UPDATE 2-Saab shares leap as Brazil deal secures Swedish fighter project

Thu Dec 19, 2013 9:29am EST

* U.S. spying on Brazilians helped to derail Boeing bid

* Saab jets cheaper than rivals' as defence budgets cut

* Saab to face stiff competition in seeking further orders

* Other export deals may raise ethical dilemmas

* More sales would help to spread development costs (Adds reaction, quotes, background, updates share)

By Simon Johnson and Niklas Pollard

STOCKHOLM, Dec 19 (Reuters) - Shares in Swedish aerospace firm Saab leapt by a third on Thursday after it beat U.S. and French rivals to win a $4.5 billion fighter deal with Brazil, strengthening its hand in competing for export orders for years to come.

Brazil's choice of Saab's Gripen single engine jet over Boeing's F/A-18 Super Hornet and Dassault Aviation's Rafale showed the Nordic group could beat global aviation heavyweights, securing development of an aircraft that has been surrounded by doubts.

Saab pulled off the surprise coup on Wednesday after news of U.S. spying on Brazilians helped to derail Boeing's chances. Analysts said it would still face stiff competition for export orders elsewhere, and deals with some buyers could raise ethical dilemmas for Swedish leaders who traditionally champion democracy and human rights.

So far only the Swedish air force has bought new generation Gripens, with fellow neutral nation Switzerland poised for a deal and Brazil opting for a similar model. However, Saab was offering a cut-price deal at a time when many governments are slashing their defence budgets.

"If Brazil, Sweden and Switzerland choose Saab, that makes it easier for other countries to select the Gripen as it removes the uncertainty surrounding the project," said Stefan Cederberg, analyst at SEB.

"If you are going to invest in new aircraft for the coming 30-40 years, the probability has increased considerably that you will do it with the Gripen system."

Saab said it would begin final negotiations on Friday for the Brazilian contract which prompted celebrations in the southern city of Linkoping, where Saab has its main Gripen plant and 10,000-15,000 work in companies connected to the aerospace industry.

At 1300 GMT Saab shares were up 31.8 percent at 175.30 Swedish crowns ($26.84) but others urged caution. "A breakthrough like this deal and the Swiss selection certainly may help further deals along, but the competition is very hard," said Siemon Wezeman, senior researcher at the Stockholm International Peace Research Institute.

"In addition, several of the potential markets are in regions of tension or to governments that are not very democratic. Marketing and selling the Gripen there may need some serious soul-searching by Swedish political decision makers."

GRIPEN SCEPTICISM

Saab, which has about 14,000 employees and annual sales of about 24 billion crowns ($3.67 billion), started developing the Gripen in the early 1980s with deliveries to the Swedish air force beginning in the following decade.

An early version crashed in central Stockholm during a 1993 air display, although no one died in the accident. Saab has developed several versions of the Gripen, which can fly twice the speed of sound, but since the fall of the Soviet Union scepticism has grown about the need for Sweden to keep making cutting-edge fighters.

The Swedish air force is small and closer ties with NATO, of which Sweden is not a member due to its neutrality, have made the export market vital for Saab. Success has been limited, with fewer than 100 planes sold or leased overseas.

But with regional powers from Africa to Asia looking to arm themselves relatively cheaply against new threats and top Western fighter projects struggling to contain costs, second-tier firms such as Saab may score some more wins against bigger rivals such as Boeing and Lockheed Martin.

"Everywhere I go around the globe, almost everyone brings up the fact that they have a challenge, they have a budget that does not support the capabilities they want," said Lennart Sindahl, senior executive vice president at Saab.

"We have shown that we can provide the capabilities while not totally destroying the budget for the customer, and I think that's a winning factor for success now."

Saab's Gripen was the cheapest choice for Brazil, well under the $8 billion cost reported in media for Dassault's Rafale and the more than $5 billion for Boeing's Super Hornet.

Saab, whose biggest shareholder is the Wallenberg family's Investor AB with a 30 percent stake, also says its planes are 50 percent cheaper to maintain than rivals.

SWEDISH JOBS

The order will secure development of the new generation Gripen which Sweden has said it would not support unless another country bought it. In September, the Swiss parliament approved a purchase of 22 Gripens but the $3.4-billion deal is subject to a referendum.

Earlier generations of Gripen have been sold or leased to South Africa, Hungary, Thailand, the Czech Republic and Britain as well as being used by Sweden's own air force.

Brazil's choice means Sweden can share costs of developing the new plane and future upgrades with other buyers.

"This doesn't just open things up on the fighter side," said Mats Liss, analyst at Swedbank. "It strengthens Saab's credibility as a supplier of defence materiel."

Saab said parts of the aircraft will be built in Sweden and others in Brazil, where officials said domestic manufacturer Embraer SA would be its main local partner.

Swedish Metall union chairman Goran Gustafsson said the order was good news for employees at Saab, which has been cutting staff for much of the last two decades. "This secures the future for the workers who are already here," he said. "Then... we will see if we will need more personnel, but we won't know that until the contract is signed."

Founded in 1937 as an aerospace group, Saab ventured into cars and trucks after World War II, but sold off these businesses more than a decade ago. Today, fighter jets make up about 25 percent of Saab sales, with the rest coming from weaponry and defence electronics. ($1 = 6.5315 Swedish crowns) (Reporting by Mia Shanley, Olof Swahnberg, Oskar von Bahr, Bjorn Rundstrom, Johan Sennero and Sven Nordenstam.; Editing by David Stamp)

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