Wedding bells are ringing in Brazil this week, but who's that over in the corner, sobbing away? It's Boeing
Way back in August, we discussed how in the face of repeated disappointments with its 787 in the Dreamliner program, Boeing's defense division had been left to do the heavy lifting in profits production. One key to this effort was a Brazilian tender seeking bids to upgrade the local air force with an initial order of 36 planes worth a reported $7 billion.
And that's just for starters. Over the next 15 years, Brazil plans to purchase as many as 100 jets to upgrade its aging fleet -- promising revenues of $20 billion or more to whoever gets a foot in the door today. Judging from Boeing's victories in similar contests abroad, it seemed a front-runner with its offer of F-18 Super Hornets powered by beefy General Electric
No boo-yah for Boeing
But not so fast. We forgot that defense procurement is, in large part, a politician's game -- and that French President Sarkozy plays to win. Dassault's failures in previous dogfights with Boeing and Lockheed Martin
Boeing's dreams of Brazilian billions were going up in smoke, but there was still hope. Sure, Lula preferred Dassault, but the local air force brass had not yet weighed in. Perhaps they would show some love for Boeing?
No such luck. This week we learned that the Brazilian Air Force is indeed at odds with its commander in chief -- but rather than favoring Dassault over Boeing, the local military men want ... Saab. Arguing that the Swedish Gripen jet presents "the best overall project among the three finalists," the air force's preference once again puts Boeing in second place.
Where to now?
With both Lula and the Brazilian air force preferring anybody-but-Boeing, it seems the aerospace giant will lose this battle -- but investors in one company can still win, by playing the odds. You see, like Boeing, Saab uses GE-built engines to power its next generation Gripen. So that gives us a two-chances-out-of-three likelihood of at least buying the right engine maker for this deal -- whoever gets the contract for the plane itself.
My advice: Bet on Saab or Dassault to win, and GE to place.
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