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Things were not well in the procurement process of the Luftwaffe and AMI by early 1971. 1st Belgium left, then Canada, now the Dutch. That meant the two remaining countries will need just the half of the intended quantity vs. the forecast made just 3 years earlier, with expected result: price per each A/C will skyrocket in order to cover both for development and production of engine, airframe and electronics.
Now it was time for Italy to walk away and to ponder what to do next.
Option of making more F-104s to do the ground attack job was discarded shortly, the aircraft's safety record and lack of range when bomb-laden were the obvious reasons. Souped-up trainers were found being even less favorable and were judged as incapable of surviving a high-threat environment, as well as of dubious utility in bad weather and during the night, while also not rangy enough.
Buying abroad - the discarded options: A-6 and A-7 due to being subsonic, and F-4 as too expensive. That left the F-105, Jaguar, Merlin and Rapier. After further deliberations continued in 1972, Jaguar was dismissed due to the lack of modern electronics, while the F-105 was considered a too old-tech. By late 1972, Italians have decided on the Merlin ( named Falco by the Italians ) just like the Dutch. Main outward difference was that Falco was a 2-seater only. The licence deal was that Italians produce the fuselage and engine, while the British will manufacture the wings and empenage. Attack and navigational electronics was based on the set-up used on Buccaneer, since the most likely area of operation will be the Alps, Balkans (and hopefully not the Appenies) and maritime strike. In order to speed up the delivery, British will manufacture sets for initial 12 aircraft plus 30 engine engines, as well as delivery of enough parts for the engine to Fiat so the production there is up and running without delay. The container for M61A cannon is to be developed by Italians for the Falco.
Total of 120 aircraft is ordered, with 1st Italian Falco flying already in 15th October 1973. Nobody gave much of concern that all parts for it were made in UK - after all, it was assembled and flew in Italy!
While people in the UK government were very much satisfied with the current business deals (that were also driving the price per aircraft for them, too), they were questioning some things among themselves, namely how the French were not playing the ball sometimes. Like selling their Mirages to anyone - even to the countries UK refused to sell, like the second order of Buccaneers to South Africa. Comments of the supposed unsuitability and supposed too high price of the navalized Jaguar seemed like the French (or it was Dassault perhaps? they have aquired Breguet in 1971) were trying to remove the joint project from the picture in order to have an all-French aircraft bought instead.
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