January 24, 2014 / 5:02 PM / in 4 years

Boeing bullish on Brazil despite lost fighter jet deal

SAO PAULO (Reuters) - Boeing Co (BA.N) says its failure to win a $4 billion-plus fighter jet deal in Brazil was a lost opportunity that will lead it to scale back planned investments in the country, although it still sees excellent opportunities in cargo, defense and biofuels.

The Chicago-based aerospace company was until last June the clear front runner to win a deal to supply at least 36 jets to the Brazilian Air Force -- one of the world’s significant defense contracts.

“It’s a lost opportunity for the U.S.-Brazil relationship and for Boeing,” lamented Donna Hrinak, Boeing’s president in Brazil, in an interview with Reuters.

Boeing lost the contract when President Dilma Rousseff was infuriated by revelations that the U.S. National Security Agency spied on her communications. So instead, Rousseff in December said she had chosen Sweden’s Saab AB (SAABb.ST) to supply the jets in what several of her aides described as a direct snub to Washington.

Hrinak said “we don’t know for sure” why Rousseff made the decision, because she had not discussed it at length yet with the government.

Still, she admitted that the disclosures by former NSA contractor Edward Snowden “didn’t help matters, because it certainly cast a shadow over U.S.-Brazil relations.”

Hrinak said Rousseff’s decision will affect Boeing’s plans to build local maintenance centers and supply chains that would have taken root had it sold its F/A-18 Super Hornet here.

“It’s not that we’re not going to do these things ever, but the velocity and intensity of our activities was necessarily affected by this decision,” Hrinak said this week in her first interview since Rousseff chose Saab’s Gripen AG fighter.

Hrinak emphasized that Boeing is still pushing ahead with several other projects in Brazil, citing biofuels development and a strategic partnership with Brazilian aircraft maker Embraer SA (EMBR3.SA) to help develop and market its KC-390 military transport plane.

“We’ve said all along that we’re here for the long haul regardless of what happened” with the jets deal, Hrinak said. “This is a good place to invest, a good place to do business, and we’re going to continue to do both.”


Boeing’s biggest client in Brazil’s airline sector is Gol Linhas Aereas Inteligentes SA (GOLL4.SA), which after fast growth last decade has slashed its domestic network about 14 percent since 2011.

Brazil’s nationwide air passenger traffic doubled in the past decade but airlines have struggled lately with high fuel costs and other operational problems, leading them to expand capacity just 2 percent in 2013.

Those struggles have mirrored a recent malaise in Brazil’s economy, which has only grown about 2 percent since 2011 due to low investor confidence and other problems.

Hrinak was the U.S. ambassador in Brazil from 2002 to 2004, a period that saw a financial crisis as many investors fled the country. A decade later, she remains a popular figure among many in the ruling Workers Party for helping convince Washington and U.S. companies that Brazil was set to boom rather than bust - a minority opinion at the time but one that was proven right.

As such, she is taking the long view now.

“I used to say I was bullish on Brazil before it was chic, and now I say I‘m bullish on Brazil when it’s no longer chic,” Hrinak said, citing expected continued growth of the middle class despite the slow economy.

“Variations in air traffic from one year to another don’t affect our long-range business plan,” she said, adding that she expects Brazilian cargo traffic to grow above the global average.

    Hrinak said Brazil’s unique competitive advantages in ethanol production, such as a favorable climate and multiple sources of the biofuel, make it a critical part of Boeing’s global plans to reduce carbon emissions.

    In November, Boeing announced a partnership with Gol to accelerate research on new sources of biofuels for commercial aviation. The airline plans to use biofuels on 200 flights during this year’s soccer World Cup and on 20 percent of its flights when Rio de Janeiro hosts the Summer Olympics in 2016.

    More than a publicity stunt, Hrinak said such projects were important to the aviation industry’s goals of stopping carbon emissions growth by 2020 and achieving a 50 percent reduction by the middle of the century.

    “Part of the secret to that is definitely here,” she said.

    The company announced plans last year to open a research center that will pursue biofuels development, among other projects, in Sao Jose dos Campos - the same city just east of Sao Paulo where Embraer has its headquarters.

    Even in defense, there may still be big prizes within Boeing’s reach in the medium term - although relations between the U.S. and Brazilian governments are still very chilly, according to diplomats on both sides.

    Brazil is expected to seek bidders to provide billions of dollars worth of military hardware to protect its borders in coming years, including offshore areas that include some of the world’s biggest oil finds of the past decade.

    Hrinak said she couldn’t go into details about Boeing’s interest but noted that the company makes aircraft, drones and underwater vehicles that would suit Brazil’s purposes.

    “It’s certainly our sweet spot,” she said.

    Reporting by Brian Winter; Editing by Stephen Powell

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