Brazil-Saab:

Brazil's surprise jetfighter decision sets scene for reduced superpowers control over arms trade

open | 17 January, 2014

BRAZIL’S snap decision last month, after 10 years of deliberations, to choose the Saab Gripen jet fighter ahead of American and French competitors, is the first time a deal of this size has been done without involving superpowers or United Nations Security Council members.

The deal, at the initial stage worth $4.5bn for 36 Gripen NGs, could open up the possibility for deliveries of 100 or more aircraft, and also widens access for South African defence and other technology exports, in particular among fellow Brics countries (Brazil, Russia, India, China, South Africa).

The market has suddenly moved from seeing a half-empty glass to a more than half-full one. Saab’s share price has shot up 30% in Stockholm over the past two weeks.

After Brazil’s announcement of the Gripen selection, Saab was flooded with congratulations from excited generals and defence manufacturers in South Africa.

"With the Gripen in Brazil the whole Brics world also becomes more interesting. We were the exporter of the year in South Africa last year and this deal will increase the export capability of what is uniquely South African technology and various countries we export to from South Africa like Germany, Malaysia and India," says Saab SA CEO Magnus Lewis-Olson.

Saab SA and its subsidiaries, including Centurion-based Saab Grintek Defence, employs about 900 people, which makes South Africa the company’s second-largest manufacturer after Sweden. The South African company reported sales of R1.6bn last year, of which 75% was for export.

Uniquely South African developed and produced Saab products that stand to benefit include the IDAS electronic warfare self-protection system, which recently won a R335m contract with another Bric-country company, India’s Hindustan Aeronautics.

Saab also manufactures and exports avionics, VIP-protection products and surveillance components for submarines from South Africa. The most significant South African defence link to Brazil is, however, the A-Darter air-to-air missile devised and manufactured by Denel Dynamics and Brazil’s Mectron.

The missile has been tested and adapted for the Gripen and will also be used by other aircraft in the Brazilian air force. Brazil committed R560m to the project in 2006. Concurrent orders, with the first deliveries this year, are valued at R1.4bn, and are likely to escalate with the new popularity of the Gripen.

Part of the geo political sub-text is that superpowers and leading global powerhouses seem to have lost their sting. New trade routes are taking root as globalisation brings mid-size economies onboard.

US defence analyst Richard Aboulafia says although the National Security Agency scandal — including the US’s eavesdropping on Brazil’s president Dilma Rousseff — came in handy as a "rationale for criticising the US" and facilitated the selection of the Gripen instead of the Boeing F/A-18E/F Super Hornet, it was not the main driver.

Instead, Mr Aboulafia says, the most important behavioural change was that Brazil, unusually for large arms deals, made a rational choice and in the end went with what the Brazilian air force had said for years it wanted and needed: the Gripen, the cheapest solution.

Part of the air force generals’ rationale was to have a jet fighter that the air force could afford to operate without being subjected to budget cuts by politicians when the economy was down. This is exactly the case in Brazil at the moment and, as Mr Aboulafia puts it, the Gripen is probably the best bang for buck in the workhorse-defence, non-aggression segment.

"Consider Brazil’s actual defence needs. The country isn’t in the Mideast, the Pacific Rim, South Asia or any of the other global hotspots where conflict might erupt," he says.

Brazil, large enough to dare to go for the Gripen, is not a complete loss for the US as the fighter is fitted with an engine built by Volvo Aero but licensed by General Electric. There is also plenty of content from the UK.

If negotiations are conclusive there is, however, a brave new world out there for Saab, its suppliers and the likes.

The most recent addition to the list of possible buyers of the Gripen, at present in operation in six countries, is Indonesia. And there is even talk that India might swing, as negotiations with Dassault to deliver Rafale have hit a big snag.

The French company does not want to take responsibility for the assembly in India of the 108 aircraft, of a total of 126. Brics psychology can help delay this decision further. "We think our new concept, the Sea Gripen, can be a serious contender for Brazil and India’s aircraft carriers too", says Mr Lewis-Olson, himself a Gripen pilot.

South Africa came to Saab’s rescue at a crucial time 13 years ago when it ordered 28 Saab JAS 39 Gripen (later trimmed to 26 Gripen C and D models) in the controversial 1999 all-in-one-go deal including fighters, corvettes, submarines and helicopters.

Just about every slice of that purchase with a combined value of (then) R43bn, not least the purchase of the Gripens and 24 Hawk fighters from a joint Saab/BAe Systems bid, has been tarred and feathered in the media for high-level bribes and the exaggerated value (inflated by politicians) of defence as well as civilian offsets.

After almost 10 years of intense media coverage, Saab’s CEO Hakan Bushke did acknowledge an instance where "a person employed by BAe Systems had been paid R24m without Saab’s knowledge".

The revelation came in 2011, after BAe Systems admitted to that particular incident, sold its holding in Saab and also, in 2010, had reached a settlement with US and UK regulators for making false statements in regulatory filings in the South African deal and a number of other countries.

Arms sales opponents were not impressed, and the end of that story has not yet been reached — former BAe employees are leaking detailed information and large sums are still unanswered for.

Saab, keen to turn over a new leaf and hopeful of changing public impressions of it, last year said it supported a strengthened UN-led regulatory framework for the industry.

Saab adopted the UN Global Compact’s 10 commandments as its "own principles". As Saab chairman Marcus Wallenberg, representing the leading owner group, puts it in the company’s 2012 annual report, Saab stands for "healthy sustainable business practices with zero tolerance of all forms of corruption".

Some industry analysts are optimistic about the Brazil deal, and say that just the fact that the cheapest offer has (so far) won the day is encouraging, and may be a first for a deal that certainly is Sweden’s largest export contract of any kind.

For now, the lesson is that old superpowers no longer can manipulate and dictate the outcome of large arms deals, and that bribing is becoming all the more unacceptable in an increasingly transparent world.

South Africa’s choice in 1999, to pick an aircraft manufacturer from a small country without superpower backing ( although with the UK as a partner ) paved the way for Saab. Now Brazil has taken the game to a new level.

CHRISTER L PETTERSSON

• Pettersson followed the South African arms deal as Africa correspondent for Swedish newspapers Dagens Industri and Dagens Nyhter. He was based in Johannesburg from 1990-2008.

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