Eurocopter Eyes Brazil Export

RIO DE JANEIRO — Helicopter-maker Eurocopter wants its Brazilian affiliate Helibras to develop and build aircraft for export to the world by 2025, the company’s CEO said in an interview published Jan. 25.

“In 2023 or 2025 we will begin to have models designed in Brazil, built in the country and that will be sold on the world market,” Lutz Bertling said in the interview with the business daily Valor.

Currently, Eurocopter helicopters are designed in Europe. A Brazilian factory in Itajuba, Minas Gerais, only assembles Ecureuils helicopters.

Brazil is the only country in the BRICS group of emerging powers — Brazil, Russia, India, China and South Africa — that does not have a helicopter industry, said Bertling. Eurocopter, a subsidiary of the European aeronautics giant EADS and the world’s top manufacturer of civilian helicopters, “wants to become the national helicopter maker of Brazil,” said Bertling.

The company has invested 186 million euros ($241 million) in a new factory at Itajuba, which is scheduled to open in February or March and begin production by mid-year.

The expansion was part of a 2008 contract to sell 50 EC725 helicopters to the Brazilian military, which calls for the first 16 to be built in France and the rest in Brazil.

Eurocopter sees a promising future in the Brazilian market and is pursuing some big deals, according to Valor.

The Brazilian police have announced plans to buy 100 helicopters and the private sector demand is expected to rise with the country hosting the 2014 World Cup and the 2016 Olympic Games in Rio.

“Even without big events, Brazil is one of the helicopter markets with the fastest growth in the world,” said Bertling.

Eurocopter announced Jan. 24 in Paris sales of 5.4 billion euros ($7 billion) in 2011, up 12.5 percent over the previous year.

Cherming eyes growth in Mid East and Asia

LONDON — British-based Chemring, which produces munitions countermeasures, managed to grow its non-NATO business on the back of a huge rise in munitions sales in the Middle East and Asia, the company announced as it rolled out 2011 results on Jan. 24.

With austerity measures reducing defense spending across the alliance, Chemring said it is succeeding in building its non-NATO order book, but the downturn is threatening further rationalization in its key U.S. business, the company said.

Companies’ abilities to grow their businesses outside of depressed North American and European markets will likely be a growing theme as they turn to burgeoning spending in South America, the Middle East and Asia.

“The continuing problems of the Eurozone and the impact of possible sequestration in the U.S. indicate that our traditional markets will not be any easier this year. We continue to pursue our policy of reducing our dependence on these markets,” Chemring chairman Peter Hickson said in a statement.

Chemring reckons there will be a boom in the South Asia market until at least 2015 and says the major economies in South America will see defense budgets grow between 6 and 16 percent a year. The Middle East will see a 3.5 percent rise in defense budgets until 2015, Chemring said

“It’s encouraging to note that 44 percent of today’s order book emanates from non-NATO markets, compared with 33 percent at the same time last year,” Hickson said.

Overall, the company-reported revenues rose 25 percent to 745 million pounds ($1.16 billion). Non-NATO revenues rose 81 percent to 29 percent of total revenue compared with 20 percent in the previous year. Organic growth accounted for 9 percent of the total revenue growth.

Underlying profit before tax was up 6 percent to 125 million pounds ($194 million) even though the company reported pressure on margins across all of its business sectors.

It wasn’t all good news in the non-NATO markets, though. Chemring had to rely on a 216 percent rise in munitions sales to the Middle East and Far East to achieve its figures with countermeasures and pyrotechnics, both registering hefty reductions across the regions.

The company said it is looking to form a countermeasures joint venture in Saudi Arabia later this year and is looking for a similar arrangement in Brazil in a non-specified sector.

The picture is not so positive in its principal market. Chemring said it is looking at further possible rationalization of its business in the U.S.

The company closed an Alloy Surfaces countermeasures plant in the U.S. last year with the loss of 120 jobs and said it was reviewing further site rationalization at Alloy and Niitek, its strong growing counter-IED business.

Chemring was hard hit by a 31 percent slump in helicopter and transport-aircraft flares demand from NATO nations. The reduction was more severe than anticipated, said the company.

The U.S. markets accounted for 43 percent of Chemring revenues last year.

BAE Sells 3 Offshore Patrol Vessels to Brazilian Navy

BAE Systems has sold three already built offshore patrol vessels (OPV) to Brazil as the first part of a deal that also involves a manufacturing license for at least five more warships built locally.

The vessels were originally built for the Trinidad & Tobago government, but that deal was terminated in 2010 when the Caribbean nation refused to take possession of the OPVs due to late delivery. The two sides are currently in arbitration.

The three vessels will cost the Brazilian Navy 120 million pounds ($186 million U.S.) with a further 13 million pounds being allocated for training and support by BAE.

The first two 90-meter vessels are scheduled to be reactivated and handed over in June and December of this year, with the final warship being delivered in 2013.

The deal also has BAE handing over a manufacturing license to the Brazilian Navy for the local construction of at least five more OPVs.

A BAE spokeswoman said the local shipyard will be nominated by the Brazilian Navy.

The warships weigh 2,200 tons fully loaded, are armed with 30mm and 25mm cannons, and have a helicopter flight deck.

The OPVs are part of a major program, known as Prosuper, aimed at expanding Brazilian naval capabilities. Competitions to supply frigates and a logistics ship are ongoing.

A British offer to sell redundant Royal Navy Type 22 frigates as a short-term measure was rejected by Brazil last year.

A submarine fleet is already being built with French assistance

Rafale Best Jet On Offer for Brazil: French PM

SAO PAULO - French Prime Minister Francois Fillon said Dec. 14 he was confident of selling Rafale fighter jets to Brazil and could beat off rival bids because the aircraft's technology cannot be matched.

The Rafale is competing against Boeing's F/A-18 Super Hornet and Saab's Gripen for a tender from Brazil to supply 36 multi-role combat aircraft.

The French premier begins a three-day visit to Brazil on Dec. 15."We are confident because we believe that the French offer has the best possible transfer of technology, without equivalent," Fillon said in an interview published with local media.

French Defense Minister Gerard Longuet was quoted earlier this month in Le Monde as saying that unless the Rafale can find a foreign buyer, the government will have to stop funding its production by Dassault Aviation.

The Rafale was used in the recent war in Libya but the fighter has repeatedly lost out in tenders in countries including Singapore, South Korea, Morocco and, earlier this month, Switzerland.

Brazil Boosts Navy, But Fleet's Age, Size a Concern

SAO PAULO - As it bids for great power status, Brazil is boosting its naval power in the South Atlantic with an ambitious submarine program to protect its huge deep-water oil reserves and project its growing influence.

BRAZIL'S AIRCRAFT CARRIER Sao Paulo is seen in the Atlantic Ocean near Rio de Janeiro. (Brazilian Navy via AFP)

The emerging powerhouse already boasts Latin America's largest navy, but its aging fleet, including the Sao Paulo aircraft carrier - formerly the French Navy's Foch - nine British-built frigates and five coastal diesel-electric submarines, is in urgent need of modernization.

"The fleet is currently inadequate to carry out its assigned missions" in the South Atlantic, an area Brasilia regards as of high strategic value, Nelson During, chief editor of Brazil's respected defense website DefesaNet, told AFP.

Under the National Defense Strategy unveiled in 2008, the navy was tasked with developing a force to protect the country's huge "sub-salt" oil reserves, the Amazon river basin and its 7,491 kilometers (4,655 miles) of coastline.

The oil fields, located off Brazil's southeast Atlantic coast beneath kilometers of ocean and bedrock, could contain more than 100 billion barrels of high-quality recoverable oil, according to official estimates.

In a speech to the Navy's top brass in June, President Dilma Rousseff stressed that the buildup, including the acquisition of the country's first nuclear-powered submarine, was a key "instrument of deterrence."

Earlier this month Adm. Luiz Umberto de Mendonca told a congressional panel that some $117 billion would be needed by 2030 to fund the buildup, including the acquisition of 20 conventional submarines, six nuclear-powered ones and the creation of a second fleet to be based on the northeastern coast.

But During said such plans were "totally unrealistic given the 26 percent cut in this year's 15 billion real ($8 billion dollar) defense budget," adding that the navy only gets a third of that.

"We don't have the money and defense is not a priority in Congress," During added. "There is a feeling that we are a large country at peace with the world, with no external conflicts."

Eric Wertheim, an analyst with the US Naval Institute in Annapolis, said that Brazil, with "a powerful economy and around 200 million people ... must be able to defend its deep-water oil fields and protect the Amazon region.

"The country (must) also be ready for an unpredictable future that might include demands like escorting merchant ships that are vulnerable to piracy attacks on the other side of the world," Wertheim, who edits the Naval Institute Guide to Combat Fleets of the World, told AFP.

The recent oil spill from a well operated by a U.S. energy firm off Rio de Janeiro state "showed how unprepared the navy was to deal with such emergencies," he said.

The centerpiece of the naval buildup is the ProSub program, under which France is to supply four diesel-electric submarines and help develop the non-nuclear components of Brazil's first nuclear-powered fast attack submarine.

Except for the first boat, expected to be ready around 2016, all submarines are being built, with French technology transfer, at the Itaguai naval base and shipyard near Rio.

Brazil already has the uranium enrichment technology required for producing nuclear fuel and wants to use it to power the submarine.

But During said that because of repeated delays, the $2.66 billion nuclear submarine was not expected to be completed before 2025.

In addition to its deterrence value, a nuclear sub would give Brazil "status" and add "credibility" to its ambition to become a permanent member of the U.N. Security Council, he added.

Brazil also "intends to show the flag" in the South Atlantic, in view of its growing trade ties with African countries across the ocean, particularly former Portuguese colonies such as Angola, During said.

Some Brazilian strategists argue that Brazil should become "the dominant naval power in the South Atlantic, without excluding others," he added.

Last year, former defense minister Nelson Jobim raised eyebrows when he described any expanded NATO presence in the South Atlantic as "inappropriate," and some Brazilian lawmakers expressed concern when the United States decided to reactivate its 4th Fleet in the area in 2008.

But During dismissed those comments "as rhetoric for domestic consumption."

Exchange Rate Behind UAE Rafale Balk: Dassault

PARIS - The price resistance from the United Arab Emirates on the Rafale fighter jet stems from an unfavorable euro-dollar exchange rate, but talks on the French aircraft continue, Dassault Aviation executive chairman Charles Edelstenne said July 28.

The UAE's discussion with Lockheed Martin about a potential purchase of additional F-16 fighters was "not a negative sign," Edelstenne told a press conference on the company's results for the first half of the year.

"Talks are going on," he said.

But with the euro at $1.40, the Rafale's sale price was boosted by the currency exchange rate, Edelstenne said. Dassault could not cut prices by 40 percent to offset the weaker dollar.

"I make Mirages, not miracles," he said.

The euro was trading at $1.43 in early afternoon, with the dollar under severe pressure from the U.S. government impasse on raising the debt-ceiling limit ahead of the Aug. 2 deadline.

Edelstenne refused to disclose the unit price of a Rafale, but he said an export purchase generally involves a political decision to pay a "price premium" that granted "independence of action." As the Rafale is built in France, reflecting a strategic decision on sovereignty, its costs are in euros, making it more expensive than an American fighter aircraft sold in dollars.

On the French government's July 20 decision to start negotiations with Dassault on a supply of the Heron TP medium-altitude long-endurance (MALE) UAV, Edelstenne said this meant sustaining a French design capability in military aircraft instead of paying for the "Messerschmitt design office" in EADS.

Edelstenne said in picking OHB over EADS, Germany made similar national selections in its space procurement.

Asked what the significance was in selecting Dassault as supplier of an interim MALE UAV, Edelstenne said the choice showed a determination to maintain a French national capability in building combat aircraft, as the next manned fighter jet would not enter service for another 30 to 40 years.

The negotiations would determine what sensors and communications payloads would go on the Israeli Aerospace Industries' UAV air vehicle, which is intended to provide an interim solution until the planned Anglo-French new generation MALE UAV enters service, expected in 2020.

IAI has agreed to disclose technical information on the Heron TP, which will be adapted to French requirements, including the ability to carry weapons, Edelstenne said.

The interim MALE UAV could have a service life of around 10 years and could overlap with the new Anglo-French air system, a company executive said.

On an asset swap under negotiation between Safran and Thales, Edelstenne said the airplane engine and equipment maker was holding up a deal by saying "no" to each new proposal from the electronics company. That forced Thales into a corner, he said.

"The valuation levels are a bit extraordinary," Edelstenne said.

Dassault signed an agreement with the government on an asset swap when it took its 26 percent stake in Thales, covering inertial navigation, onboard electricity generation and optronics, Edelstenne said.

Safran's sales in optronics are worth around 600 million euros, and if the business were put into Thales, that would make the electronics company second or third in the world market for electro-optics.

At the Paris Air Show in June, French President Nicolas Sarkozy said the government would impose a settlement if industry failed to reach a voluntary agreement.

Edelstenne said he was "very satisfied" with the Thales first-half results, which were released on July 27. The results displayed early effects of the Probasis restructuring plan and improved management of large programs and contract negotiations, he said.

Dassault reported a 35 percent fall in net profit to 129 million euros from 197 million euros a year ago, as sales dropped 34 percent to 1.32 billion euros from 1.99 billion euros.

The sales and profit slide came from lower deliveries of the Falcon business jet, with a delay in shipment of the Falcon 7X into the second half.

Orders declined to 95 million euros from 99 million euros.

On a production rate of one unit per month, Dassault has delivered six Rafale jets so far this year out of 180 total orders to date.

Privately, company executives expect the French government to stretch out future Rafale orders because of expected defense budget cuts, especially if export contracts are won.

Besides the UAE, Dassault hopes to sell the Rafale to India, Brazil and Switzerland. India is holding to its timetable to buy 126 medium-range combat aircraft, and the Swiss government has shown renewed interest in replacing its F-5 fighters.

UAE Eyes F-16 as Rafale Talks Falter

PARIS - The United Arab Emirates (UAE) is talking with Lockheed Martin about buying more F-16 fighter jets because France's offer of an advanced version of the Rafale is seen as too expensive, said a source familiar with the negotiations in the Arabian Gulf.

Discussions on the F-16 pile pressure on Dassault Aviation, builder of the Rafale, to cut prices and on the French government to increase funding for upgrades seen as vital to sealing an export deal for the twin-engine combat jet with the UAE, analysts said.

In the 1990s, the UAE bought 80 F-16E/F fighters under a $7.3 billion foreign military sales contract.

"The UAE is finding the Rafale offer to be too costly compared to the capabilities of aircraft and other technologies on the market," the source said. "The negotiations with France are still ongoing, and both sides are looking for a compromise."

The UAE has been seen as a potential first export buyer of the Rafale in a deal estimated last year at $10 billion. Meetings on the sale of the French fighter took place at the Paris Air Show, which ended June 26.

But price resistance has led UAE officials to open discussions with Lockheed to buy more F-16s with the latest "weaponry and targeting sensors," the source said.

Last year, UAE officials asked for technical information on Boeing's F/A-18E/F Super Hornet following a political chill at the highest levels between Abu Dhabi and Paris.

In talks with the French, the elements said to be stretching the UAE's planned budget are the co-development costs for a more powerful "special" version of the Rafale, plus maintenance and spare parts. The UAE wants its Rafales powered by Snecma M88 engines, whose 9 tons of thrust would provide 1.5 tons more than the version flown by the French Air Force.

Other improvements requested include a longer-range active electronically scanned array (AESA) radar and a more capable Spectra electronic warfare suite.

The upgrades previously have been estimated at 2 billion euros ($2.9 billion) by then-French Defense Minister Hervé Morin.

Officials with Dassault Aviation declined to comment. Shortly before the Paris Air Show, Dassault Chief Executive Charles Edelstenne said of the Rafale offer to the UAE, "the talks are advancing."

The gulf source said, "Lockheed Martin is offering a very attractive financial package."

A UAE sale might help Lockheed keep its F-16 assembly line open after India rejected the U.S. fighter in its Medium Multirole Combat Aircraft competition.

Lockheed officials were unable to comment by press time.

France badly needs export success on the Rafale, a showcase of military technological competence, as the national defense budget assumes foreign contracts to help pay for a steady rate of production.

Dassault has said it must build 11 Rafales per year to keep the production line running at an economical rate.

Large companies depending on the Rafale include Safran subsidiaries Sagem for the forward-looking infrared gear and Snecma for the jet engines, as well as Thales for the electronics and RBE2 AESA radar, and MBDA, which hopes to sell the Meteor long-range missile.

The UAE's interest in the F-16 has forced Dassault to reduce prices, said Loic Tribot La Spiere, chief executive of think tank Centre d'Etude et Prospective Stratégique. Dassault has little room to maneuver as it must sell the Rafale, needed to boost "other opportunities" in export markets, he said.

Dassault hopes to sell the Rafale to Brazil, India and Switzerland, among other countries.

"Faced with this development, Dassault could go far in concessions, and the Emirates know it," Tribot La Spiere said.

But the U.S. also has an urgent need to boost exports, given its dire domestic economic situation, Tribot La Spiere said. The gulf is seen as a region that helps sustain U.S. activity.

"In this context, it is a safe bet that buying the F-16 aircraft could be seen, or rather proposed, as underwriting a security insurance policy: 'You buy this product and we will ensure your security, even internally,'" he said.

Research fellow Hélène Masson of think tank Fondation pour la Récherche Stratégique said the UAE's talks with Lockheed are a "radical means to put pressure on Dassault's offer."

The move may raise France's financial burden to pay for the Rafale's development, particularly the M88 engine.

"The central problem is really the funding for the aircraft's new functions, notably the engine," Masson said. "It's a way to say to the aircraft maker, and above all, the French Defense Ministry, that they must contribute more significantly to the development of this new version of the M88 and so reduce the financial cost to the UAE. ... Yes, this is really a chess game."

Dassault refuses, as a policy, to use company money to fund military aircraft development, insisting the government client pay.

The French Air Force is understood to be content with the current engine's performance, so it appears Paris must decide whether to further fund upgrades to win the UAE sale. That comes as France seeks to cut its public deficit.

In the 1990s, the UAE bought 80 F-16E/F fighters, with distinctive conformal fuel tanks, under a $7.3 billion contract through the Pentagon's Foreign Military Sales program. A reported $3 billion of that amount went to co-develop the Block 60 Desert Falcon, widely viewed as the most capable version of the F-16 worldwide.

As co-developer, the UAE is co-owner of some of the sensitive military technology on the Block 60 version. As part of the deal, UAE personnel worked on the co-development program, and Lockheed trained Emirati nationals to service the Block 60 aircraft.

The 1990s also saw the UAE buy Dassault Mirage 2000-9s, which were more advanced than the 2000-5 flown by the French Air Force. Older Mirage fighters were also upgraded to the more capable variant.

The Mirage 2000-9 fleet still has a long life ahead, but the UAE could start taking delivery of the new F-16s in under five years while keeping its Mirages, the source said.

France has offered to buy back the Mirage 2000-9 fleet and resell it in export markets to encourage the Rafale sale to the UAE.

The UAE has bought the Black Shaheen cruise missile for the Mirage. The UAE also has the long-range strike missile Hakim, which was shown under the wing of a Rafale model displayed in February on missile maker MBDA's stand at the IDEX arms show in Abu Dhabi.

SIPRI: New START Unlikely to Have Short-Term Effect

HELSINKI, Finland - The recent New Strategic Arms Reduction Treaty is unlikely to much alter the nuclear landscape in the short term, said SIPRI (Stockholm International Peace Research institute), the Stockholm-based think tank.
New START calls for slowly paring the U.S. and Russian arsenals to 1,500 warheads from the nearly 5,000 currently deployed, which includes some 2,000 on high alert, SIPRI notes in its 2011 Yearbook, released on June 7.

"It's a stretch to say that the New START cuts agreed by the U.S. and Russia are a genuine step toward nuclear disarmament when their planning for nuclear forces is done on a time scale that encompasses decades, and when nuclear modernization is a major priority in their defense policies," Shannon Kile, a senior research analyst with SIPRI, said in a statement.
The think tank remains skeptical about the desire for meaningful short-term disarmament by the eight nuclear powers.
"The five legally recognized nuclear weapons states, as defined by the 1968 Non-Proliferation Treaty, are either deploying new nuclear weapon systems or have announced their intention to do so," says SIPRI, referring to the Britain, China, France, Russia and the U.S.
India and Pakistan are expanding their ability to make weapons-grade nuclear material, said SIPRI director Daniel Nord.
"South Asia is the only place in the world where you have a nuclear weapons arms race," Nord said.
SIPRI estimates that more than 20,500 warheads are in the arsenals of the world's eight nuclear powers: Britain, China, France, India, Israel, Pakistan, Russia, and the United States. Russia has 11,000, including 2,427 deployed, while the United States has 8,500, including 2,150 deployed, according to SIPRI estimates.

Global Spending 2010

The SIPRI report also included estimates of countries' defense spending.
It said Brazil, China, India, Russia, South Africa and Turkey are re-emerging as regional powers, with all but Turkey boosting their defense spending.
SIPRI estimates global military expenditure in 2010 rose 1.3 percent in real terms to $1.630 trillion. That's slower than recent years, which the think tank blames on the global economic crisis.
Military spending rose 5.8 percent in South America, 5.2 in Africa, and 4.1 in Oceania, a region dominated by Australia and New Zealand.
The biggest spender, the United States, spent almost six times more than China, its nearest rival, up to $698 billion in 2010.
Rounding out the top 10 were Britain, France, Russia, Japan, Saudi Arabia, Germany, India and Italy.

Tech Offers Shape India's Jet Picks

Willingness to transfer technology likely helped the multinational Eurofighter Typhoon and French Dassault Rafale emerge as the short-listed rivals for India's Medium Multi-Role Combat Aircraft (MMRCA) program, observers said, although at least one U.S. official said the Indian Air Force's technical requirements were the deciding factor.
The Indian government has not even formally announced the downselect, let alone explained why it ruled out the Swedish Saab JAS-39 Gripen, the Russian MiG-35, and two U.S.-built jets, the Boeing F/A-18E/F Super Hornet and the Lockheed Martin F-16IN Super Viper, from the $10 billion, 126-aircraft program.
Instead, the news was passed April 27 to the jet-makers' national governments, irking at least some U.S. industry players.
"The way the decision was made and announced has only made things worse: The [government of India] knew full well the importance the administration attached to this sale. A quiet intimation of the coming decision would have helped considerably. It was really unfortunate that this was not done," said Ashley Tellis, an analyst at the Carnegie Endowment for International Peace in Washington.
A Indian Defence Ministry source said the decision was based on technical evaluations and flight tests, not political considerations or influence. Defence Minister A.K. Antony insisted that the selection be based on merit alone, the source said.
A senior Defence Ministry official said India will next open negotiations over technology transfer and price with the remaining bidders, a process that could last all year.
Several analysts said that while the U.S. had allowed its jet makers to offer unprecedented access to technology, European contenders probably pledged more.
"The most likely explanation is that the Europeans wanted and needed it more. They were willing to bend over backwards in terms of technology transfer, in terms of industrial work share and in terms of other regulatory issues, and they really needed this," said Richard Aboulafia, an analyst at the Teal Group, Fairfax, Va. "For the U.S. contractors, it would have been gravy, but for the Europeans, it's survival through the end of the decade."
Byron Callan, an analyst at Capital Alpha Partners in Washington, agreed about the stakes, but also said the U.S. companies' loss augurs poorly for their chances in Brazil's fighter competition.
Others disagreed about the role of tech-transfer in the Indian decision.
Tellis said the choice merely reflected the Indian Air Force's (IAF) technical preferences.
"The down-select decision clearly represents the IAF's choice, which the MoD has obviously gone along with as expected," he said.
One senior U.S. administration official agreed.
"I wouldn't see the technology release issue as the clincher," he said. "This was a judgment made on the basis of the technical qualification requirements that the Indian Air Force had established as part of the procurement."
He said the two U.S. aircraft had failed to meet certain Indian technical criteria.
"India would have been well-served to take a more comprehensive look at the transaction," he said.
But the official also conceded there were certain technologies that the U.S. simply would not share.
"We have a defense licensing system which is consistent with the law of the land, and there are certain technologies we're simply not going to hand over. That's just a fact of life," he said.
Boeing disputed the assertion that the F/A-18E/F did not meet Indian technical requirements.
"We believe we offered the Indian Air Force a fully compliant and best-value multi-role aircraft for the defined mission," the company said in a statement.
Indeed, many analysts considered the Boeing entrant to be among the most technologically capable of the rivals, as well as offering the favored twin-engine configuration.
"The F/A-18, that surprised me," said Douglas Barrie, an analyst with the International Institute for Strategic Studies in London. "My side bet for the program would have been the Rafale, Typhoon and F/A-18E/F making it to the down-select."
One U.S. industry official noted that Indian officials had publicly asserted that viable contenders would have an operational active electronically scanned array (AESA) radar, something only the F/A-18/E/F and F-16IN possess. The European contenders are developing AESA arrays.
"Yet, it seems that the IAF and MoD made the decision based on strategic, political grounds, not technical merits," the official said.
Several analysts said India has not forgotten that the U.S. imposed sanctions on the country after a 1990s nuclear test, nor that Washington is working to bolster ties with arch-enemy Pakistan.
For the U.S. government, which has placed an enormous stake on securing a strategic partnership with India, the short-list decision comes as a bitter pill.
"We are reviewing the documents received from the Government of India and are respectful of the procurement process," U.S. Ambassador Timothy J. Roemer said. "We are, however, deeply disappointed by this news. We look forward to continuing to grow and develop our defense partnership with India."
Roemer's comments were echoed by the senior U.S. administration official, who noted that the country's relationship was far deeper than one transaction. He noted that India had purchased U.S. weapons worth billions of dollars in recent years, including C-130J and C-17 airlifters and P-8 maritime patrol aircraft.
The official said the Indian bureaucratic system does not know the American system particularly well, which undermines its confidence in the U.S. as a reliable supplier. Over time, the official said India's faith in the U.S. would grow stronger.
"The logic of the U.S.-India relationship is as compelling today as it was on Tuesday in Asia and beyond," he said. "It's not the end of the world."
Bhim Singh, an analyst and retired IAF wing commander, predicted that the rejection of Boeing and Lockheed Martin wouldn't hurt bilateral defense ties.
But Tellis said there would be repercussions.
"I think the Obama administration will be deeply disappointed with this decision - as will the Congress. I think U.S.-India defense relations have been in trouble for a while. I suspect this will make things more difficult," he said.

The Rejected

Boeing has its Navy contracts for the Super Hornet and EA-18G Growler and other orders coming in from Saudi Arabia for the F-15, while Lockheed is shifting its focus onto the gargantuan F-35 Lightning II stealth fighter project.
But Saab needed the Gripen to win the Indian competition to remain in production; the aircraft has few other prospects beyond Brazil.
"They're dead in the water," Aboulafia said.
For the Russians, the MiG-35 loss to the Western contenders is was not entirely unexpected, Barrie said. The aircraft is based on the aging MiG-29 airframe.
Still, the Russians have a huge backlog of Indian contracts, including a deal to co-develop a new fifth-generation stealth fighter, and they acknowledge India's desire to diversify its supplier base. United Aircraft Corp.'s "cooperation with India is the widest of all countries and we understand that Indians do not want to keep all eggs in one basket and try to diversify suppliers," said an official from the Russian company.
Ruslan Pukhov, an analyst with the Center for Analysis of Strategies and Technologies in Moscow, agreed that the rejection of the MiG-35 in the MMRCA tender will not affect other projects.
"While Russia and India had bitterly quarreled over the cost of refitting of the Admiral Gorshkov aircraft carrier, it has not upset any other project," he said.
The Russians said the MiG met all of India's technical criteria.
Lockheed Martin and Saab acknowledged the Indian decision in written statements, while Boeing said, "We are obviously disappointed with this outcome. Our next step is to request and receive a debrief from the Indian Air Force."

A First for Russia's Booming Industry

MOSCOW - Russian Helicopters will become the first Russian government-controlled industrial holding producing military hardware to go public, aiming to raise $500 million in an initial public offering on London and Moscow exchanges.
"The offering is expected to consist of the sale of the existing shares primarily by the company's major shareholder, Oboronprom, as well as up to $250 million of primary shares in the form of Global Depositary Receipts," the company said in a statement April 12.

One GDR represents one ordinary share.
"The company currently plans to use net proceeds ... to pay off existing debts and to fund certain mandatory tender offers for shares in its subsidiaries," the company said.
Russian Helicopters, which claims to be the No. 1 global producer of attack helicopters and the world's leader in producing medium and heavy-lift rotorcraft, was created by the government in 2007 to bring the country's helicopter-makers into a single vertically integrated holding.
It is 100 percent controlled by Oboronprom, another government-controlled holding, that controls the country's engine-makers.
The company holds majority stakes in every Russian major helicopter-maker, including Mil (72.38 percent), Kamov (99.79 percent), Ulan-Ude Aviation Plant (75.09 percent), Kazan Helicopter Plant (65.9 percent) and several others.
The consolidation of the helicopter-makers was completed in December, when Russian Helicopters announced that it had boosted its share in the Rostvertol, Rostov-on-Don-based plant, from 22.76 percent to 75.06 percent.
Russian Helicopters plans to announce the placement price on May 11, and the main trading session will start May 16.
Bank of America Merrill Lynch, BNP Paribas and VTB Capital, an investment arm of the Russian government-controlled VTB bank, have been appointed as joint global coordinator and book runners.
VTB Capital has valued Russian Helicopters at $2.5 billion to $3 billion ahead of the initial public offering in Moscow and London, Russian official news agency RIA Novosti reported April 14. BoA Merrill Lynch has reported the company value is $2.2 billion to $3.2 billion.
Officials at Oboronprom and Russian Helicopters declined to comment on the initial public offering on the record, citing its sensitivity.
"We are already the undisputed leader in some of the most attractive and fastest growing markets in the global helicopter industry. Our IPO comes at a time when we enter into a new cycle of long-term growth, with strong demand and firm orders from our existing customers, and increasing opportunities to win new customers in new markets around the world," Dmitry Petrov, CEO of the Russian Helicopters, said in an April statement.

Market Potential

Helicopter-making is the booming industry in Russia, with strong export prospects and promising domestic orders, both state and commercial ones.
"Last year, we even created a special department to trade in helicopters," said Vyacheslav Davidenko, spokesman for Rosoboronexport, the official arms exports agency. "The global demand for the Russian helicopters is growing."
Latin America, India and Southeast Asia remain the biggest buyers of Russian helicopters, Davidenko said.
In 2009, 30 percent of the 183 helicopters rolled out by the company were sold to foreign militaries, half of the total was domestic and foreign commercial civilian orders, and the remaining 20 percent was procured by government agencies, including the Defense Ministry.
The company was 69 in the Defense News Top 100 ranking in 2009, with the total revenue of $1.82 billion, revenue from defense of $813.8 million, and profit of $173 million.
In 2010, the holding produced 214 helicopters, Russian Helicopters said.
The company has not yet disclosed its 2010 financial results, but its website said that the company accounted for about 85 percent of helicopter sales in Russia and the former Soviet Union, and 13.5 percent of worldwide helicopter sales in U.S. dollar terms.
Yuri Slusar, head of the aviation industry department at the Russian Industry and Trade Ministry, said April 27 that output of the Russian helicopter-making industry grew by 2.5 times between 2003 and 2007, while revenues grew 2.1 times between 2006 and 2010.
"This is the leading sector, they are profitable, having total revenue of some $2.5 billion, they have a profit margin of 10-12 percent," he told journalists in Moscow.
He added that in the past decade, Russia was the world's third biggest producer of the military helicopters, while it ranked seventh in the 1990s.
Under the 2011-20 state arms procurement program, the Defense Ministry and the security agencies plan to buy 1,000 helicopters of different models and types.
Deputy Defense Minister Vladimir Popovkin told journalists that $29 billion will be spent on helicopters under the program through 2020. More than 100 choppers are to be delivered to the Russian military in 2011, he added.
In an April 15 statement, company officials said that it had signed a dealership treaty with the Brazilian Qualy Group Brasil for delivery of 150 light Mi-34S1 helos.
According to an industry source, Russian Helicopters is now loaded with orders for 2011, 2012 and most of 2013
"Russia's recovering economy props the demand for helicopters by the big Russian companies, like Gazprom, that operate in remote and hardly accessible areas," said Roman Kirillov, the spokesman for the Russian Helicopters, said.
According to a company statement, its order portfolio by the end of 2010 counted 351 choppers, 20 percent of them being commercial and the rest being military; 204 helicopters have been ordered to be delivered in 2011.
Konstantin Makiyenko, a researcher with the Center for Analysis of Strategies and Technologies, a think tank here, said the outstanding design of the flagship among the Russian Helicopters, Mi-17 and its modifications, are the key driver behind the development of the Russian helicopter industry.

RUSSIAN HELICOPTERS

Founded: 2007.
DN Top 100 rank: 69.
2009 revenue: $1.8 billion total; $813.8 million from defense.
General director: Dmitry Petrov.
Employees: 38,177 as of 2009.
Average salary: $700 per month.

Brazil's Global Player

LONDON - Take a regional flight from an airport in the U.S., Europe or Asia and there's a good chance you will be flying on a jet developed and built by Embraer.
In little more than a decade, the Brazilian company has grown from a state-owned aerospace also-ran into a privatized global player in the regional and business jet markets.
Now Embraer is turning its attention to defense and security. It has high hopes for growth in the business unit it created last year to pursue its ambitions in the sector, Luiz Carlos Aguiar, the first president of the new Embraer Defense and Security operation, said at the recent Latin American Aerospace and Defense (LAAD) show in Rio de Janeiro.
"By the end of the decade, we want to grow business in the sector to represent 20 percent of total Embraer revenues, taking into account our other businesses are going to also grow," Aguiar said.
In 2010, defense accounted for revenues of $670 million, 12.5 percent of the company's $5.5 billion in annual sales.
On top of sales, Embraer reckons its aviation support services business last year earned military revenues of $150 million. Much of that came in Embraer's traditional military markets involving the Super Tucano trainer and light attack aircraft and various adaptations of civil jet airliners into specialist platforms for airborne early warning and other tasks.
The company also is heavily involved in modernizing Brazilian military aircraft, including A-4 fighter jets for the Navy and AMX and F-5 fighters for the Air Force.
Still, company officials said, the traditional airframe business will continue to provide the core of Embraer's defense and security business for the foreseeable future.
The company is developing the KC-390, a jet-powered rival to Lockheed Martin's C-130 Hercules airlifter, and will also assemble a new fighter jet if the Brazilian government ever gets around to picking a winner.
The KC-390 is being built for the Brazilian and other air forces; first flight is scheduled for 2014.
The company also is expecting a decision from the U.S. Air Force (USAF), which is choosing between the Super Tucano and Hawker Beechcraft's AT-6 for a light attack requirement.
That could mark Embraer's long-sought foothold in the U.S. defense market. Company officials thought they had one when the U.S. ordered the ERJ-145 in 2006 as a surveillance aircraft, but that deal was canceled through no fault of the Brazilian company.
Now its U.S. priority is the light attack requirement.
"It's very important to win this campaign," Aguiar said. "We did a great job in the U.S. when we demonstrated our capability, and it's very well rated by the USAF. Better relations following [U.S. President] Barack Obama's visit here will help the process a lot."
If it wins, Embraer has a deal with contractor Sierra Nevada, an aerospace company based in Sparks, Nev., to build the aircraft.
Embraer also is transforming more generally under the government's 2008 national defense strategy to bolster local industries.
The first four months of operation at Embraer Defense and Security has seen the business already signal the intended direction of travel with moves to acquire radar, unmanned air systems and C4I and systems integration capabilities.
Much of that change became evident at the LAAD show, where in the space of two days, Aguiar announced the he had struck a deal with Elbit Systems' local subsidiary AEL Sistemas to jointly develop tactical UAVs, and then acquired 50 percent of local systems integration and C4I provider Atech Negocious em Tecnologias.
Part of the deal with Elbit, an Israeli company, involves Embraer becoming a minority stakeholder in AEL itself.
A few weeks earlier, Aguiar, who had previously been Embraer's chief financial officer, made the new business unit's first acquisition when it took a 64.7 percent stake in the radar division of Orbisat.
The UAVs, radar and particularly Atech's capabilities all reinforce a key Embraer objective to secure the lead position on a pair of massive Brazilian land border and maritime surveillance programs.
Together worth around $10 billion, the first of those programs could kick off next year and run for the next decade.
Uncertainties There are some uncertainties about the timing of these and other defense programs with the new government of Brazilian President Dilma Rousseff reviewing major requirements here, including the long-running scrap between Boeing, Dassault Aviation and Saab for the fighter deal.
This year's defense budget has taken a big hit, and although the cut is said not to be directed at programs, executives at LAAD were nervous about the collateral damage the cutback could cause.
Rebecca Barrett, Forecast International's Latin American military markets analyst, said that Brazil needs to protect its strategic interests.
"This should be reflected in the defense budget and government's spending pattern during the Rousseff administration," Barrett said. "In that regard, programs that will be used for surveillance and the protection of Brazil's borders and off-shore oil assets will be top priority."
The analyst said the Brazilian defense budget for next year is set at 60.2 billion real ($38.4 billion). Forecast International says that figure will rise moderately to 64 billion real by 2015.
Aguiar told reporters at LAAD that, for the short term at least, Embraer's main focus would be on building the business at home rather than buying foreign assets.
"Acquisition has not traditionally been how Embraer has grown," Aguiar said. "Acquisition in country is a good way of learning as it is easier to do something close to us. We have a small team looking [at M&A opportunities], and not only in Brazil, but there is nothing in the short term."

Embraer

Headquarters: São Paulo, Brazil
Employees: 17,000
2010 revenue: $5.5 billion total; $670 million in defense revenue, including $150 million from military aviation support services.

U.N. Security Council to Meet on Libya: Diplomats

UNITED NATIONS - The U.N. Security Council will hold a closed door meeting on Libya March 21, diplomats said, amid rising international criticism of air strikes directed at the regime of Moammar Gadhafi.
Missile and air strikes launched over the weekend by U.S., British and French forces targeted Libyan air defense systems to impose a no fly zone on Gadhafi's forces, and on March 20 demolished a building in the Libyan leader's compound.

The Libyan foreign ministry, in a statement over the weekend, demanded an emergency session of the Security Council "following the French-American-British aggression against Libya, an independent state and member of the United Nations."
"The member states are going to study this demand and make a pronouncement," said a diplomat, speaking on condition of anonymity.
As it will be a closed door session, Libya was unlikely to be represented in the discussions, a diplomat said.
The Security Council passed a resolution on March 17 authorizing the use of "all necessary measures" to protect civilians and impose the no-fly zone after Gadhafi's forces appeared on the verge of crushing a month-long rebellion.
But on March 20, the Arab League's Secretary General Amr Mussa expressed misgivings about the air strikes, even though the 22-member Arab body on March 12 called for a no fly zone and declared that Gadhafi had lost his legitimacy.
"What has happened in Libya differs from the goal of imposing a no-fly zone and what we want is the protection of civilians and not bombing other civilians," Mussa told reporters.
"From the start we requested only that a no-fly zone be set up to protect Libyan civilians and avert any other developments or additional measures," he added.
Mussa later said his comments had been misinterpreted but Germany, which along with four other members of the Security Council abstained from voting on the resolution, pointed his apparent second thoughts as vindication of its reservations.
"We calculated the risks, and when we see that three days after this intervention began, the Arab League has already criticized this intervention, I think we see we had good reasons," German Foreign Minister Guido Westerwell said March 21.
Russian President Vladimir Putin on March 21 slammed the resolution as "a medieval call to crusade" and testament to the U.S. tendency to use force against Third World countries.
"The resolution by the Security Council, of course, is defective and flawed," Russian news agencies quoted Putin as telling workers on a visit to a missile factory.
"I am concerned about the ease with which the decision to use force was taken," he said.
Russia, China, Germany, Brazil and India all abstained from the resolution authorizing the use of force.

U.S. to Brazil: 'Significant' Technology Transfer in F/A-18 Buy

WASHINGTON - Brazil would receive a "significant technology transfer" if it buys U.S.-made fighter jets, a U.S. Defense Department official said Feb. 17, seeking to ease concerns before Brazil selects a winning bidder.

The United States would permit a “significant technology transfer” to Brazil if it buys the F/A-18 from Boeing, a U.S. Defense Department official says. (The Boeing Co.)

The transfer of military technology is a key factor for Brazil as it considers Boeing's F/A-18 Super Hornet, the Rafale by France's Dassault, and the Gripen NG made by Saab of Sweden for a contract worth between $4 billion and $7 billion.

"I would argue that the technology transfer that we are offering of this magnitude would put Brazil at par with our close partners," Frank Mora, deputy assistant secretary for Western Hemisphere affairs, told a legislative committee.
When asked if it were accurate that Brazil should not have doubts about the commitment to the technology transfer, he replied: "That is correct."
"The United States has made a robust proposal of the Super Hornet technology - a significant technology transfer," he said.
The contract is for 36 fighters with the possibility of many more aircraft in the future.
The competition for the contract has dragged on for years, with President Dilma Rousseff inheriting it from her predecessor Luiz Inacio Lula da Silva, who had declared a preference for French planes.
Arturo Valenzuela, assistant U.S. secretary of state for Western Hemisphere affairs, said during the Feb. 17 hearing that "we always raise this issue" in talks between Brazil and the United States.
President Obama is scheduled to visit Brazil in late March as part of a tour that includes stops in Chile and El Salvador.
Brazil and the United States signed a military cooperation agreement in April 2010.

Report: Brazil Delays Fighter Jet Decision Until 2012

BRASILIA, Brazil - Brazil is postponing a long-awaited decision on a multi-billion-dollar purchase of 36 fighter jets until next year as a result of massive budget cuts, a Brazilian newspaper reported Feb. 19.

From left: Dassault Aviation’s Rafale, Boeing’s F/A-18 Super Hornet and Saab’s Gripen NG, all in the mix for the Brazil fighter jet deal. (Dassault Aviation/The Boeing Co./Saab Group photos)

Major daily O Estado de Sao Paulo cited four unnamed government ministers as saying new President Dilma Rousseff saw no "climate" for the acquisition in 2011, and that such a move in the midst of a $30 billion slash in the year's budget would be an "inconsistency."

France, Sweden and the United States are vying for the contract, which has an initial value estimated at $4 billion to $7 billion, with the possibility of many more aircraft in the future as the Brazilian Air Force seeks to revamp its fleet of fighters.
Rousseff met for more than three hours Feb. 15 with Defense Minister Nelson Jobim to discuss the budget restrictions, and while Jobim told reporters that the pending deal would not be impacted by the cuts, he also said there were "no budget expenditures this year" for the fighter contract.
Jobim also stressed the military would take its time to choose the best bid and begin complex negotiations on technical matters and the terms of the deal, but he said he expected a decision in 2011. Sources in the president's office and the defense ministry told AFP that the purchase process was ongoing.
The intense competition for the contract has dragged on for years, with Rousseff inheriting the purchase decision from her predecessor, Luiz Inacio Lula da Silva.
The shortlist for the jets is made up of the French-made Rafale, Saab Group of Sweden's Gripen NG and the U.S. F/A-18 Super Hornet, and speculation has swirled about which bid is in favor.
Lula declared a preference for French planes but ultimately left the decision to Rousseff, who has not shown any favoritism during her first 45 days in office.
Brazil insists on the unrestricted transfer of technology as part of the deal, as it intends to use the vast project to develop its aviation industry and become a regional provider.
In January, the French defense minister said his country was confident of scooping the contract. Earlier this week the Pentagon assured that Brazil would get a "significant transfer of technology" by buying U.S. fighter planes from The Boeing Co.