Saab’s $3.5 Billion Gripen Order in Doubt as Swiss Vote

Saab AB risks losing a $3.5 billion order for its Gripen fighter seen as crucial to the program’s future as Swiss voters review the purchase in a referendum.

Some 51 percent of voters are ready to block the 22-plane contract, which Switzerland awarded 2 1/2 years ago, with 44 percent in favor, the latest survey by researcher gfs.bern suggests ahead of the May 18 vote. Support for Gripen gained slightly compared with a poll by the same researcher April 11.

“It’s going to be very close,” said Fabian Ochsner, head of the Swiss Air Force officers’ association and a manager at the Zurich-based air-defense unit of Rheinmetall AG, the largest donor to the pro-Gripen campaign in Switzerland. A majority against could kill not only the current order but any Swiss purchase of warplanes over the next 10 years, he said.

The intensity of opposition has surprised backers of the multirole jet, whose name comes from the Swedish for griffin. Eight months ago, the Swiss, in a show of confidence in their armed forces, voted to keep a 165-year-old army draft that costs an annual $5.1 billion.

Gripen opponents have gained ground with arguments that the plane will cost 10 billion francs ($11.3 billion) over its lifetime, money that could be deployed elsewhere. Rising tensions between the U.S. and the European Union and Russia over the Ukraine crisis on the other hand could rescue a “yes” vote in the final days.

Tiger Replacement

Saab clinched a three-way contest to replace Switzerland’s fleet of Northrop Grumman Corp. F-5 Tigers in November 2011, edging out the Rafale from France’s Dassault Aviation SA and the Typhoon, built by the Eurofighter consortium of BAE Systems Plc, Airbus Group NV and Italy’s Finmeccanica SpA.

The nation of 8 million people agreed to pay 3.1 billion francs for deliveries from 2018 in a deal that’s controversial partly because it requires cuts elsewhere in order to deliver the balanced budget enshrined in Switzerland’s constitution.

A plebiscite on almost any topic can be called by collecting 100,000 signatures, or 50,000 for a vote on the cancellation of a recently passed law. Turnout averages about 40 percent, though may sometimes be higher for controversial measures.

Switzerland and Brazil are the first two nations after Sweden to pick the next-generation Gripen E, whose development is contingent on an export order of at least 20 aircraft.

Thailand and South Africa operate older C-model jets made by the Stockholm-based manufacturer.

Tighter Budgets

Swedbank analyst Mats Liss said the Swiss deal is crucial, though not the be-all and end-all for the Gripen E.

“Brazil is a more important client, but of course, that deal also needs to be finalized,” he said in a phone interview.

Saab beat Boeing Co. late last year to develop 36 fighters for Brazil’s air force in a deal worth $4.5 billion through 2023, following allegations that the U.S. government spied on President Dilma Rousseff. Saab’s shares soared 32 percent on Dec. 19, the day after the news was released.

Saab is pushing the Gripen against rival offerings from companies also including Lockheed Martin Corp., the world’s biggest defense contractor, just as tighter military spending makes U.S. and European orders harder to come by.

Lennart Sindahl, head of the Saab Aeronautics unit, said that while the Swiss deal represents “a great opportunity” and that missing out would be “very unfortunate,” delivery of 60 Gripen E’s to Sweden and the 36 to Brazil would still represent “a very successful start” to the development program.

Order Interest

Saab aims to sell around 400 Gripens over the next 20 years, and is in serious talks with 10 nations which could yield agreements in the near term, according to Sindahl. He added that “a very significant country” recently made an approach.

The Swiss federal government, which officially supports the Gripen purchase, has said it will honor the result of this weekend’s vote.

“The fighter jets won’t be procured if the Gripen financing law is rejected,” it said in a statement last month.

On May 18, in addition to the Gripen, the Swiss will vote for or against a minimum hourly wage of $25, restrictions on pedophiles, and a proposal to improve primary health care.

Sindahl said a reworked deal with Switzerland is unlikely in the event of a “no” decision. “That is up to the Swiss to answer, but I can’t see it happening,” he said.

Rheinmetall’s Ochsner says a defeat for Gripen may leave Switzerland without an air defense by as early as 2025. Its 54 F5 Tigers, which began service in 1976, will be retired in 2016 and 32 Boeing F/A 18 Hornets would bear the brunt of flying hours and retire as much as a decade early, he said.

“There’s no bad will in losing the referendum,” said Bjorn Enarson, an analyst who covers Swedish industrial companies at Danske Bank in Stockholm. “It’s not a verdict on Gripen, it’s a decision against having an air defense.”

Before it's here, it's on the Bloomberg Terminal.