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France soothes nerves over Dassault jets after Brazil setback

By John Irish and Cyril Altmeyer

PARIS (Reuters) - France's defense minister played down another sales failure for Dassault's Rafale fighter jet in Brazil, saying he was confident there would soon be better news from tenders in India and Gulf Arab countries.

Dassault Aviation has still not found a foreign buyer for its multi-role jet, the Rafale, billed to be one of the most effective and sophisticated fighter jets in the world, but also one of the most expensive.

Shares in the company fell around 2 percent on Thursday after Brazil's decision to award a $4.5 billion contract for 36 jets to Saab , a surprise coup for Sweden, and a second blow this year after missing out in Switzerland.

"This isn't a failure. It's a disappointment on a target that wasn't a priority," Defense Minister Jean-Yves Le Drian told Europe 1 radio. "Brazil was not the priority target for the Rafale. We have more important targets in India and the Gulf (Arab states)."

France had come close to sealing a deal with Brazil in 2011, with Dassault promising to transfer technology for the new jet in a bid to get an edge over the competition, but the Brazilian government delayed its decision due to the economic crisis.

"I'd been expecting this ... for several months," French President Francois Hollande said in Brussels where he travelled for meetings devoted largely to the European defense community.

"What counts is that the Rafale is not bought only by the French army," he added. "In order for it to be cheaper, it must sell more, so it's a process ... I'm doing the main thing, which is to defend this plane."

Hollande had travelled to the Latin American oil producer on December 12 to push the deal.

Dassault has been in exclusive negotiations with the Indian government for more than a year to sell 126 planes.

In an interview with Reuters, Dassault Chief Executive Eric Trappier said he was confident that Indian national elections to be held by May would not have any impact on talks and that a deal would be struck soon.

"I'm quite confident on the success of the Rafale in India in the coming months," he said.

INDIA CRUCIAL FOR DASSAULT

An Indian air force official said at the end of October it hoped to conclude the deal by March 2014.

"Brazil's choice was logical," a Paris-based trader said. "It was an economic choice to pick the Swedish plane.

"France needs to understand that the Rafale is too expensive and that the quality of the equipment is not taken into consideration in the current decision-making process. With this failure, the India contract becomes crucial for Dassault."

Under a five-year defense plan, the French military will slow the pace at which it takes delivery of Rafale jets from Dassault, taking just 26 over the years instead of 11 a year.

The French government's decision to slow the production line may push Dassault to review the cost of the plane - threatening to raise costs for the defense budget.

"We have good reason to think that in India and the Gulf (Arab states) there will be results," Le Drian said.

The aircraft has received a great deal more interest since it was deployed in the NATO mission in Libya in 2011, its first ever combat operation, and earlier this year when France intervened to oust Islamist rebels in Mali.

France's stance on Syria and a tough line over Iran's nuclear program, has helped its relationship with the hydrocarbon-rich Gulf Arab states prosper, already resulting in multi-billion dollar defense contracts this year.

Officials say they are optimistic on securing a large deal to deliver anti-aircraft defense missiles to Saudi Arabia, where Hollande will travel at the end of December, but also the sale of Rafales to neighboring Qatar.

Doha wants to replace its fleet of 12 Mirage fighter jets, possibly buying 24 to 36 units. It is looking at the Rafale, the BAE Systems-backed Eurofighter Typhoon and various Boeing-made planes.

Dassault and BAE are also in a tight race to win a deal for 60 aircraft to replace the United Arab Emirates' Mirage fleet.

Trappier declined to comment on the two Gulf tenders and another competition in Malaysia.

"There are also other (opportunities), but further down the line," he said.

(Additional reporting by Dominique Vidalon and Alexandre Boksenbaum-Granier; Editing by Patrick Graham and Susan Fenton)

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