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C O N F I D E N T I A L SECTION 01 OF 03 BRASILIA 001100
SIPDIS
STATE FOR WHA, T AND PM. DEFENSE FOR USD/AT
E.O. 12958: DECL: 09/01/2019
TAGS: PREL ETTC MASC BR
SUBJECT: QUESTIONS ABOUT SUBMARINE PURCHASE COULD IMPACT FIGHTER COMPETITION
REF: A. 08 BRASILIA 93
B. BRASILIA 34
C. BRASILIA 1094
Classified By: Charge d'Affaires Lisa Kubiske. Reason: 1.4(d)
1. (C) SUMMARY. Brazilian Minister of Defense Nelson Jobim has made modernization of the armed forces one of his top
priorities, particularly in terms of the acquisition of advanced military equipment. One the key acquisition initiatives
has been the purchase of submarines from France, leading, supposedly, to the development of a nuclear powered submarine.
Jobim and Brazil,s political leadership see the submarine as a vital element of Brazil,s development as a major power
and have settled on the deal with France as the surest path to development of such a vessel. Recently, the submarine
purchase, and defense spending in general, have been bedeviled with a number of well-founded questions from the
Brazilian Congress and press, primarily because of its cost. Given the political will behind acquisition of a nuclear
submarine, it is unlikely that development will be halted, but the arguments being used could have ramifications for
Brazil,s upcoming purchase of fighter aircraft and USG chances to win this competition. We can, however, turn concerns
over the submarines to our advantage by focusing attention on the advantages Boeing can offer in terms of predictable
costs, proven hardware and benefits to Brazilian industry. See paragraph 8 for recommendations. END
SUMMARY.
2. (U) On August 27, PolOff attended Defense Minister Jobim,s hearing before the Foreign Affairs and Defense Committee
of the Brazilian Senate, during which he discussed defense purchases, particularly for the Brazilian Navy. Jobim,s
remarks, which lasted two hours, were focused on building a case for a nuclear powered submarine based on the need for
superior range, speed and autonomy. These attributes are supposedly needed to defend Brazilian interests in the deep
waters of the South Atlantic, including pre-salt oil deposits in Brazil,s economic zone and potential future
exploitation of deep seabed resources. According to Jobim, the importance of protecting these interests justified the
costs of the submarine program and its support facilities.
3. (SBU) In 2008, Jobim reached agreement with the French government for the purchase of four diesel-electric submarines
plus assistance expanding the hull of a fifth to accommodate a nuclear propulsion system to be developed exclusively by
Brazil. Prior to this deal, Germany was Brazil,s submarine supplier, and German officials expressed surprise that Jobim
had announced the French purchase without comparison shopping in Berlin. Jobim,s explanation has been that the ultimate
goal of the submarine program is deployment of a nuclear powered boat and French experience with nuclear subs, and their
reputation for easy transfers of technology, made France the only logical partner. The purchase agreement is due to be
signed by Presidents Lula and Sarkozy on September 7, Brazilian Independence Day. The total cost is expected to reach
6.8 billion euros, including the construction of a new submarine base.
4. (SBU) While there is little question among Brazilians that owning a nuclear powered submarine will be in the national
interest, there is growing opposition to the program, primarily because of its cost. Over the last two months, a spate
of press reports has called attention to the high cost of the program (to put the cost in perspective, Brazil,s entire
defense budget for 2008 was about $23 billion) and Jobim,s decisions to award the deal for the subs and their new base
to French interests without competition. Jobim,s explanation has been that France was the only possible source for the
necessary technology transfer, an argument undermined by the leak to Globo News of a document from 2008 stating that the
German government had approved the transfer of design technology.8 On August 26, Valor Economico ran an article noting the problems other customers of French military
equipment have experienced with poor quality and higher than expected costs. Former President Fernando Henrique Cardoso
has also attacked the high cost of the submarine purchase and at the same time
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questioned the government,s intention also to purchase next generation fighter aircraft. Despite the attacks, the
overall goal of deploying a nuclear powered submarine is not in question. It is likely that the project will weather the
current storm, although its funding may be less than the MOD would like in the short term.
5. (C) In a recent televised interview, as well as in Senate testimony, Jobim based his arguments for the purchase of
military equipment on two points: technology transfer and domestic manufacture. Even though the Germans had approved
transfer of technology, Jobim stated that only the French were able to do so in a way that gave confidence. The
Brazilian Navy offered a similar explanation, but when the sale was announced, the German DCM said that Germany had not
been consulted, and that he thought the German manufacturer could match whatever the French could offer. Brazilian
Security analyst and Jobim insider Roberto Godoy has said that despite the letter from Secretary Clinton assuring the
Brazilians that all necessary technology has been approved, the USG offer is ¬ as clear8 as that of France, without
explanation of the lacking clarity. Jobim,s newest wrinkle has been to use the Defense Strategy,s mandate for increasing
Brazil,s domestic defense industry to call for in-country production of aircraft ) just as the later French submarines
are to be built in Brazil. are not buyers, we are partners in production,8 he said. While Boeing,s offer includes substantial offsets for
Brazilian industry, in-country assembly is not included because Brazilian manufacturer Embraer told Boeing it did not
want the expense of setting up an assembly line for a limited number of aircraft. EMBASSY COMMENT: This message has
clearly not reached Jobim, whose new emphasis on Brazilian assembly of the aircraft will clearly favor Boeing,s
competitors.
ANALYSIS --------
6. (C) Analysis of the Brazilian submarine plan raises several issues (ref a). If there were an oceanic threat to
Brazilian interests, one nuclear submarine would be far less effective a deterrent than the four or five diesel-electric
boats that could be built for the same cost. The technological challenges to development of a naval reactor and the
costs associated with such development are also likely to pose obstacles. As noted in ref a, however, there are strong
political reasons for going ahead. Brazil,s 2008 Defense Strategy (ref b) identifies nuclear power as a strategic
interest. Since Brazil is a NPT member and is prohibited from developing nuclear weapons, the Brazilian government
associates nuclear energy with security. Brazilian government contacts have noted that the five countries that currently
operate nuclear powered submarines are the five permanent members of the UN Security Council, a status which is a key
GOB goal. While there is no support in Brazil for developing nuclear weapons, the second class status to which Brazil
relegated itself by signing the NPT is keenly felt. The nuclear powered submarine should be seen as a nuclear weapon
substitute and is therefore essential in the minds of Brazilian leadership to reaching the great power status to which
they aspire.
IMPACT ON FIGHTER COMPETITION -----------------------------
7. (C) The submarine purchase could have several potential impacts on the fighter sale. From the beginning of the
competition, France has hinted that there could be potential for a submarine-aircraft package deal to lower overall
costs. On the other hand, recent negative publicity surrounding the submarine deal could have a negative impact on
French hopes to sell fighters as well. President Lula will be the decision maker on the fighter sale, but his top
priority is increasingly assuring the election of his chosen successor in the 2010 Presidential election. With
opposition figures weighing in against defense spending, there is an increasing danger that Lula will postpone a fighter
purchase into the next administration to avoid potential criticism. The case of the submarines provides a caution as the
Brazilians have used technology transfer as an excuse for buying from their preferred partner, while ignoring a
potentially attractive
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German offer. RECOMMENDATIONS ----------------
8. (C) While the submarine deal illustrates possible threats to the sale of U.S. origin fighters, it also suggests an
approach throughout the critical final period before a decision on the fighters is made. Since Boeing alone of the three
competitors is offering a proven system, the USG and Boeing should highlight this advantage, making the following
points: -- The USG has approved the transfer of all necessary technology for Brazil to purchase the F18 Super Hornet.
This is technology proven in thousands of operational missions. Its competitors can only offer technology still on the
drawing board. -- The Super Hornet has the lowest life cycle cost. Because it is already in operation, we can state with
confidence what this cost will be. Competitors can only guess and are apt to underestimate. -- Boeing is offering an
unmatched spectrum of benefits to Brazilian industry and has an unparalleled record in meeting its offset commitments.
-- Boeing has a perfect record of delivering aircraft to its customers. Neither of its competitors has ever made a sale
of the aircraft they are offering to Brazil. This message should be delivered at all possible opportunities to Brazilian
policy makers, especially Jobim and Lula. The USG offer was widely perceived as trailing the French until President
Obama raised the issue with President Lula in July. Now, in the endgame, a further Presidential intervention could again
be key.
KUBISKE