INTERVIEW-U.S. budget cuts sharpen battle for fighter jet exports

* Brazil, S.Korea contests loom over combat jet industry

* Price, technology key weapons as suppliers seek more

exports

* Gripen maker 'takes precautions' after alleged

phone-tapping

* Thinktank says U.S. F-35 to dominate industry for years

WASHINGTON, Sept 9 (Reuters) - Competition is heating up in

the global fighter jet market, prompting accusations of

aggressive tactics as major arms makers jostle for export

business to offset domestic spending cuts.

Purchase decisions in the coming months from South Korea and

Brazil, as well as the finalization of a huge Indian contract

tentatively awarded to France, could shape the balance of power

in the aerial combat market for years to come.

Demand for air artillery is increasing due to a cocktail of

regional threats, ageing fleets and high oil and commodity

revenues swelling the resources of emerging economic powers.

Still, it is a far cry from the levels suppliers would need

to be sanguine about domestic spending cuts, and top contractors

and analysts told Reuters this week that the battle for export

contracts to keep assembly lines running was growing tougher.

"Competition is increasing each day. I think we see in many

areas a sharpening of prices," said Hakan Buskhe, chief

executive of Sweden's Saab, which is competing with

Boeing and France's Dassault for the delayed Brazil deal.

Experts and lobbyists say suppliers on both sides of the

Atlantic are playing the jobs card at home - in some cases

bluntly reminding politicians that defense workers have votes -

while cutting attractive deals to help capture new orders.

"It is a great time to search for a bargain in the fighter

market," said defense analyst Loren Thompson, chief operating

officer of the Arlington, Virginia-based Lexington Institute.

Importers also increasingly have the upper hand in demanding

generous transfers of technology to support local aerospace

businesses, a key factor in markets like India and Brazil.

Buskhe, a former energy executive who became Saab CEO two

years ago, said he was dismayed to find his phone had recently

been bugged in Switzerland, and now took extra precautions.

"It just went berserk," he said, gesturing towards the

smartphone during a meeting with Reuters editors and reporters.

Buskhe said Swedish security services had launched an

investigation but declined to discuss the outcome.

The deal to sell 22 Gripen jets to Switzerland was seen as a

lifeline for Saab's fighter, whose future had been in doubt.

Subject to a Swiss referendum, its production lines are now

assured into the next decade, but it remains a minnow in global

markets compared with other Western and Russian majors.

DEMAND RISING

Saab's predicament mirrors one facing the industry on a

wider scale and, analysts say, helping to intensify competition

- too many Cold War-era suppliers chasing too few exports.

Saab is one of three suppliers in Europe alongside the

four-nation Eurofighter Typhoon and France's Dassault, which

builds the Rafale, while the U.S. and Russia have two major

players each: Lockheed Martin and Boeing versus Sukhoi

and MiG.

Demand is rising: Virginia-based Teal Group predicts

deliveries of over 2,600 fighters worth $174 billion between

2011 and 2021, up 15 percent by value in a decade.

As well as competitions in Brazil and Korea, the Middle East

remains key, and there is a growing arms race in Southeast Asia

fuelled by territorial disputes and concerns over China's role.

Kuwait and Malaysia are among those shopping for more air power.

Still, there is huge pressure on Western budgets, with U.S.

companies bracing for more cuts even if a threat of $500 billion

in emergency reductions is lifted.

"Price pressures are steadily increasing as defence

production lines are getting very thin and that is a concern for

the industry," Teal Group analyst Richard Aboulafia said.

South Korean officials are due to visit the F-35's factory

and test base in the coming weeks, sources familiar with the

plans said. They will also visit Boeing's F-15 plant.

Lockheed says more than 25 countries have expressed interest

in its stealthy new jet. Its executives hope

Japan's order of the F-35 will persuade Seoul to follow suit.

Boeing, which has invested in adding some limited stealth

capability to its F-15, is counting on nearly 40 years of ties

with Seoul, and the plane's lower cost, to prevent that.

The stakes are high not only for Boeing. Lockheed's F-35 is

likely to be the West's "dominant combat aircraft for decades to

come," Britain's Institute for Strategic Studies said on Friday,

presenting Europeans with a dilemma on the eve of the Berlin

Airshow.

They can partner with the F-35, thereby accepting greater

reliance on the United States, or commit to building new

aircraft despite the region's budget crisis.

Six European countries including Eurofighter consortium

members Britain and Italy are already F-35 partners, while

France and Sweden have so far remained aloof from alliances.

Meanwhile, a big Russian presence at the recent Farnborough

Airshow reminded the industry that Russia, whose arms makers

often compete on price, are willing to fight for new markets.

(Additional reporting by Andrea Shalal-Esa; Editing by Daniel

Magnowski)

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