UPDATE 1-Saab shares leap as Brazil deal secures Swedish fighter project

Simon Johnson and Niklas Pollard
Thursday, 19 Dec 2013 | 6:34 AM ET

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STOCKHOLM, Dec 19 (Reuters) - Shares in Swedish aerospace firm Saab leapt by a quarter 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.

So far only the Swedish air force has bought new generation Gripens, with fellow neutral nation Switzerland poised for a deal and Brazil opting on Wednesday for a similar model. However, Saab is competing on price at a time when defence budgets are being cut in many nations.

"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."

At 1130 GMT Saab shares were up 25.08 percent at 166.35 Swedish crowns ($25.40) on the surprise coup after news of U.S. spying on Brazilians helped to derail Boeing's chances for the deal.


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.

It has developed several versions since then, but since the fall of the Soviet Union, scepticism has been increasing about the need for Sweden to keep making cutting-edge fighters.

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

Earlier generations of the 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.

In September, the Swiss parliament approved a purchase of 22 Gripens, although the $3.4-billion deal, to replace ageing Northrop F-5 Tiger fighters, is not yet final.

With air forces around the world struggling to justify multi-billion dollar purchases of new planes, Saab has been able to remain competitive against bigger rivals such as Boeing and Lockheed Martin due to the lower cost of its planes.

"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, whose biggest shareholder is the Wallenberg family's Investor AB with a 30 percent stake, reckons the operating costs of its Gripen are 50 percent below that of rival planes.

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 Simon Johnson, Niklas Pollard, Olof Swahnberg, Oskar von Bahr; Editing by Alastair Macdonald and David Stamp)

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