PARIS - The United Arab Emirates (UAE) is talking with Lockheed Martin about buying more F-16 fighter jets because France's offer of an advanced version of the Rafale is seen as too expensive, said a source familiar with the negotiations in the Arabian Gulf.
Discussions on the F-16 pile pressure on Dassault Aviation, builder of the Rafale, to cut prices and on the French government to increase funding for upgrades seen as vital to sealing an export deal for the twin-engine combat jet with the UAE, analysts said.
In the 1990s, the UAE bought 80 F-16E/F fighters under a $7.3 billion foreign military sales contract.
"The UAE is finding the Rafale offer to be too costly compared to the capabilities of aircraft and other technologies on the market," the source said. "The negotiations with France are still ongoing, and both sides are looking for a compromise."
The UAE has been seen as a potential first export buyer of the Rafale in a deal estimated last year at $10 billion. Meetings on the sale of the French fighter took place at the Paris Air Show, which ended June 26.
But price resistance has led UAE officials to open discussions with Lockheed to buy more F-16s with the latest "weaponry and targeting sensors," the source said.
Last year, UAE officials asked for technical information on Boeing's F/A-18E/F Super Hornet following a political chill at the highest levels between Abu Dhabi and Paris.
In talks with the French, the elements said to be stretching the UAE's planned budget are the co-development costs for a more powerful "special" version of the Rafale, plus maintenance and spare parts. The UAE wants its Rafales powered by Snecma M88 engines, whose 9 tons of thrust would provide 1.5 tons more than the version flown by the French Air Force.
Other improvements requested include a longer-range active electronically scanned array (AESA) radar and a more capable Spectra electronic warfare suite.
The upgrades previously have been estimated at 2 billion euros ($2.9 billion) by then-French Defense Minister Hervé Morin.
Officials with Dassault Aviation declined to comment. Shortly before the Paris Air Show, Dassault Chief Executive Charles Edelstenne said of the Rafale offer to the UAE, "the talks are advancing."
The gulf source said, "Lockheed Martin is offering a very attractive financial package."
A UAE sale might help Lockheed keep its F-16 assembly line open after India rejected the U.S. fighter in its Medium Multirole Combat Aircraft competition.
Lockheed officials were unable to comment by press time.
France badly needs export success on the Rafale, a showcase of military technological competence, as the national defense budget assumes foreign contracts to help pay for a steady rate of production.
Dassault has said it must build 11 Rafales per year to keep the production line running at an economical rate.
Large companies depending on the Rafale include Safran subsidiaries Sagem for the forward-looking infrared gear and Snecma for the jet engines, as well as Thales for the electronics and RBE2 AESA radar, and MBDA, which hopes to sell the Meteor long-range missile.
The UAE's interest in the F-16 has forced Dassault to reduce prices, said Loic Tribot La Spiere, chief executive of think tank Centre d'Etude et Prospective Stratégique. Dassault has little room to maneuver as it must sell the Rafale, needed to boost "other opportunities" in export markets, he said.
Dassault hopes to sell the Rafale to Brazil, India and Switzerland, among other countries.
"Faced with this development, Dassault could go far in concessions, and the Emirates know it," Tribot La Spiere said.
But the U.S. also has an urgent need to boost exports, given its dire domestic economic situation, Tribot La Spiere said. The gulf is seen as a region that helps sustain U.S. activity.
"In this context, it is a safe bet that buying the F-16 aircraft could be seen, or rather proposed, as underwriting a security insurance policy: 'You buy this product and we will ensure your security, even internally,'" he said.
Research fellow Hélène Masson of think tank Fondation pour la Récherche Stratégique said the UAE's talks with Lockheed are a "radical means to put pressure on Dassault's offer."
The move may raise France's financial burden to pay for the Rafale's development, particularly the M88 engine.
"The central problem is really the funding for the aircraft's new functions, notably the engine," Masson said. "It's a way to say to the aircraft maker, and above all, the French Defense Ministry, that they must contribute more significantly to the development of this new version of the M88 and so reduce the financial cost to the UAE. ... Yes, this is really a chess game."
Dassault refuses, as a policy, to use company money to fund military aircraft development, insisting the government client pay.
The French Air Force is understood to be content with the current engine's performance, so it appears Paris must decide whether to further fund upgrades to win the UAE sale. That comes as France seeks to cut its public deficit.
In the 1990s, the UAE bought 80 F-16E/F fighters, with distinctive conformal fuel tanks, under a $7.3 billion contract through the Pentagon's Foreign Military Sales program. A reported $3 billion of that amount went to co-develop the Block 60 Desert Falcon, widely viewed as the most capable version of the F-16 worldwide.
As co-developer, the UAE is co-owner of some of the sensitive military technology on the Block 60 version. As part of the deal, UAE personnel worked on the co-development program, and Lockheed trained Emirati nationals to service the Block 60 aircraft.
The 1990s also saw the UAE buy Dassault Mirage 2000-9s, which were more advanced than the 2000-5 flown by the French Air Force. Older Mirage fighters were also upgraded to the more capable variant.
The Mirage 2000-9 fleet still has a long life ahead, but the UAE could start taking delivery of the new F-16s in under five years while keeping its Mirages, the source said.
France has offered to buy back the Mirage 2000-9 fleet and resell it in export markets to encourage the Rafale sale to the UAE.
The UAE has bought the Black Shaheen cruise missile for the Mirage. The UAE also has the long-range strike missile Hakim, which was shown under the wing of a Rafale model displayed in February on missile maker MBDA's stand at the IDEX arms show in Abu Dhabi.
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