(Adds Japanese defence ministry comment)
By Nobuhiro Kubo and Andrea Shalal
TOKYO/BERLIN, April 25 (Reuters) - In a fresh bid to win its first major foreign arms deal since World War Two, Japan is proposing its P-1 submarine hunter for a French-German project to develop a marine surveillance aircraft, two Japanese government sources said.
Discussion between the three governments began last year. Japanese officials also asked Kawasaki Heavy Industries , which makes the P-1, to discuss possible partnerships with France's Dassault Aviation and Thales SA , said the sources, who have direct knowledge of the proposal but are not authorised to speak to the media.
"If they try and build it from scratch it will cost a lot and their potential market is small, even if Spain or other European countries buy it," one of the sources said of the European project.
But the P-1 may be a tough sell in a competition with plenty of home-field heavyweights.
Airbus has said it is exploring military applications for its A320neo passenger jet family, including a maritime patrol version. Two European defence sources said French planemaker Dassault Aviation is ready to adapt its Falcon 8X business jet for such missions. Both companies declined to comment.
Boeing is also likely to offer its P-8A Poseidon.
"We have introduced the P-1 to other countries with the backing of the Japanese Ministry of Defence," a Kawasaki Heavy spokeswoman said. "However, we are not able to discuss individual cases."
A Ministry of Defense spokesman in Tokyo said Japan was looking at several ways to work with France and Germany on defence technologies after signing separate cooperation agreements. But the spokesman added that "we are not in talks aimed at joint developments and have no plan to conceive a three-way project."
Germany wants to replace its ageing fleet of maritime surveillance planes in response to an increase in Russian submarine patrols to a level not seen since the end of the Cold War.
The defence ministers from Germany and France will sign a document at this week's Berlin Airshow agreeing to explore the joint development of a new maritime surveillance aircraft, German military sources said.
A spokesman for the German defence ministry declined to comment on discussions, adding, "Germany and France are considering many possibilities to expand the existing good cooperation between the two countries' militaries."
The two countries are exploring several other joint procurement or development projects, including a new fighter jet and a military drone. The two countries will also jointly operate a new fleet of Lockheed Martin C-130J transport planes.
Officials at the French embassy in Tokyo were not immediately available to comment.
Prime Minister Shinzo Abe ended a decades-long ban on arms exports four years ago.
But since then, his government has been unable to sell defence gear overseas as long-isolated Japanese defence contractors struggled in the competitive global arms market.
In 2015, Japan offered the P-1 to Britain, which chose Boeing's P-8 instead from a crowded field. In 2016 it lost out on a lucrative contract to supply Australia with a fleet of diesel-powered submarines, work that went to French naval contractor DCNS.
European defence analysts and military sources cautioned that the P-1 would face stiff competition for the French-German project, which aims to field a new aircraft by 2035.
"At this point, it's completely premature to either say Japan and Kawasaki have a chance or that they do not," said one of the military sources.
Japan, which wants stronger security ties with France and Germany, plans to display two of its P-1 aircraft at the five-day Berlin air show. The P-1, which is designed to operate both at high altitude and at low speeds closer to the water, is replacing Japan's fleet of turboprop Lockheed Martin P-3C Orions.
Germany also operates the Orion, while France flies the Atlantique 2, or ATL2, produced by Dassault Aviation in the 1980s.
Saab, Bombardier, Israel Aerospace Industry and Leonardo are among other companies seeking to enter the maritime patrol market.
The P-1 patrols Japan's territorial waters stretching from the Pacific to the East China Sea, where Beijing and Tokyo are locked in a territorial dispute over a group of uninhabited islets.
The four-engine aircraft, which was delayed by fuselage and wing cracks and engine problems, entered service in 2015. It is the world's first production aircraft to use fibre optic cables to transmit flight control commands from its cockpit. (Reporting by Nobuhiro Kubo in TOKYO and Andrea Shalal in BERLIN; writing by Tim Kelly; Editing by Gerry Doyle)