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Battle for Rafale

A move by the Brazilian President, Inácio “Lula” da Silva, to apparently announce his choice of the Rafale as the new fighter aircraft for the Brazilian Air Force has triggered one of the most convolute stories in recent defence procurement history. 

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On 7 September, France and Brazil moved to further strengthen and expand their existing bilateral strategic partnership by signing the formal contracts for a series of Brazilian orders for French defence equipment, first announced in December 2008, and moving forward towards additional procurement decisions.

The broad agreement was jointly announced by French President, Nicolas Sarkozy and his Brazilian counterpart during the former’s visit to Brazil. “This is the consolidation of a strategic partnership of two people who have much in common,” said President Lula. “We want to think together, create together, build together and, if possible, sell together.” “The relationship between Brazil and France is not one of supplier and client, but of partners,” stated President Sarkozy. “We want to act together because we share the same values and a same vision on the big international goals,” he added.

The final contracts signed on 7 September cover licence production of 50 Eurocopter EC-725 helicopter (€1.85 billion), and a submarine package comprised of four Scorpène-type boats, construction of a related shipyard and naval base in Itaguai (Rio de Janeiro state), and technical assistance for the Brazilian design and construction of a nuclear-powered submarine (€6.8 billion). These contracts are being largely financed by loans totalling €6.1 billion extended by a pool of French banks (see MILTECH 2/09, page 122 for details).

Further, under the terms of the agreement, the Brazilian MoD will open negotiations with GIE Rafale (Dassault Aviation, Thales and SNECMA) for the planned purchase of 36 Rafale fighters for the Brazilian Air Force (FAB) under the FX-2 programme, plus an option for another 84 aircraft. On the other hand, France will formally join the ongoing Brazilian programme for the development of the KC-390 military transport aircraft and will provide technical support, while the French Air Force will eventually place a first order for ten planes.

Beyond these aircraft deals, the two Presidents extended the bilateral defence partnership into the field of army equipment. A statement of intent has been signed at defence minister’s level under which France would support the Brazilian Army’s modernisation programmes, including digitalisation, the networking of operational units, border monitoring and surveillance, and telecommunications. As a first concrete result of this framework agreement, Brazil’s Agrale and France’s Renault Trucks Defense will cooperate for the production and sale of military transport vehicles.

Technical negotiations on the proposed Rafale deal will now take place on the exact formulation of the French offer, to include the characteristics of the aircraft, the weapons package to accompany it, and the support and maintenance scheme. This will be followed by financial and commercial negotiations, and finally by the negotiation of the contractual clauses. The Rafale deal is valued by French government sources at €4.5-5 billion, plus another billion Euros or so for the armament and other equipment.

The French authorities have taken an engagement towards complete and unobstructed technology transfer that will be used to enable a progressively more comprehensive licence construction programme.

President Lula described France's guarantee to share its advanced combat aircraft technology with Brazil as an “exceptional competitive advantage.” If the contract is signed in 2010 as planned, initial deliveries will follow in 2013. France will deliver the first six aircraft from its own assembly line, but the remaining 30 will be locally-assembled by Embraer over a period of six years. Further, France is reported to be even willing to grant Embraer the exclusive right to sell Brazilian-assembled RAFALEs to potential customers in the whole of South America.

The KC-390 purchase in turn has been officially estimated at €500 million, but it is not immediately clear whether this amount will count against Dassault’s offset obligations for the RAFALE contract.

President Lula’s announcement of the RAFALE decision was made before the FAB submitted its final report to the government on the results of the technical evaluation of the three final competitors (the RAFALE, the GRIPEN NG and the F-18E/F SUPER HORNET) and thus well before the National Defence Council formulated its final choice based on both the FAB’s recommendations as well as other considerations. While it was always understood that the final choice would anyway be political, and that it would mostly lie in President Lula’s hands in his dual capacity as the head of State and Government, the surprise announcement thus raises a number of perplexing legal implications in that it would seem to cut across the regular selection process.

It is also understood that President Lula made an abrupt decision based on factors - the guarantee for complete technology transfer even including the right for further export sales, and the promise to make the aircraft available at a comparable price as paid by the French Air Force - that were not included in GIE Rafale’s bid, and were rather put forward by President Sarkozy in an handwritten note passed to President Lula during the official banquet. The final result has been a veritable political storm.

On 8 September (i.e., one day after the official announcement) the Defence Minister, Nelson A. Jobim took the truly extraordinary step of publishing a signed statement on the Defence Ministry’s web site, to the effect that “as regards this new development [the President’s announcement], the selection process of the FX-2 programme, led by Air Force Command, has not yet been completed, and will continue with negotiations with the three participants, which will be expanded and could eventually lead to redefined offers.” On 9 September, both Boeing and Saab issued statements to the effect that they have not been officially informed of the selection process having been curtailed, and thus regard themselves as still being very much in the running. On 10 September, President Lula reminded everybody as to who is in charge: “The Air Force has the technological knowhow to make the evaluation, and it will do so. But the decision is political and strategic, and it’s up to the President of the Republic and no one else.”

By 11 September a sort of a compromise political agreement appears having been reached. The selection process is to continue, however in the sense that GIE Rafale has until 21 September to formalise before the Brazilian Air Force a commercial proposition for the Rafale consistent with the parameters set by President Sarkozy, while the other two contenders will also have the opportunity to amend their offers by that date to try and match France’s. “If someone wants to make a better offer [than France], let them do it,” said President Lula. “That’s the way negotiations work.” The Air Force Command will use these revised bids to formulate its evaluation and recommendations that would be submitted to the National Defence Council by the end of October to enable a final choice by the President.

The Defence Minister also went to considerable lengths to downplay any notion of a power struggle between the President and him. “The important thing is that there has been a political decision by the President to expand the strategic alliance with France. ... for this policy decision to come into effect, it depends on Dassault and also the other bidders, because there has to be a comparative evaluation,” he said.

Barring last-minute monumental surprises, it is thus to be expected that the RAFALE choice will eventually be confirmed - albeit in a form, that would restore respect for the respective responsibilities and authority of the Air Force Command and National Defence Council. National security regulations will almost certainly prevent Boeing from going that far on the technology transfer road, while Saab is not legally in a position to offer Brazil access to the technologies for the GRIPEN NG’s American engine or the British/Italian radar.

By Ezio Bonsignore
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