France has agreed to sell two Mistral helicopter carriers to Egypt after their sale to Russia was canceled in August and will not incur a financial loss in the transaction, government spokesman Stephane Le Foll said.
Cairo has sought to boost its military power in the face of a two-year insurgency based across the Suez Canal in the Sinai Peninsula and fears the conflict in neighboring Libya could spill over. Egypt's allies are also keen to burnish its image in a region beset by turmoil.
"They agreed on the principle and the terms of the acquisition by Egypt" of the two Mistral warships, President Francois Hollande's office said in a statement after he spoke to his Egyptian counterpart Abdel Fattah Sisi.
An Egyptian delegation had been in Paris over the last few days to negotiate the price.
A diplomatic source said Cairo wanted to base one ship in the Mediterranean and another in the Red Sea, making it available for future operations in Yemen, where Egypt is part of a Saudi-led coalition fighting Houthi rebels.
The French government agreed to reimburse 950 million euros to Moscow last month after the Mistral sale to Russia was canceled as a result of the Ukraine crisis.
"I completely refute what has been indicated by some that there will be a loss with regard to this agreement compared to the hypothesis of a sale to Russia," Le Foll told reporters.
The deal with Egypt comes as France has nurtured new links with Sunni Arab states which appreciate its tough stance on their Shiite rival Iran and similar positions on the region's conflicts. France has also benefited from what some Gulf countries perceive as disengagement from traditional ally the United States.
One source close to the matter said in August that any deal with Egypt would likely be part-financed by Gulf Arab states.
Egypt and Saudi Arabia agreed at the end of July to work together to create a joint Arab military force.
The Mistral is known as the Swiss army knife of the French navy for its versatility. It can hold up to 16 helicopters and 1,000 troops.
Egypt last year bought four small Gowind warships, built by Mistral manufacturer DCNS, which is 64 percent owned by the French state and 35 percent by defense group Thales.
It also acquired a Fremm frigate as part of a 5.2 billion euro contract for 24 Rafale warplanes earlier this year, France's first overseas export of the fighter jet.