lula later in January to try to make a decision.

SEPTEMBER: RAFALE PREFERRED

2. (C) Lula has made no secret of his preference for the Dassault Rafale, announcing during President Sarkozy's September 7 visit (ref a) that he planned to negotiate the purchase with France, before even reading the Brazilian Air Force's (BRAF) technical evaluation. During the following three months, it was clear that Lula had instructed his government, including Jobim, to focus on making the deal with France work. In September, Lula told the Brazilian press that negotiations with France would focus on attaining a price for the aircraft similar to what Boeing and Saab were asking. (Reportedly, Dassault's best offer was 40% higher.) Despite another Sarkozy visit to Brazil in November and Jobim's later stop in Paris, the French were not able to meet Brazilian requests for a lower price, but their lack of responsiveness (ref b) did not seem to affect the Brazilian preference. Initial statements in September from Lula and FM Amorim attempted to portray the French as somehow offering a superior level of technology transfer as justification for the higher price, but as details emerged from the technical evaluation process, it became clear that all three competitors were generally meeting BRAF tech transfer requirements.

DECEMBER: NEW MOD INTEREST IN BOEING, SAAB STILL A CONTENDER

3. (C) During October and November, contacts by Embassy officials and Boeing representatives were received politely, but with little real interest as the focus remained on the French. In recent weeks, however, there has been a notable change from the Minister of Defense. Beginning with A/S Valenzuela's December 14 meeting with Jobim (reported septel), there has been renewed interest in the USG/Boeing proposal. While Jobim repeated concerns about "bad precedents" for policies regarding transfer of U.S.-origin technology (in reality complaints about export licensing procedures), he said he understood that the USG had a new approach and was interested in Boeing's industrial cooperation offer. Boeing has strengthened its case by promoting its new "Global Super Hornet" initiative, which would transfer important elements of production of all F/A 18 aircraft (including those for the U.S. military) to Brazil. By globalizing Super Hornet production and including Brazil in the process, Boeing not only is in position to create and maintain more jobs in Brazil, but can assuage Brazilian paranoia about theoretical USG cutoffs of fighter supply by pointing out that any such cutoff would affect the U.S. Navy as well. In a recent interview with the newspaper Folha de Sao Paulo, Jobim was careful not to commit, mentioning the "strategic alliance" with France but also noting that cost, technology transfer and overall aircraft capability were important.

4. (C) Along with the revival of Boeing's hopes, the Swedish Gripen remains a strong competitor. As noted in ref b, many Brazilians perceive it to be an attractive alternative to the Rafale because it has the lowest sticker price. Saab's plan to co-develop the new generation Gripen with Brazil has also garnered support in Brazil's aviation industry among those who believe that such development will increase local aircraft design capabilities. Jobim, however, has been openly dismissive of the Swedes on the basis of the Gripen's lesser capability and because the "New Generation" variant offered to Brazil does not yet exist. A recent story in Isto C) magazine with sourcing to the BRAF pointed out that military aircraft development programs normally run over deadlines and budgets, negating the Gripen's purported price advantage.

5. (C) COMMENT. While the Rafale's high price and doubts about the Gripen's development would seem to make the Super Hornet the obvious choice, the fact remains that Lula is reluctant to buy an American aircraft. It is possible that the renewed interest in the USG offer is merely a ploy to gain leverage on the French or that the delay in the decision is intended to allow Dassault to find a way to lower its price. In Mission's view, the chance to win the FX2 competition is real. We know that the Super Hornet received the most favorable technical evaluation from the BRAF and is the choice of the operators. We have also been successful in answering most of the doubts raised about USG technology transfer policies, particularly with the technical evaluation team. There remains, however, the formidable obstacle of convincing Lula. Our goal now should be to make sure that Jobim has as strong a case as possible to take to Lula in January. Mission recommends the following steps: B7 Continue to underline full USG support in all high-level contacts with Brazil. As Mission has pointed out previously, repeated assurances from President Obama to Lula in the course of their normal contacts are the single most effective means of making our case. B7 Use Ambassador-Designate Shannon's initial contacts with the Brazilian leadership to make the point that we have worked hard to ensure we have the best offer. B7 Maintain our public affairs campaign to highlight that not only has the USG completed its approval of tech transfer, but Boeing is confident enough in the offer to be prepared to shift part of production (including hundreds of jobs) to Brazil. B7 Coordinate with Boeing to ensure the advantages of the Global Super Hornet program are made known to the Brazilian Congress and media. KUBISKE

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