Saab Wins $4.5 Billion Brazil Order as Spat Hurts Boeing

Saab AB (SAABB) surged in Stockholm as it beat Boeing Co. (BA) to supply 36 jet fighters for Brazil’s air force after President Dilma Rousseff called alleged U.S. spying on her government an affront to the South American nation.

The deal is worth $4.5 billion through 2023, the Defense Ministry said yesterday. Saab rose as much as 44.8 kronor, or 34 percent, to 177.8 kronor in Stockholm, the most since its 1998 initial public offering. Brazil picked Saab over Boeing because of the performance and cost of its aircraft as well as willingness to transfer technology, Defense Minister Celso Amorim said.

Rousseff in September called off her state visit to Washington following reports the U.S. National Security Agency intercepted her communications with staff. Yesterday she said the armed forces had a key role in strengthening cybersecurity to protect privacy and Brazil’s sovereignty.

“Boeing only didn’t win the deal because of the lack of trust created by the spying incident,” Welber Barral, who was Brazil’s trade secretary from 2007 to 2011, said by phone. “Had the decision been last year, Boeing would have won.”

Boeing, based in Chicago is disappointed and will work with Brazil’s air force to determine why its F/A-18 Super Hornet lost, according to an e-mail statement from the company. Brazil’s government will maintain close commercial ties with the U.S., Amorim said. The other finalist was Paris-based Dassault Aviation SA (AM) with its Rafale model.

Gripen NG

Brazil expects to sign the aircraft contract within 12 months, Air Force Commander Juniti Saito told reporters. Saab’s Gripen NG fighter jet will replace the Mirage 2000 that Brazil’s air force is scheduled to retire Dec. 20.

Saab, which offered a financing package and collaboration between the Swedish and Brazilian governments as part of its bid, will assure production of the jet past 2025 and could lure other buyers such as Denmark and Malaysia, Lennart Sindahl, head of Saab’s aeronautics unit, said in an interview. “This is a very good base for the future and sends a strong, positive signal to other potential customers.”

Assembly Options

Discussions with Brazilian industry will take place in the coming months to determine how local companies will be involved in the design and production of the new Gripen. Assembly of the jet in Brazil is a possibility, Sindahl said.

The Brazilian configuration is very similar to what Sweden is buying, although it could feature some unique equipment, he said. Brazil, which will take single-seat Gripen Es, may also take some two-seater F models as the first buyer of the type, Sindahl said.

“This is positive for our cooperation and means a lot for Sweden,” Swedish Defense Minister Karin Enstroem told state-broadcaster SVT. “It means we can welcome yet another country into the family of Gripen users, which is very positive as the more that operate Gripen, the more synergies we can extract.”

Adding a new partner means costs for maintenance and future upgrades can be shared to a larger extent , she said. Brazil’s decision to order Gripen may also lead to orders from other countries as the fact that “a further country, and a country as big as Brazil, choses the Gripen System should make others also regard this as an alternative,” Enstroem said.

Lower Cost

Saab has marketed the aircraft as a less costly and more reliable alternative than that of some of its competitors. Switzerland has committed to buying 22 of the jets, though the decision may face a national referendum next year. Current Gripen versions are in service with the Swedish air force as well as the South African, Thai, Hungarian and Czech Republic armed forces.

Brazil’s decision is also a setback for Dassault’s Rafale, which has struggled to build a presence outside France, with only India so far saying it wants to buy the fighter jet.

Dassault said in an e-mailed statement yesterday it regretted the South American country’s decision.

Brazil needs to be prepared to protect newly discovered offshore oil reserves, Rousseff told military officers in Brasilia yesterday. The country’s push to renew its fleet of jets coincides with its ambition to gain a permanent seat on the United Nations Security Council.

’Peaceful Country’

“We are indeed a peaceful country, but no way will we be a defenseless country,” she said before yesterday’s contract announcement.

The Defense Ministry in a report last year estimated the armed forces would need annual investments of 20 billion reais ($8.6 billion) over the next two decades.

European Aeronautic, Defence & Space Co. (EAD) is carrying out a 1.9 billion-euro ($2.6 billion) order to supply Brazil with 50 helicopters. France’s DCNS SA and Brazil’s Construtora Norberto Odebrecht SA are building five submarines in Rio de Janeiro state, costing the government 9.6 billion reais through 2015, according to Defense Ministry data. One will be nuclear powered.

Brazil in May 2008 started the bidding process to replace its aging fleet of jet fighters. The government had demanded technology transfer as a condition for bidding.

To contact the reporters on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net; Arnaldo Galvao in Brasilia Newsroom at agalvao1@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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