Boeing Ready to Buy F-18 Parts in Brazil to Win Sale (Update1)
By Andre Soliani and Joshua Goodman
July 10 (Bloomberg) - Boeing Co. is prepared to have Brazilian companies supply a “big portion” of components for its Super Hornet jetfighter, creating as many as 5,000 local jobs, to sell 36 of the warplanes to the Latin American nation.
Jim Albaugh, the head of Boeing’s defense unit, said agreements have been signed with 27 Brazilian companies that are capable of producing parts for the F/A-18, including Empresa Brasilieira de Aeronautica SA, the world’s fourth-largest airplane maker. The pledge comes as Boeing maneuvers against competitors Dassault Aviation SA and Saab AB to win the sale.
“A big portion of the F-18 will be built here,” Albaugh, 58, said today in an interview in Brasilia. “For every dollar that goes toward that airplane, that money will come back to Brazil as manufacturing, software, avionics, and electronics.”
Boeing, the second-biggest defense contractor in the U.S., is counting on foreign military sales to make up for an expected slowdown in orders from the Pentagon. At the same time, Brazil, Latin America’s biggest economy, is beefing up its military after years of neglect and seeking to rebuild its arms industry. Through the 1980s, Brazil was the world’s 11th biggest weapon exporter.
Foreign Bids
Brazil’s tender for the fighter jet is the fourth-biggest foreign bid Chicago-based Boeing is competing for this year, Albaugh said. Defense sales provide about half of Boeing’s revenue. Brazilian President Luiz Inacio Lula da Silva is expected to award the contract, which analysts say could be worth as much as $4.5 billion, as early as next month.
Competition is stiff. Saab AB, the Swedish maker of the Gripen warplane, is prepared to shift as much as 50 percent of future Gripen production to Brazil, Bob Kemp, marketing chief for the $50 million plane, said July 7.
The other contender is Paris-based Dassault Aviation SA, which is pitching the Rafale. Dassault’s Mirage 2000 is currently Brazil’s most-advanced warplane. French officials have “clearly stated their openness” to cooperate with Brazil in the technology field, Yves Robins, vice-president corporate communication of Dassault Aviation, said in an interview this week.
Under the tender guidelines, the company that wins the contract is required to transfer technology to Brazil equal to the full purchase price of the planes.
‘Technology Access’
“Our main goal is technology access,” Brazil’s Defense Minister Nelson Jobim said yesterday.
That favors Boeing’s competitors who are less burdened by U.S. restrictions on arms exports, said Richard Aboulafia, vice president at Teal Group, a Fairfax, Virginia-based consultancy. U.S. rules may include demands for on-site inspections and approval of any sales to third parties over the plane’s 40-year flying life, he said.
“Certainly it’s a process that you have to go through with the United States and it can be a process that takes time,” Albaugh said. “But ultimately our customers get what they need, get what they want.”
To replace its aging fleet, Brazil may order total of 120 fighter jets. India plans to order 126 warplanes, while Denmark may buy as much as 42 and Greece 40, Albaugh said.
The sale is Dassault’s to lose, said Alexandre Barros, head of Early Warning, a Brasilia-based political risk firm. The French have been Brazil’s top arms supplier since 1978, when President Jimmy Carter banned U.S. arms sales to Latin America, fearing an arms race among the reigning military juntas. The policy was reversed in 1997.
‘No Qualms’
“The French have no qualms about transferring a lot of technology,” said Barros.
French President Nicolas Sarkozy has lobbied for the deal, which would be the Rafale’s first international sale after failed bids in Morocco, South Korea and Singapore. During a visit last December, he signed contracts worth 8 billion euros ($11 billion) to build 50 Super Cougar helicopters and five submarines.
Lula invited Sarkozy as Brazil’s guest of honor at its independence day Sept. 7. After meeting him in Paris this week, Lula said he hopes to sign new defense accords at that time.
The F/A-18’s biggest advantage against the Dassault is a longer track-record, especially in environments like coastal Brazil, said Aboulafia.
Economies of Scale
Currently the F/A-18 is being produced at a rate of 43 per year, compared to 13 per year for the Rafale and 5 for the Gripen, so Boeing is able to win on cost per unit, Aboulafia said.
The Gripen is the weakest of the three candidates, says Michel Merluzeau, an aviation analyst at G2 Solution in Kirkland, Washington. Deliveries and production for the single- engine plane are falling, making its survival dependent on more financing. Sweden’s annual defense spending of $5.5 billion is less than 1 percent the $623 billion U.S. market, he said.
Boeing rose 0.8 percent to $39.65 in New York Stock Exchange composite trading. The stock has dropped by more than half since Feb. 28, 2008, the day before the company lost a $35 billion U.S. tanker competition to a group including rival European Aeronautic, Defence & Space Co. The stock has also been hurt by delays to the company’s newest commercial aircraft, the 787 Dreamliner.
To contact the reporter on this story: Andre Soliani in Brasilia at
asoliani@bloomberg.net Joshua Goodman in Rio de Janeiro
jgoodman19@bloomberg.net
Last Updated: July 10, 2009 16:49 EDT
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