THE FX2 COMPETITION: OVERCOMING KEY CHALLENGES

C O N F I D E N T I A L BRASILIA 001589

SIPDIS

STATE FOR PM/RSAT AND WHA/BSC

E.O. 12958: DECL: 12/11/2018
TAGS: PREL ETTC MASC BR
SUBJECT: THE FX2 COMPETITION: OVERCOMING KEY CHALLENGES

REF: A. BRASILIA 1373

B. SECDEF REPORT ON JOBIM MEETING 12/10/08

C. IIR 6 809 0043 09

Classified By: DCM Lisa Kubiske. Reason: 1.5(d)


1. (C) SUMMARY. A December 9 meeting with Boeing
representatives highlighted several key issues for the
success of Boeing,s bid for Brazil,s next generation
fighter aircraft, the FX2. As noted in ref a, technology
transfer continues to be Brazil,s most important criterion
for selecting a fighter. While there is some scope for
interpretation of transfer of technology, several factors,
namely weapons integration and source codes, will be seen as
key to a successful bid, as will the potential for Brazilian
manufacture of components. In a December 10 meeting,
Brazilian Air Force finance officials informed Embassy reps
about financing requirements and expressed concern that in
the past USG inflexibility has got in the way of FMS
financing. With French President Sarkozy visiting later in
the month a major effort to establish the French aircraft as
a presumptive choice is likely. While all these factors
provide challenges for the success of Boeing,s bid, there
are immediate steps that the USG can take to keep the Super
Hornet in the lead. END SUMMARY.


2. (C) As Boeing completes its submission for the Brazilian
Request for Proposal (RFP) for a next generation fighter, its
representatives highlight several issues that will be
critical to winning the competition. Ref a noted the
importance of technology transfer for the Brazilians, and
Embassy contacts continue to place a priority on this as a
deciding factor. The Brazilians have generally avoided
specific demands for technology but have made clear that they
expect that technology transferred under the FX2 program
should benefit their industry and that they expect technology
equal to that of other major air forces. Defense Minister
Jobim was recently quoted as saying that &national
(industrial) capacity is fundamental to this sort of deal.8
He told Secretary Gates that Brazil had declined to choose
the Lockheed Martin F16 as a FX2 finalist because it is seen
as older technology (ref b). Boeing is expected to present a
strong industrial cooperation package to include significant
incentives for Brazilian industries, but when evaluating the
candidates, the Brazilian Air Force will likely also consider
the specific technologies on offer. For example, excluding
the AIM 9x missile, which has been approved for export to
such countries as South Korea, Switzerland and Saudi Arabia,
would be seen as evidence of an unwillingness to transfer
technology that we have offered to others and confirm
Brazilian suspicions about U.S. trustworthiness as a supplier.


3. (C) Based on what Brazilian Air Force leaders have told
the Embassy and Boeing, there are two aspects of tech
transfer in particular that should be seen as redlines for
Brazil: source codes and weapons integration. While the
Brazilian Air Force understands that there are some source
codes that no manufacturer will provide, its Commander,
Brigadeiro Saito, has stated publicly that he expects source
code to be provided. The key for Brazil will be to have such
codes as are necessary to operate the aircraft and make use
of technology derived for its domestic industries, but Saito
will use openness to provide codes as a litmus test for the
larger question of technology transfer. Brazil also will
need to be able to say that it can use domestically-produced
weapons on its new aircraft. Given the high importance the
government places on supporting Brazilian defense industries,
it would be unthinkable for a major purchase not to make use
of local products.


4. (C) In a December 10 meeting with Embassy reps,
Brazilian Air Force planning chief Brig.Alvaro Knupp dos
Santos (3 star) discussed Brazilian concerns about financing
its fighter purchase. The original plan was to make an
outright cash purchase to be financed by selling bonds.
Current market rates, however, make this prohibitively
expensive. Brazil will need seller financing and is asking
all three candidates about possible arrangements. The
Brazilian Air Force is particularly concerned that it will
have to &defend8 its deal to the Ministry of Finance and
answer detailed questions about why proposed finance
arrangements would be in Brazil,s best interests. Knupp
further commented that financing as part of U.S. Foreign
Military Sales (FMS) procurements has been a problem in the
past because of &lack of flexibility8 on the U.S. side and
&demanding lawyers8 on the Brazilian. He requested a copy
of the standard provisions for FMS cases as soon as possible
so as to identify and address any possible obstacles. Knupp
was clear that he does not want finance arrangements to get
in the way of a possible sale and indicated a strong
willingness to engage with the USG and Boeing so as to avoid
potential pitfalls.


5. (SBU) French President Sarkozy is expected to visit
Brazil during the week of December 22. While in country, he
is expected to sign an agreement on the purchase of diesel
electric submarines and a defense cooperation agreement.
With Brazil,s new defense strategy paper due out at about
the same time, there should be considerable public momentum
given to the &Strategic Partnership8 between the two
countries. While Brazilian Air Force leaders have told
Embassy reps that there will be no movement on the fighter
purchase, the French will seek to reinforce perceptions that
the Rafale is the leader in the competition and its selection
is a virtual fait accompli. Boeing is conscious of the
public relations impetus that the French will gain from the
visit and is looking for an opportunity to generate some
press coverage for the Super Hornet by sponsoring a visit by
Brazilian journalists to Boeing,s U.S. facilities and
providing them access to pilots who have flown the plane in
combat.


6. (C) COMMENT: During the December 10 meeting, it became
clear that among Air Force personnel, the Super Hornet is the
current competition leader. The F18,s superior
capabilities, technology and overall cost give it an
advantage. However, these factors will not, in the final
consideration, outweigh possible perceptions that other
planes could offer better technology transfer and financing.
Decisions on technology release should set appropriate limits
on what technology will be made available, but the key to a
successful outcome will be to ensure that such decisions are
briefed to the Brazilians in terms of what they will be
receiving rather than in terms of what we are withholding.
It will be important to be able to reassure the Brazilians
that they are being treated consistently with other friendly
countries in terms of technology release and that the
technologies on offer will benefit Brazilian industry. For
the two key issues of weapons integration and source codes,
the answer to the Brazilians should be &yes, but...,8
Brazil will get the necessary codes for the industrial
cooperation envisioned in the offset package even if some
source code will not be transferred. Similarly, Brazil needs
to hear that it would be able to use its weaponry, even if it
may not immediately choose to undertake the expense of
proceeding with integration. We should also engage with the
Brazilians as early as possible on the issue of FMS sales and
how to avoid potential legal roadblocks in a financing
package. It will also be important to complete information
sharing arrangements for the FX2 program as early as possible
and continue to press the Brazilians for a more comprehensive
agreement.


7. (C) COMMENT CONTINUED: Following upcoming Washington
discussions on technology transfer and financing, which
should provide a clearer picture of the possible technology
transfer package, post will seek to review with Washington
agencies the potential transfers against our understanding of
Brazilian requirements and the precedents set by technology
release decisions to other non-NATO countries. Given the
SecDef,s assurance to MOD Jobim in ref b that the U.S. tech
transfer package would be strong, the final interagency
recommendation should reflect this view. We should then
expedite contact with Boeing to ensure that the RFP
submission takes into account the USG position. As there
will have to be restrictions on the technology to be
released, it will remain critically important for post to be
engaged in the process to craft an approach that explains why
the technology package is attractive for Brazil and gives
supporters of the F18 in the Air Force the arguments they
need to make the Super Hornet Brazil,s choice.
SOBEL