VZCZCXYZ0020
RR RUEHWEB

DE RUEHBR #1589/01 3471552
ZNY CCCCC ZZH
R 121552Z DEC 08
FM AMEMBASSY BRASILIA
TO RUEKJCS/SECDEF WASHDC
RUEHC/SECSTATE WASHDC 3081
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 6980
RUEHSO/AMCONSUL SAO PAULO 3195
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEKJCS/JOINT STAFF WASHDC
RHEHNSC/NSC WASHDC
RHMFISS/CDR USSOUTHCOM MIAMI FL

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