FINANCING FOR BRAZIL'S FIGHTER PURCHASE

UNCLAS BRASILIA 000659 SIPDIS SENSITIVE E.O. 12958: N/A TAGS: MASS PREL BR SUBJECT: FINANCING FOR BRAZIL'S FIGHTER PURCHASE REF: Brasilia 634 ¶1. (SBU) The Brazilian Air Force (BRAF) Finance Secretariat (SEFA) has been tasked to submit a report on financing arrangements being presented by the Governments of each of the three competitors (US, France, and Sweden) to support proposals for Brazil's next generation fighter (FX2). The finance report will be submitted together with the BRAF technical recommendation to the National Defense Committee (NDC),consisting of the President of the Republic, the Presidents of the Legislative Houses and the Ministers of Justice, Defense, Foreign Affairs, Treasury, Planning and the Military High Commanders, to assist in their final decision. According to BRAF sources, if two competitors are close in the technical ranking, a decision to seek international financing could lead to SEFA's report being a decisive factor. During a Brazilian Air Force Finance Secretariat Visit to Washington DC on 29 and 30 Apr 2009 SEFA requested Governments communicate in writing detailed financing support of the F-X2 project by 29 May 2009. SEFA Director Maj. Brig. Knupp told Commerce and DSCA reps "SEFA expects 100% financing for F-X2 under Export Credit Agency (ECA) conditions." SEFA delivered the same message to the other competitors during visits to France and Sweden. ¶2. (SBU) The USG is at a competitive disadvantage as Ex-Im Bank, the US ECA, is prohibited by law from financing defense articles. ECAs in France and Sweden have no similar restrictions and will provide ECA guarantees to support their offers as requested by SEFA. Exceptions to EXIM regulations can only be made via legislative action. ¶3. (SBU) Crafting the USG response to SEFA's request is challenging given that we have no possibility of ECA support available. Post therefore recommends the USG communicate a willingness to approach Congress for legislation supporting the Super Hornet. Precedents for exceptions to EXIM rules include legislation to support the sale of F-16s to Poland, and to approve EXIM financing of military helicopters for Greece and, in a separate case, Turkey. Maj Brig Knupp (3-star) told MLO and FCS reps that he understands our legal challenges, and said that even if non-committal, the expression of willingness to approach Congress would be a significant demonstration of interest by the USG in support of Brazil and the Super Hornet offer. In order to remain viable in the FX2 competition, it is essential that a USG response to SEFA's request is submitted by the May 29 deadline. While the finance arrangements by themselves may not be decisive, lack of viable financing could well erode what post believes will be a significant advantage for Boeing from the Super Hornet's overall affordability. KUBISKE