LOCKHEED-MARTIN/EMBRAER CONTRACT

UNCLAS BRASILIA 001954

SIPDIS

SENSITIVE

USDOC FOR 3134/USFCS/OIO/WH/EOLSON/DDEVITO
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD

E.O. 12958: N/A
TAGS: BEXP MCAP MARR BR POL MIL
SUBJECT: LOCKHEED-MARTIN/EMBRAER CONTRACT


1. (U) Brazilian newspapers, including a banner August 3
front page, above-the-fold headline in widely read O Estado
de Sao Paulo, highlighted the Pentagon's selection of
Lockheed-Martin -- teamed with Embraer and the Harris
Corporation -- to develop and build the U.S. military's next
generation airborne intelligence, surveillance and
reconnaissance system, the Ariel Common Sensor (ACS).
Embraer will provide the airframe based on its successful
ERJ145/EMB 145 model already widely used around the world and
build the airframe at a new assembly line at the old USN
Cecil Field Air Station near Jacksonville, Florida.
Newspapers here report the total package for the ACS as
between USD 7 and 10 billion.


2. (U) The contract is being trumpeted in Brazilian media
as a breakthrough achievement for Embraer, the world's fourth
largest aircraft manufacturer. Embraer is already Brazil's
largest single importer from (aircraft components) and
exporter to (finished aircraft) the United States. Even with
the involvement of Embraer's U.S. partners, the contract
represents Brazil's most significant procurement opportunity
ever with the U.S. military. It is also viewed as a shot in
the arm for potential aircraft sales elsewhere.


3. (SBU) Comment: The ACS contract is a victory for
Brazilian technology and Brazil's aerospace industry. Yet,
while Embraer and Lockheed-Martin closely collaborated to
develop the ACS, the two companies remain on opposing sides
in Brazil's next generation jet fighter competition, the F-X
(Note: Embraer is partnered exclusively with the Dassault
Mirage bid in the competition.) A GOB decision on the F-X,
delayed numerous times since 2002, continues to be in limbo
due, many observers believe, to the sticker shock of the
total cost of new high performance fighters. However, with
the victory of the Lockheed-Martin/Embraer consortium in the
ACS competition, Brazil's leadership may look with a fresh
eye at used F-16 offers that are significantly cheaper than
new fighters.

Danilovich