Don't look now, but the NSA spying scandal may have just claimed another victim. (Or it may not have.)
The Inter-Webs lit up this past week, over fears that spying at the Obama administration's National Security Administration could derail a planned multibillion-dollar arms deal between Boeing (NYSE:BA) and Brazil.
Boeing has been in the running to sell some 36 F/A-18 "Super Hornet" fighter-bombers to the South American nation, you see, competing against France's Dassault,and Sweden's Saab for the right to upgrade Brazil's air forces. It's a big deal, worth either $4 billion, or $7 billion, depending on whom you ask -- and worth anywhere from $11 billion to nearly $20 billion over time, as the winner of this contract will probably be tapped to supply a total of 100 new fighter jets that Brazil is projected to buy over the next 10 to 15 years.
Some commentators thought Boeing had the contract in the bag. In a tit-for-tat payback, Brazil was thought to favor the U.S. company, thanks to the U.S. Air Force's having recently bought 20 light attack planes from Brazilian planemaker Embraer (NYSE:ERJ).
But when former NSA contractor Edward Snowden revealed that that the U.S. government has been secretly tracking Brazilian telephone and Internet communications, this threw a monkey wrench into the negotiations. One Brazilian official says his government will now not even "talk about the fighters" and added, "You cannot give such a contract to a country that you do not trust."
"Trust" me. That's not the whole story.
But is it really as simple as that? Was news organization Reuters right in saying Boeing was "the clear favorite" to win this contract, and that the NSA scandal has blown its chances? I don't think so. And I'll tell you why.
Reuters, and the other folks blaming the NSA, and Snowden, for the blowback against Boeing, may be right that the NSA spying controversy didn't help Boeing's chances. But there are multiple reasons to think Boeing was not, in fact, likely to win the Brazil contract at all -- reasons to think the NSA "scandal" is little more than an excuse for Brazil to do what it's intended to do all along -- give the contract to France's Dassault.
France and Brazil have been steadily tightening their defense and security ties in recent years:
- In 2008, Brazil agreed to buy $12 billion worth of military hardware from France, including helicopters, conventional submarines, and even a nuclear sub. As part of this deal, France made significant technology transfers to Brazil, useful in building up Brazil's homegrown defense industry.
- A year later, as negotiations over the fighter jet sale began heating up, France told Brazil that if it chose Dassault's Rafale fighter jet over Boeing's F/A-18, further technology transfers would come with the French planes.
- At the same time, France dropped hints that a deal to buy its Rafales might improve Brazil's chances of selling France as many as a dozen Embraer KC-390 transport aircraft.
- And in entirely unrelated news, France and Brazil agreed to support each others' bids to host upcoming Olympic games, with France backing Rio de Janeiro's bid to host the 2016 Olympic Summer Games (which worked), and Brazil backing Paris' attempt to win the 2018 Winter Games for Annecy, France (which didn't).
Topping it all off, the Brazilian air force planes that are to be replaced by this upgrade are, after all, French Mirages. There's every possibility that Brazilian pilots might simply be more comfortable switching from one French plane to another, better, more modern French plane.
When you weigh all the "pluses" France has racked up in its competition with Boeing, and with Saab, I simply don't believe this contract was Boeing's to lose in the first place. While the NSA spying scandal unveiled by Edward Snowden might have tipped the scales further against Boeing, it seems to me they were leaning pretty heavily in France's favor to begin with.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Embraer. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.