Brasilia: Brazil has said it will begin final negotiations with France's Dassault Aviation for the purchase of atleast 36 Rafale fighter jets and that it expects a "competitive" price offer to finalise the deal. The contract is potentially worth as much as 5 billion euros ($7.2 billion), and much more if the initial order is expanded.

"This is not a simple commercial deal... We want to think together, create together, build together and, if possible, sell together," Brazil's president Luiz Inacio Lula da Silva said during a joint press conference with visiting French president Nicolas Sarkozy.

On a two-day visit to Brazil, Sarkozy said France plans to buy 10 military transport planes from Empresa Brasileira Aeronautica SA (Embraer).

The deals are part of a broader strategic defence alliance both countries signed last year. It also involves a separate 6.7 billion euros ($9.4 billion) deal for the construction of conventional and nuclear powered submarines, which has already been inked. A separate deal 1.9 billion euros ($2.6 billion) for the supply of 50 EC-725 Cougar military transport helicopters has also been agreed upon.

The contracts involve significant transfers of technology, a priority for Brazil, which is intent upon developing an advanced defence industry of its own.

Brazil has said it will develop and build the nuclear engine of the atomic-powered submarine along with Argentina, without French aid. The rest of the vessel, however, will rely on French technology. The Scorpene conventional submarines will be built in France.

The EC-725 helicopters will be assembled in Brazil with incremental increases in local content.

The Rafale, in existence since 1988 is yet to score a victory in the arms export market and has lost out over the last few years to Boeing's F-15 in South Korea and Singapore, the Eurofighter in Saudi Arabia and Lockheed Martin's F-16 in Morocco. The last coming as something of a shock to the French who thought they had the deal sewn up.

Meanwhile, Brazil foreign minister Celso Amorim told reporters that Dassault had made a satisfactory offer to transfer technology and allow Brazil to assemble and export the Rafale in the Latin America region."There is a decision to begin negotiations with one supplier and not the others," Amorim said.

He clarified, however, that France would have to offer a competitive price, comparable to that paid by the French Air Force. Finance for the deal would also influence the decision, he added.

Amorim refused to clarify whether competitors Boeing and Swedish Saab had now been eliminated from the bidding process. "I don't know if the tender is over, I don't want to enter into legal aspects," he said.

While Boeing had its F/A-18E/F Super Hornet on offer for the tender to supply multi-role fighter jets to Brazil's Air Force, Saab had offered its Gripen JAS-39.

As mentioned, in exchange for the Rafale deal, France will buy 10 Embraer KC-390 transport aircraft.

Only six of the 36 Rafale jets would be built entirely in France, with the rest being assembled in Brazil. Delivery would begin in 2013.

With Brazil due to replace its entire fleet of ageing fighter jets, the order may eventually expand to include as many as 100 aircraft.

Dassault Aviation officials were upbeat about the deal saying the deal would be ''...concluded definitively in 2010, if things go well."

Critics charge the Rafale as being too expensive, but the French argue that the aircraft has low operating costs and matches competitors in technical capability and combat.

Embraer's KC-390 is expected to enter service by the middle of the next decade and will be in the 20 tonne class, putting it in the same bracket as Lockheed Martin's C-130. The Airbus-developed A400M turbo-prop is larger, with an airlift capability of over 30 tonnes.