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Brazil's Gripen Purchase Could Reduce Sweden's Costs

Dec. 19, 2013 - 03:45AM   |  
By GERARD O’DWYER   |   Comments
Swedish Defense Minister Karin Enström, right, walks next to his Brazilian counterpart, Celso Amorim, during a meeting in Brasilia last month. Brazil this week selected Saab's Gripen E for its fighter competition.
Swedish Defense Minister Karin Enström, right, walks next to his Brazilian counterpart, Celso Amorim, during a meeting in Brasilia last month. Brazil this week selected Saab's Gripen E for its fighter competition. (AFP)
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HELSINKI — Saab’s pending sale of 36 Gripen E combat aircraft to Brazil will have the second-order effect of reducing Sweden’s own spend on the purchase of 60 Gripen E aircraft.

The savings will come from spreading the risk and the Gripen E’s overall cost of development and delivery. Savings will be passed on to the Swedish armed force’s core budget, according to senior government officials in Stockholm.

With a provisional sale value of US $4.5 billion, Swedish Defense Minister Karin Enström described the deal-finalization negotiations between Saab and the Brazilian Air Force as having the potential to deliver Sweden’s “biggest-ever” defense export deal.

“Having a second international partner in the Gripen fighter development project represents a huge positive for us. It will mean a greater synergy value and sharing of costs. It will leave more funds available for Sweden’s Armed Forces to channel to its core operations,” Enström said.

The negotiations leading to a finalized deal with Brazil will not be rushed, and could take up to 12 months or more, she said.

Brazil’s move to replace its aging Mirage 2000 fleet with the Gripen E had an instant and dramatic impact on Saab’s shares Thursday. Saab’s primary share soared 27 percent in price in Stockholm, adding $350 million to the company’s market value.

Switzerland is currently the sole international partner in the Gripen E development project. The Swiss government wants to purchase 22 aircraft for $3.3 billion. Against a backdrop of political opposition to the acquisition, the issue will be decided by referendum in May 2014.

A deal with Brazil would cement the future of the Gripen E development project beyond 2025, said Peter Hultqvist, the chairman of Sweden’s Parliamentary Committee on Defense.

“While the Swiss partner role is important, anything can happen in politics and depending on how the 2014 referendum swings the Gripen E program could be left without a mandatory international partner,” Hultqvist said. “A finalized deal with Brazil would copper-fasten the Gripen E’s development and help attract new international buyers for Gripen.”

In January, the Swedish government approved the purchase of 60 Gripen E and F (one- and two-seater) aircraft at a cost of $9 billion. The government added a stipulation that it could cancel the order without penalty if international partners could not be found to purchase at least 20 Gripen E aircraft.

The timing of Brazil’s selection of the Gripen E over rivals Boeing’s F/A-18 Super Hornet and France’s Dassault Rafale surprised political leaders in Sweden, Hultqvist said.

“There was an expectation that President Dilma Rousseff would delay any decision until after presidential elections in 2014 or improvements could be made in the economy,” Hultqvist said. “That said, there has been a sense in Sweden that Saab was making steady gains against competitors over the past six months. The NSA factor may also have helped Sweden’s case.”

Swedish officials agree that the cooling of political relations between Brazil and Washington in August, coming in the wake of allegations by former NSA contractor Edward Snowden that the security agency had intercepted telephone calls between Rousseff and her closest associates, advanced the case for neutral Sweden’s Gripen E selection.

Brazil’s decision means that Saab will need to upscale both production and manpower, said Lennart Sindahl, president of Saab Aeronautics. The final value of the sale will not be clear until negotiations are well advanced and all aspects of Saab’s 3,600-page offer document are covered, Sindahl said.

Saab’s offer document covers a broad range of cooperation that extends beyond delivery of the Gripen E. Proposals covering counter-trade, the production and assembly of Gripen parts and systems in Brazil, as well as closer collaboration in global markets between Saab and Brazil’s aerospace industry headed by Embraer, feature high in the offer document.

The Swedish government expects that the main part of the Gripen E’s assembly will continue to be based at the group’s chief Swedish production site in Linköping. “What exactly will happen will be decided in the negotiations. Some parts will be produced in Sweden and some in Brazil. The parts that are produced in Brazil may also be produced for a global market. We do not see this affecting production in Sweden. This is a production model we have used in other cases before,” Sindahl said.

Under an upscaled Gripen production cycle, Saab would be capable of delivering the first 12 Gripen Es to Brazil in 2018. First deliveries to the Swedish Air Force will also begin that year and continue up to 2027.

Sweden is fully prepared to add weight to smooth the path to a final contract, said Petter Lahm, a Berlin-based industry analyst.

“The fact that Sweden’s Wallenberg industrial empire is a major owner in Saab creates all kinds of possible added-value opportunities between industries in Sweden and Brazil. What this deal will do is bring these two countries closer together in a political and industrial sense. We may also see off-shoot ventures between Saab and Embraer to perhaps jointly produce a Gripen F two-seater version or collaborate in developing the Embraer KC-390 transport plane for the international marketplace,” Lahm said.

Sweden, which is looking to reinforce its Air Force’s transport capacity, could also decide to strengthen its position in the talks by committing to the purchase of one or more Embraer KC-390s, Lahm said.

Gripen C/D aircraft form the backbone of five nations’ air defenses. Apart from Sweden, the aircraft is used by air forces in South Africa, the Czech Republic, Hungary and Thailand.

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