UPDATE 1-Brazil seeks better terms in Boeing jet bid-source

Tue Feb 8, 2011 6:54pm EST

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* Rousseff voices preference for Boeing in jets tender

* Brazil seeks more guarantees on technology, better terms

* Rousseff sees deal as way of bolstering ties with U.S. (Adds details, context)

By Brian Winter

SAO PAULO, Feb 8 (Reuters) - Brazilian President Dilma Rousseff has told visitors she believes Boeing's (BA.N) F-18 is the best jet among three finalists in a multi-billion dollar Air Force fighter tender, but she is still pressing for better terms on technology transfers that are critical to any deal.

Rousseff raised the issue of the jet tender during a meeting in Brasilia on Monday with U.S. Treasury Secretary Timothy Geithner, sources with knowledge of the conversation told Reuters. They spoke on condition of anonymity because of the sensitivity of the talks.

Rousseff told Geithner she considered the purchase of at least three dozen jets as a way to not only modernize Brazil's Air Force but also potentially to improve strategic and trade ties with the United States -- a major goal of her foreign policy since taking office on Jan. 1.

However, Rousseff said she remained concerned about the transfers of proprietary technology that Brazil wants as a way to help develop its own defense industry as part of any deal.

She is seeking both improved terms from Boeing and further guarantees from the U.S. government that it will allow sensitive military technology to change hands, the sources said.

The other finalists in the bidding process are the Rafale jet built by France's Dassault (AVMD.PA) and the Gripen NG produced by Sweden's Saab (SAABb.ST).

Rousseff's comments -- plus her previous decision to delay the tender instead of immediately awarding it to Dassault, as many of her defense chiefs wanted -- suggest that she is leaning toward the Boeing bid but is still pressing companies to come up with better terms in a deal that will shape Brazil's defense alliances for decades to come. [ID:nN18151639]

A spokesman for Rousseff's office declined comment.

Boeing spokeswoman Marcia Costley said the technology transfer guarantee was an issue that would be decided by the two governments.

The company is willing to provide Brazil with further technological know-how and other assistance in areas such as transport, satellites and weapons systems as part of the deal, she added.

"Boeing has the capability and resources to live up to its promises on ... technology transfer and the track record to prove it," Costley said via e-mail.

OBAMA TO VISIT IN MARCH

The contract -- which will be worth at least $4 billion, not including lucrative maintenance deals and possible additional purchases -- has suffered several delays during the past decade as Brazilian leaders struggle to balance the Air Force's needs against diplomacy, cost and other factors.

Rousseff has made the development of national industries one of the centerpieces of her government, and it is conceivable that she could choose a jet she considers inferior if it provided a bigger boost to Brazilian industry.

The three finalists have already been working to improve their bids since Reuters first reported on Jan. 17 that Rousseff would delay the tender.

Officials for one company told Reuters they had submitted their most recent bid more than a year ago, so they would have to recalculate the terms. The officials declined to be identified because of the competitive nature of the process.

Meanwhile, the U.S. government is working to provide the additional guarantees Rousseff seeks. U.S. Secretary of State Hillary Clinton has already provided a written guarantee that any deal with Boeing would be respected by the U.S. government, but Rousseff has asked for additional backing in the form of some kind of resolution from the U.S. Congress.

U.S. President Barack Obama is due to make his first visit to Brazil in March, which could advance the deal further.

Dassault officials continue to press their case. Dassault Aviation exports chief Eric Trappier told reporters last weekend that it was ready to transfer all of its available technologies to Brazil if it won the contract.

One silver lining for the companies: Instead of starting the tender process from zero, Rousseff is seeking modifications to the existing bids and is likely to make a decision on the contract by the end of the year, an adviser said.

(Additional reporting by Cyril Altmeyerhenzien in Paris, Editing by Todd Benson and Ted Kerr)

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