NSA nixed Boeing deal? Nah but it's a good headline

Profile picture for user gonzodaddy By Den Howlett December 18, 2013
Summary:
Did the spat between Brazil and the US over NSA revelations of spying impact an important defense contract? Some might wish that was the case but when you dig a little deeper then the economics speak for themselves.

GripenB - via lesoberservateurs.ch
Late yesterday, RT (aka Russia Today) printed a piece with the eye catching headline:  'NSA ruined it!' Brazil ditches Boeing jets, grants $4.5 bln contract to Saab. The headline was a conflation of anonymously attributed comments from a Reuters 'source'

“The NSA problem ruined it for the Americans,” a Brazilian government source told Reuters.

Reuters for its part had this headline: Saab wins Brazil jet deal after NSA spying sours Boeing bid claiming:

(Reuters) - Brazil awarded a $4.5 billion contract to Saab AB on Wednesday to replace its aging fleet of fighter jets, a surprise coup for the Swedish company after news of U.S. spying on Brazilians helped derail Boeing's chances for the deal.

Later in the piece it said:

A U.S. source close to the negotiations said that whatever intelligence the spying had delivered for the American government was unlikely to outweigh the commercial cost of the revelations.

"Was that worth 4 billion dollars?" the source asked.

Still trying to wring out the NSA angle, it added:

The lament echo's recent complaints by Cisco Systems Inc (CSCO.O), which said in November that a backlash against U.S. government spying contributed to lower demand for its products in China.

Elsewhere, the New York Times had a much more nuanced account of the transaction saying that:

celso amorim
Celso Amorim

The Brazilian defense minister, Celso Amorim, told reporters at a news conference in Brasilia that Saab was selected over Boeing because it had agreed to share more technology with contractors and because many parts for the new jet, the Gripen NG, would be made in Brazil.

There's also the small matter of cost. Taking input from military analysts, it said:

Richard L. Aboulafia, an aviation analyst at Teal Group in Fairfax, Va., said that while Brazil’s disenchantment over the N.S.A.’s spying could have played a role in the decision, costs were probably a bigger factor.

“You’re talking about a military service that doesn’t need a heavyweight front-line fighter and has suffered a budget squeeze and hasn’t been able to fly the planes that it owns,” he said.

He added that a basic version of the Saab jet might cost about $45 million, compared with $55 million for Boeing’s basic F/A-18 Super Hornet.

And the Gripen’s fuel costs would be half of that for the Boeing plane. Both jets use the same engine, but the Super Hornet has two engines and the Gripen one.

A study by the military publisher IHS Jane’s said that the Gripen costs about $4,700 an hour to fly — the lowest among modern fighter jets — compared with the $11,000 for the Super Hornet.

Also included within reports was a note that Saab will share technology with Embraer, a Brazilian aviation company that is no stranger to cost cutting. Last year, its CIO, Alexandre Baulé was named Brazilian IT Executive of the Year – Cost-Efficiency, by InformationWeek. This followed an exercise that saw Embraer make dramatic savings in its back office maintenance costs:

Baulé received the prestigious award for his use of Rimini Street third-party support in realising his mission to significantly reduce the company’s annual maintenance costs for its existing SAP system by 50% and improve the level of service it receives for its SAP software implementation.

Verdict

Stuart Lauchlan has consistently warned against European saber rattling around the NSA topic:

The problem is that while the sabre-rattlers within the European Commission are working up a good rhythm, across the Pond there are those who see the outrage about PRISM overseas, and the prospect of tougher data protection rules as a result, as just another ‘attack’ on US commercial interests by uppity foreigners.

We should expect a slew of these kinds of attention grabbing headlines, especially given the airtime given to strong recommendations for radically reining back NSA activities.

I am of the opinion that any cross national deal of substance will ultimately be determined by the economics of the case. That certainly seems to be the situation in Brazil and I have no reason to think it would be different anywhere else. Indeed, during Oracle's earnings call yesterday, Mark Hurd, president Oracle mentioned deals in Brazil.

The NSA topic may well be one that rumbles on in 2014, having impact across many business applications and the privacy due diligence that goes with it but in the end? Money talks...