C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 003154

SIPDIS

SENSITIVE

E.O. 12958: DECL: 12/21/2014
TAGS: MCAP MARR MASS PREL BR POL MIL
SUBJECT: F-X FIGHTER PROGRAM TO END WITH A WHIMPER ON NEW
YEAR'S DAY

REF: BRASILIA 2890

Classified By: Deputy Chief of Mission Philip Chicola, reasons
1.4 (b &
d)


1. (C) SUMMARY: At midnight, December 31st, Brazil's F-X
jet fighter competition will come to an end. Ultimately, a
decision on the costly program proved to be politically
untenable for the Lula administration. Given all the urgent
requirements of Brazil's armed forces, the F-X was an expense
that was hard to justify. Competitors for the F-X are
refusing to go down quietly, but they are fighting a losing
battle. With the end of the F-X, the GOB may review whether
to purchase less costly used aircraft. In this regard, the
Lockheed Martin F-16 would have the inside track. However,
it is possible that the GOB may base a decision on used F-16s
in the context of its continued questions about the U.S. as a
reliable supplier. End Summary

The F-X Program, RIP
--------------


2. (SBU) On December 31, the Best and Final Offers (BOFAs)
for the competition to select Brazil's new generation high
performance jet fighter (F-X) will expire. Despite repeated
GOB postponements during the past 12 months on a decision,
the F-X program had still retained a breath of life thanks to
repeated hints from former Defense Minister Viegas that a F-X
award decision would be forthcoming. Throughout the process,
however, the Lula administration was reluctant to commit to a
choice. With the end of the validity of the BOFAs next week,
the F-X program will be officially dead.


3. (SBU) The principal cause of the program's demise, most
observers agree, was the F-X program's steep price tag,
around $700 million plus for the purchase of a dozen high
performance aircraft. The huge cost, at a time when the Lula
administration was engaged in fiscal austerity, made the
program a politically impossible sell. (Note: The Brazilian
Congress, which still has not concluded the 2005 budget, has
not included jet fighters in its budget, and, in fact,

provides very little money overall for defense. End Note.)
Yet, until November, more than a few senior Brazilian Air
Force (FAB) officers held out hope that FAB would get its new
jets. When Russian President Putin departed Brazil last
month without a deal in place for the Sukhoi SU-35 -- after
offering to purchase 50 Embraer commercial aircraft as a deal
sweetener and certainly dangling a possible agreement on
ending the Russian embargo on Brazilian beef -- the last best
chance for new fighter aircraft for FAB left with him
(reftel).


4. (SBU) Other factors contributed to the F-X impasse. The
Brazilian military's almost insatiable need for weapons
systems upgrade and procurement required that the GOB triage
the competing demands for funding. FAB already had been
granted approval for buying ten new Black Hawk helicopters
(about $153 million). With both the army and navy biting at
FAB's heels for funding their own urgent requirements, the
new jet fighters became a harder sell.


5. (SBU) In view of the lack of any perceived threat, the
strategic question of whether Brazil needed the F-X whose
primary purpose was protection of the national capital, has
received relatively little debate. The program itself
ultimately owed its continued rationale less to the defense
of Brasilia than as a tool of national pride, particularly
following Chile's purchase of F-16s. Even some air force
generals admit the principal current threat to Brazilian
sovereignty (from narco-trafficers) can be addressed less
expensively by other air force elements such as FAB's Super
Tucanos.


6. (SBU) Meanwhile, F-X competitors are refusing to go down
without a fight. Planted news articles in praise of one
aircraft or attacking another (usually the F-16, and the
alleged, and false, denial by the USG to provide AAMRAM
capability to Brazil) continue to pop up. The most recent
example of F-X muckraking is a cover story this week in
left-leaning nationalist magazine Carta Capital in praise of
the Mirage 2000 of the Embraer-Dassault consortium. In the
Carta Capital article, Embraer President Mauricio Botelho, in
a direct swipe at Lockheed-Martin, is quoted as saying that
because the USG won't allow it, U.S. companies offer "no
chance" for transfer of military-related technology -- a
bizarre comment in the wake of the winning
Embraer--Lockheed-Martin bid for the development of the U.S.
Army's Aerial Common Sensor System aircraft. Even Sweden's
Grippen aircraft has received high profile lobbying with a
prominent billboard at the entrance to Brasilia airport.

Used Aircraft?
--------------


7. (SBU) Throughout much of the long-running F-X
competition -- while Lockheed Martin's F-16 was one of the
competitors -- the U.S. company had urged the GOB consider
the purchase of used F-16s as a significantly less costly
option to the F-X. Although an attempt by Lockheed-Martin in
early 2003 to ally with Varig Engineering and Maintenance
(VEM) for a proposed upgrade of used F-16s fell through, the
company remains upbeat it will be able to partner with a
Brazilian firm (possibly Embraer) to craft an attractive used
aircraft offer. Ultimately, Lockheed Martin believes it can
provide fully capable F-16 aircraft at less than half the
cost of the F-X. (Note: One driving factor, however, will be
the ability of FAB to conduct inter-operable aerial refueling
for any fighter. Brazil is considering purchasing two or
three KC-135s to augment their refueling capability.
Procurement of KC-135s from the U.S. would be a positive
indicator for purchase of used F-16s. End note.)


8. (SBU) In recognition that new aircraft will be
unobtainable, senior FAB leadership, including FAB's probable
next Commander in Chief, increasingly have come around to
accepting used F-16s as Brazil's best aircraft option. In
this context, the F-16 appears to have the inside track over
other used aircraft options, although there are rumors that
some in FAB may be looking at procuring used South African
Cheetahs, a modified Mirage III aircraft one generation older
than the early F-16 models. Meanwhile, the Brazilian
Congress which has been absent from the F-X debate, may get
into the picture. In a discussion with emboffs, a prominent
Deputy on the National Defense Committee stated he intended
to hold hearings in 2005 on used fighter aircraft with an eye
to promoting the F-16 as Brazil's best option.


9. (C) Comment: We expect that Brazil will continue to
seek the aquisition of high performance jet fighters for
reasons of national pride, if nothing else. U.S. Mission
Brazil will continue to support the used F-16 option as the
most logical way forward both tactically and economically.
An increasing number of FAB generals appear to support this
view. However, even though Brazil has moved forward on the
purchase of other weapons systems, we suspect the GOB may not
agree to purchase the F-16 unless it achieves an adequate
comfort level on all aspects of the bilateral pol-mil
relationship. As Brazil observes the bite that ASPA is
taking on countries that do not sign Article 98 agreements,
it questions about the reliability of the U.S. as a
supplier/strategic partner will continue, thus further
complicating the used F-16 aquisition option.

Danilovich