QUESTIONS ABOUT SUBMARINE PURCHASE COULD IMPACT

C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 001100

SIPDIS

STATE FOR WHA, T AND PM. DEFENSE FOR USD/AT&L

E.O. 12958: DECL: 09/01/2019
TAGS: PREL ETTC MASC BR
SUBJECT: QUESTIONS ABOUT SUBMARINE PURCHASE COULD IMPACT
FIGHTER COMPETITION

REF: A. 08 BRASILIA 93

B. BRASILIA 34

C. BRASILIA 1094

Classified By: Charge d'Affaires Lisa Kubiske. Reason: 1.4(d)


1. (C) SUMMARY. Brazilian Minister of Defense Nelson
Jobim has made modernization of the armed forces one of his
top priorities, particularly in terms of the acquisition of
advanced military equipment. One the key acquisition
initiatives has been the purchase of submarines from France,
leading, supposedly, to the development of a nuclear powered
submarine. Jobim and Brazil,s political leadership see the
submarine as a vital element of Brazil,s development as a
major power and have settled on the deal with France as the
surest path to development of such a vessel. Recently, the
submarine purchase, and defense spending in general, have
been bedeviled with a number of well-founded questions from
the Brazilian Congress and press, primarily because of its
cost. Given the political will behind acquisition of a
nuclear submarine, it is unlikely that development will be
halted, but the arguments being used could have ramifications
for Brazil,s upcoming purchase of fighter aircraft and USG
chances to win this competition. We can, however, turn
concerns over the submarines to our advantage by focusing
attention on the advantages Boeing can offer in terms of
predictable costs, proven hardware and benefits to Brazilian
industry. See paragraph 8 for recommendations. END SUMMARY.


2. (U) On August 27, PolOff attended Defense Minister
Jobim,s hearing before the Foreign Affairs and Defense
Committee of the Brazilian Senate, during which he discussed
defense purchases, particularly for the Brazilian Navy.
Jobim,s remarks, which lasted two hours, were focused on
building a case for a nuclear powered submarine based on the
need for superior range, speed and autonomy. These
attributes are supposedly needed to defend Brazilian
interests in the deep waters of the South Atlantic, including
pre-salt oil deposits in Brazil,s economic zone and
potential future exploitation of deep seabed resources.
According to Jobim, the importance of protecting these
interests justified the costs of the submarine program and
its support facilities.


3. (SBU) In 2008, Jobim reached agreement with the French
government for the purchase of four diesel-electric
submarines plus assistance expanding the hull of a fifth to
accommodate a nuclear propulsion system to be developed
exclusively by Brazil. Prior to this deal, Germany was
Brazil,s submarine supplier, and German officials expressed
surprise that Jobim had announced the French purchase without
comparison shopping in Berlin. Jobim,s explanation has been
that the ultimate goal of the submarine program is deployment
of a nuclear powered boat and French experience with nuclear
subs, and their reputation for easy transfers of technology,
made France the only logical partner. The purchase agreement
is due to be signed by Presidents Lula and Sarkozy on
September 7, Brazilian Independence Day. The total cost is
expected to reach 6.8 billion euros, including the
construction of a new submarine base.


4. (SBU) While there is little question among Brazilians
that owning a nuclear powered submarine will be in the
national interest, there is growing opposition to the
program, primarily because of its cost. Over the last two
months, a spate of press reports has called attention to the
high cost of the program (to put the cost in perspective,
Brazil,s entire defense budget for 2008 was about $23
billion) and Jobim,s decisions to award the deal for the
subs and their new base to French interests without
competition. Jobim,s explanation has been that France was
the only possible source for the necessary technology
transfer, an argument undermined by the leak to Globo News of
a document from 2008 stating that the German government had
approved the transfer of &submarine design technology.8 On
August 26, Valor Economico ran an article noting the problems
other customers of French military equipment have experienced
with poor quality and higher than expected costs. Former
President Fernando Henrique Cardoso has also attacked the
high cost of the submarine purchase and at the same time

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questioned the government,s intention also to purchase next
generation fighter aircraft. Despite the attacks, the
overall goal of deploying a nuclear powered submarine is not
in question. It is likely that the project will weather the
current storm, although its funding may be less than the MOD
would like in the short term.


5. (C) In a recent televised interview, as well as in
Senate testimony, Jobim based his arguments for the purchase
of military equipment on two points: technology transfer and
domestic manufacture. Even though the Germans had approved
transfer of technology, Jobim stated that only the French
were able to do so in a way that gave confidence. The
Brazilian Navy offered a similar explanation, but when the
sale was announced, the German DCM said that Germany had not
been consulted, and that he thought the German manufacturer
could match whatever the French could offer. Brazilian
Security analyst and Jobim insider Roberto Godoy has said
that despite the letter from Secretary Clinton assuring the
Brazilians that all necessary technology has been approved,
the USG offer is ¬ as clear8 as that of France, without
explanation of the lacking clarity. Jobim,s newest wrinkle
has been to use the Defense Strategy,s mandate for
increasing Brazil,s domestic defense industry to call for
in-country production of aircraft ) just as the later
French submarines are to be built in Brazil. &We are not
buyers, we are partners in production,8 he said. While
Boeing,s offer includes substantial offsets for Brazilian
industry, in-country assembly is not included because
Brazilian manufacturer Embraer told Boeing it did not want
the expense of setting up an assembly line for a limited
number of aircraft. EMBASSY COMMENT: This message has
clearly not reached Jobim, whose new emphasis on Brazilian
assembly of the aircraft will clearly favor Boeing,s
competitors.

ANALYSIS
--------------

6. (C) Analysis of the Brazilian submarine plan raises
several issues (ref a). If there were an oceanic threat to
Brazilian interests, one nuclear submarine would be far less
effective a deterrent than the four or five diesel-electric
boats that could be built for the same cost. The
technological challenges to development of a naval reactor
and the costs associated with such development are also
likely to pose obstacles. As noted in ref a, however, there
are strong political reasons for going ahead. Brazil,s 2008
Defense Strategy (ref b) identifies nuclear power as a
strategic interest. Since Brazil is a NPT member and is
prohibited from developing nuclear weapons, the Brazilian
government associates nuclear energy with security.
Brazilian government contacts have noted that the five
countries that currently operate nuclear powered submarines
are the five permanent members of the UN Security Council, a
status which is a key GOB goal. While there is no support in
Brazil for developing nuclear weapons, the second class
status to which Brazil relegated itself by signing the NPT is
keenly felt. The nuclear powered submarine should be seen as
a nuclear weapon substitute and is therefore essential in the
minds of Brazilian leadership to reaching the great power
status to which they aspire.

IMPACT ON FIGHTER COMPETITION
--------------

7. (C) The submarine purchase could have several potential
impacts on the fighter sale. From the beginning of the
competition, France has hinted that there could be potential
for a submarine-aircraft package deal to lower overall costs.
On the other hand, recent negative publicity surrounding the
submarine deal could have a negative impact on French hopes
to sell fighters as well. President Lula will be the
decision maker on the fighter sale, but his top priority is
increasingly assuring the election of his chosen successor in
the 2010 Presidential election. With opposition figures
weighing in against defense spending, there is an increasing
danger that Lula will postpone a fighter purchase into the
next administration to avoid potential criticism. The case of
the submarines provides a caution as the Brazilians have used
technology transfer as an excuse for buying from their
preferred partner, while ignoring a potentially attractive

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German offer.

RECOMMENDATIONS
--------------

8. (C) While the submarine deal illustrates possible
threats to the sale of U.S. origin fighters, it also suggests
an approach throughout the critical final period before a
decision on the fighters is made. Since Boeing alone of the
three competitors is offering a proven system, the USG and
Boeing should highlight this advantage, making the following
points:
-- The USG has approved the transfer of all necessary
technology for Brazil to purchase the F18 Super Hornet. This
is technology proven in thousands of operational missions.
Its competitors can only offer technology still on the
drawing board.
-- The Super Hornet has the lowest life cycle cost. Because
it is already in operation, we can state with confidence what
this cost will be. Competitors can only guess and are apt to
underestimate.
-- Boeing is offering an unmatched spectrum of benefits to
Brazilian industry and has an unparalleled record in meeting
its offset commitments.
-- Boeing has a perfect record of delivering aircraft to its
customers. Neither of its competitors has ever made a sale
of the aircraft they are offering to Brazil.
This message should be delivered at all possible
opportunities to Brazilian policy makers, especially Jobim
and Lula. The USG offer was widely perceived as trailing the
French until President Obama raised the issue with President
Lula in July. Now, in the endgame, a further Presidential
intervention could again be key.
KUBISKE