M&>01;RIGNAC, FRANCE &S212; On a recent afternoon at the sprawling Dassault Aviation plant, on the perimeter of the Bordeaux airport, the smell of kerosene hung in the air as engineers tested hydraulics and fuel systems on the combat jet Rafale.

Those planes are destined for delivery to the French military, just like the previous 70 to 80 that have rolled off the assembly line. But there&S217;s a sense of cautious optimism here that the Rafale is finally within touching distance of a long-sought goal: its first foreign sale.

A tentative, &S364;5 billion deal with Brazil, announced last month, would go some way toward offsetting the downturn at Dassault&S217;s commercially more important Falcon business jet division. It also would help France to recapture some of the glory &S212; and export revenue &S212; lost when the Rafale&S217;s illustrious predecessor, the Mirage, ceased production in 2007.

The Brazilians, emboldened by their booming economy, are looking for a flexible, twin-engine combat jet to guard their offshore oil deposits and the vast Amazon rainforest. But should the deal go through, they would get more than just 36 planes.

The sale also includes a total transfer of technology that would enable Brazil to assemble most of the Rafale jets itself, and the right to sell them regionally. The contract might rise to 120 aircraft.

The terms illustrate the pressures on Dassault and a handful of other defense companies competing in a tightening global market.

Not only are advanced new American and European jets coming to market, but looming on the horizon are the prospect of advanced unmanned fighters and even competition from China, using technology acquired from Israeli and Russian jets.

Jean-Paul H&>33;bert, a strategic expert at the &>01;cole des Hautes &>01;tudes en Sciences Sociales in Paris, says Dassault is facing &S220;an appallingly hard decision&S221; as it debates the post-Rafale era.

&S220;Long-term research costs are very heavy and the French arms industry has not been that commercially very successful alone,&S221; he said.

With defense budgets under pressure and many potential clients tied to U.S. fighters, Dassault, which ranks with EADS and Thales among the biggest French defense contractors, has been fighting for leftovers.

Along with market leaders like Boeing and Lockheed Martin, Dassault&S217;s competitors include the advanced but expensive pan-European twin-engine Eurofighter, which operates in Europe and Saudi Arabia; the Saab Gripen, in Sweden, the Czech Republic, Hungary and South Africa; and the Russian Sukhoi and MIG.

&S220;The market is shrinking and there are too many players,&S221; said Eugene Kogan, guest researcher at the International Institute for Liberal Policy in Vienna. &S220;And it looks like China may soon start to move into some of the markets once dominated by Russia.&S221;

The Rafale was conceived in the mid-1980s and first test flown in 1991, as a successor to a series of aircraft that included the Mirage, which earned its stripes during the Six-Day War in the Middle East. Some 2,800 Mirages were delivered, more than half &S212; 57 percent &S212; for export.

But the French military wanted new capabilities, and so Dassault turned to the Rafale. The first prototype was built in 1986 and it entered service in 2001. Its sleek twin or single seat jets are recognizable by their main Delta wings and mini canard wings below the cockpit; land and sea versions have been built. Its engine is made by the French company Snecma, and Dassault expects the plane to be enhanced by an upgraded RBE2 radar from Thales, in which Dassault this year took a 26 percent stake.

Dassault has come close to exporting the Rafale before, notably to Morocco in 2007 and Singapore and South Korea previously, but those governments opted instead for U.S. hardware. The disappointments were blamed on bureaucratic problems in Paris and Washington&S217;s greater clout.

The Brazil package would be complex. Six jets would be made in France and 30 assembled in Brazil by Embraer, in which Dassault has a stake of 0.9 percent. The contract might expand to 120 aircraft, and comes alongside sales of other French hardware to the country and planned purchases by France of Brazilian transport planes instant payday loan.

&S220;It looks like technology transfer was pretty critical,&S221; said Rebecca Grant, senior fellow at the Lexington Institute, a research body in Arlington, Virginia.

The Saab Gripen, with its General Electric engine and Italian radar, seems to offer less in transfers; Brazilian demands may have gone beyond what Washington was willing to envisage, according to analysts.

Mrs. Grant also noted that the market will get even tougher once the Joint Strike Fighter from Lockheed Martin arrives in the next few years. Also known as the F-35, it appears to be the favored choice among NATO countries like Norway, the Netherlands and Poland, who are tempted by shared production to replace their mainstay F-16s.

&S220;The Rafale hasn&S217;t established itself a big customer base, so it&S217;s less flexible,&S221; Mrs. Grant said. &S220;You can&S217;t underestimate the importance of interoperability and costs.&S221;

&S220;Interoperability&S221; refers to the maintenance of jets on bases across the globe. Dassault argues that the Rafale&S217;s service in Afghanistan since 2007 proves this is not an issue.

Dassualt also says that there have been no cost overruns for the program, scheduled to run until around 2025 and scaled back to 294 jets for &S364;28 billion.

The stike fighter of Lockheed Martin, hit by delays, is now projected by the U.S. Government Accountability Office to cost Washington $300 billion for 2,440 deliveries, above 2001 estimates of $233 billion for 2,860.

Despite interest in the sale to Brazil, Dassault&S217;s most important product is the Falcon business jet, which has been transporting royalty, pop stars and chief executives for decades.

Over the past five years, Falcons represented on average 60 percent of sales and 80 percent of orders; Dassault received 115 orders in 2008, down from 212 a year earlier, and expects even fewer this year.

Falcons, which cost from $30 million to $50 million, are finished in Little Rock, Arkansas, from parts built in France.

At M&>33;rignac, workers were assembling a Falcon 7X for Warren Buffet&S217;s NetJets. Other clients like Royal Bank of Scotland and Citigroup cancelled orders last year during the financial meltdown.

Olivier Brochet, an analyst at Natixis Securities, said Rafale exports might help offset lower demand for the Falcon.

The market consensus for Dassault is 2009 revenue of &S364;3.5 billion and profit of &S364;289 million, down from 2008 revenue of &S364;3.75 billion and profit of &S364;373 million.

Dassault&S217;s share price appears to be influenced partly by liquidity, with 50.5 percent of the company held by the Dassault family &S212; which has a host of other interests in areas as diverse as media, wine, auctions, software and electric cars. Another 46 percent is held by EADS. So far this year, the shares are up 20 percent at about &S364;480.

With its modest size &S212; the group employs 12,500 &S212; Dassault has retained a reputation for agility not always apparent in French industry.

But unless Europeans can cooperate and move away from domestic champions, they will suffer in the race to supply the next generation of fighters, said Mr. Kogan from the Vienna-based institute.

Dassault appears to be thinking along the same lines. Eric Trappier, executive vice president at Dassault Aviation, said that Rafale&S217;s &S220;successor will probably be designed through a European cooperation, from 2025.&S221;

Back in M&>33;rignac, a Rafale was being towed away for delivery to French forces after assembly and testing.

&S220;It&S217;s always difficult to see an aircraft leaving,&S221; an employee sighed, &S220;it&S217;s our baby.&S221;

That pain might be easier to bear if future Rafales are destined for South America.

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