BY : Reuters

The United Arab Emirates is in talks with France to buy advanced Rafale fighter planes to replace its fleet of 63 Mirage 2000 jets, the French president's office said in a statement on Thursday.

The statement said commercial negotiations had not yet started and there was no timetable for a deal, but added that if an accord were struck the first planes, which are built by Dassault Aviation (AVMD.PA: Quote, Profile, Research), could be delivered in 2012.

"The discussions will continue in the weeks ahead," President Nicolas Sarkozy's office said.

The Rafale was developed and built at a cost of 28 billion euros over the 20-year life of the programme including the cost of supplying 294 jets to the French navy and air force, but the project has struggled to find any foreign buyers.

The UAE air force is mainly equipped with French Mirage combat jets, also built by Dassault, and Lockheed Martin (LMT.N: Quote, Profile, Research) F-16 fighters from the United States.

The announcement of talks came on the eve of a visit by Sarkozy to Greece in which the French leader is expected to press fighter and frigate sales in competition with Germany. COMPETITION

Defence industry and diplomatic sources say France has pitched the Rafale against the Eurofighter, which is built by the German arm of pan-European aerospace group EADS (EAD.PA: Quote, Profile, Research).

At the same time, France is competing with Germany over possible frigate sales and is offering the Greek navy the Franco-Italian FREMM stealth frigate.

Sarkozy shook up France's arms sales system last year when Paris failed against all expectations to sell Rafale jets to its former colony Morocco, which opted for second-hand F-16s.

The sources, who asked not to be identified because of the sensitive nature of talks, said a final deal was not expected to be wrapped up during Sarkozy's visit to Greece, which has among the highest defence budgets per capita of Western nations.

Anxious to preserve a balance of interests among European Union partners as it seeks support in a diplomatic row over Macedonia, Athens is seen likely to split the arms order by choosing French planes and German ships or vice-versa, one source close to the negotiations told Reuters.

Asked about the status of the talks at a defence conference on Thursday, the head of French radar and electronics firm Thales (TCFP.PA: Quote, Profile, Research) declined to comment.

Thales has a stake in both sides of the talks as it supplies the radar to the Rafale and owns a 25 percent stake in the French shipyard responsible for building the frigates, DCNS.

Greece is locked in a bitter dispute over Macedonia's chosen name, which is also the name of Greece's northernmost province, birthplace of Alexander the Great. The row has halted Macedonia's bid to join NATO and contributed to the fall of the government in April.

The dispute dates back to 1991, when Macedonia split peacefully from Yugoslavia. It remains known in the EU, NATO and United Nations as "The Former Yugoslav Republic of Macedonia".

Greece in April blocked an invitation for Macedonia to join NATO, insisting it should first change its name. (Additional reporting by Crispian Balmer, Emmanuel Jarry)