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Economic Slowdown Puts Brazil's Plans to Buy New Fighter Jets on Hold

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08/09/2012 | 10:41pm CEST

--Brazil has no timeline to purchase a new generation of fighter jets

--Brazil's defense minister not in conversations with companies at the moment

--Brazil has no favorite company in the fighter-jets bidding process

 
   By Luciana Magalhaes 
 

SAO PAULO--Brazil Defense Minister Celso Amorim said the economic slowdown has delayed a long-awaited decision to purchase a new generation of fighter jets.

"The project is not being abandoned. There will be a decision in the right time. But, today, I would prefer not to give a date," Mr. Amorim said in an interview with Dow Jones. "The economic situation has taken a less favorable turn than expected and it naturally requires caution."

The process--which has lasted more than a decade--involves three international contenders: the Gripen NG made by Sweden's Saab AB (SAAB-B.SK, SAABF), the F/A-18 Super Hornet of U.S. company Boeing Co. (>> The Boeing Company), and the Rafale warplanes manufactured by France's Dassault Aviation SA (>> DASSAULT AVIATION).

Brazil's government sent a letter to the three companies in June asking them to extend the proposals for the jets until December. According to the government, this is an usual practice, expected to happen every six months, if a decision isn't reached.

"I am not in conversations with any companies at the moment, which doesn't exclude the possibility that I might receive somebody here," the minister said in his office in Brasilia.

In 2010, Luiz Inacio Lula da Silva and Nicolas Sarkozy, then presidents of Brazil and France, respectively, issued a joint statement saying Brazil entered into exclusive negotiations involving the Rafales, but not long after the Brazilian government backtracked and said the competition was still wide open. In the end, Mr. da Silva left the decision to his successor, Dilma Rousseff.

"Today, I wouldn't say any company is favorite. The important question is when we will do it and, then, we will again look into the proposals," the minister said. "There's a need to re-equip but it needs to be resolved accordingly with the country's possibilities."

Price, quality and technology transfer are the three key elements, "but the specific weight that will be given to each one of these is something that I haven't had the chance to discuss profoundly. There is no decision," Mr. Amorim said.

Mr. Amorim said a decision earlier this year by the U.S. government to cancel an order of Brazilian-made military training planes wouldn't weigh against Boeing. In late February, the U.S. Air Force canceled an order for Super Tucanos of Embraer SA (ERJ, EMBR3.BR) and restarted the contest, saying top procurement officials weren't satisfied with the documentation in the bidding.

Donna Hrinak, Boeing's president in Brazil, said the company is "prepared to wait for the decision of the Brazilian government." Representatives for Grippen and Dassault couldn't be reached for comment Thursday.

Other defense programs in Brazil, meanwhile, are moving ahead, including on the construction of a nuclear-powered submarine in a joint project with France. Brazil has also bought 50 new helicopters made locally. Mr. Amorim is keen to see Brazil invest more in defense.

The ministry's budget is around 1.5% of gross domestic product, or about BRL61.76 billion ($30.6 billion) in 2011. Ten years ago, spending was far lower, at BRL25.5 billion, but accounted for about 2% of GDP. Mr. Amorim said he wants to return to those levels, which would bring the country closer in line with spending in countries such as China, Russia and India.

"This is my goal. It's not an approved government program. It's something I consider reasonable to be attained," Mr. Amorim said.

Brazil hasn't fought a war in years. It fought the Paraguay war in 1865 and was somehow involved in the first and second World Wars, but Mr. Amorim said the country needs a defense system capable of protecting its vast natural resources, which include recent discoveries of huge oil reserves off the country's southeast coast. Moreover, water has become a significant asset, he said.

"Today, besides the energy, the oil, or the capacity of producing food, we have a resource that is likely the most sought-after in this 21st century, which is the fresh water," Mr. Amorim said.

The minister said defense spending can also be a powerful way to create and keep jobs during the ongoing economic slowdown, and can provide incentives for technological advances.

Write to Luciana Magalhaes at luciana.magalhaes@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

Stocks mentioned in the article : The Boeing Company, DASSAULT AVIATION
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