Brazil is the senior partner in the deal involving KC-390, a medium-sized transport aircraft that is the brainchild of Brazil's Embraer defense manufacturer, already a contender for a greater share of the global arms market.
A prototype of the aircraft, designed to transport up to 23 tons of cargo, is expected to be ready by 2013. Actual flight trials will begin in 2014.
Before the deal became public, Argentina had been outlining plans for developing its military manufacturing industries and increasing investment in Fabrica Argentina de Aviones, the company involved in the partnership.
FAdeA will be responsible for the manufacture of several structural parts, including the spoilers or plates on the top surface of a wing for controlling wing lift, doors for the nose landing gear, ramp door, flap fairings, tail cone and electronic cabinet. Embraer will be responsible for the manufacture and assembly of other components.
Signing the contract in Rio de Janeiro, both sides expressed optimism the joint production will lead to greater business prospects for both companies.
Embraer said the partnership deal was in line with Brazil's overall national defense strategy, which sets out goals for turning the country's military manufacturing industries into a pre-eminent powerhouse and an alternative to suppliers from outside South America.
Luiz Carlos Aguiar, president of Embraer defense and security, said he hoped the deal would strengthen both companies' capacity for manufacturing.
The plan carries the political subtext of boosting Brazil's status as the de facto regional leader. Embraer is already in competition with European, U.S. and other manufacturers of small executive jets and other transport aircraft.
In October last year Argentina and Brazil signed a declaration of intent that committed Argentina to buying six of the transport jets.
"This contract brings the aeronautical industries of both countries together and opens excellent possibilities for our recently recuperated company and for boosting trade relations between the two largest countries in the region" FAdeA President Jaime Saiegh said.
FAdeA is seeking to pick up from where Fabrica Militar de Aviones left off during a period of relative inactivity in recent years. The 80-year-old FMA established a track record in the design and manufacture of aircraft -- more than 1,500 so far -- as well as maintenance and repair of civilian and military aircraft.
FAdeA has headquarters in Cordoba and is strategically located close to several aeronautics and avionics training centers, a continuing source of skilled staff.
The jointly produced KC-390 will incorporate many of the technological features of the Embraer jets. Both sides are confident of capturing a significant global market on proprietary components and price, which is likely to be at least $10 million less than a direct competitor, Lockheed Martin's C-130J Super Hercules. The jet is likely to carry a price tag of about $50 million.
Embraer is hoping to be in the forefront of the military transport jet market as countries across the world consider replacements for nearly 700 military transport aircraft known to be on active duty on international inventories.