BRASILIA Thu |Feb 27, 2014 8:05pm EST

(Reuters) – Brazil is hoping to sell its upcoming KC-390 military cargo plane to Sweden as part of a $4.5 billion deal to buy 36 Gripen fighter jets made by Swedish company Saab AB (SAABb.ST).

The Brazilian Air Force said on Thursday that offsets in the Saab offer included the intention of the Swedish government to buy KC-390s, adding to signs of interest in the new cargo jet beyond Brazil’s traditional Latin American market.

The KC-390 under development by Brazilian planemaker Embraer (EMBR3.SA) is meant to be a cheaper, more efficient challenger for Lockheed Martin’s (LMT.N) C130J Super Hercules.

Embraer’s new jet is set for its first flight by the end of the year and has received early commitments for orders from Brazil, Argentina, Colombia and Chile. In Europe, Portugal and the Czech Republic are also involved in the KC-390 project as industrial partners and eventual clients.

So far, 60 of the new cargo jets have been requested. Embraer sees a market for more than 700 planes in the segment worth more than $50 billion over the next 10 years.

Air Brigadier Jos茅 Augusto Crepaldi, head of the Air Force program to buy and upgrade fighter jets for Brazil, told a Senate committee that the potential sales to Sweden were part of ongoing talks to finalize the Gripen fighter deal.

The offsets also include intent by the Swedish government to buy Embraer’s successful Super Tucano trainer and light-attack plane, which the U.S. Air Force bought last year for use in Afghanistan.

Saab committed to transfer 100 percent of the technology for the Gripen to Brazil and set up joint production of the latest Gripen NG model in Sweden and in Brazil, in partnership with Embraer, Crepaldi said.

He said that 80 percent of the fighter’s structure will be built in Brazil, including the rear fuselage, wings, doors and undercarriage. The avionics will be made in Brazil by AEL Sistemas, a subsidiary of Israel’s Elbit Systems Ltd (ESLT.TA).

Embraer will market the Gripen to other potential buyers in South America and Africa.

Brazil chose the Gripen to replace its aging fleet of fighter jets in December, a surprise coup for the Swedish company after news of U.S. spying on Brazilians helped derail Boeing’s (BA.N) chances of landing the deal with its F/A-18. France’s Dassault Aviation SA (AVMD.PA) was also a contender.