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South America: Defense Spending Shifts to Security, Homeland Defense |
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(Source: defense-aerospace.com; published April 29, 2005)
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By Giovanni de BRIGANTI
defense-aerospace.com
RIO DE JANEIRO, Brazil --- Western defense manufacturers attending the Latin American Aerospace and Defense exhibition held here Apr. 26-29 anticipate a significant recovery in the South American defense market, but forecast a shift towards lower-profile homeland security programs instead of big-ticket purchases of conventional weapons.
European industry executives see particular promise in this shift, as they believe the region’s smaller contracts and comparatively low profit margins will dissuade their American competitors. The shift to security will also work against Russian suppliers, whose production continues to stress conventional weapons for which South American buyers now have less need, even at cut-rate prices, they say.
Brazil’s decision to shelve long-running plans to buy a dozen new combat aircraft, and to instead invest $722 million to buy C-295 transport aircraft and upgrades to P-3C Orion maritime patrol aircraft from French-German-Spanish EADS, is an apt illustration of this trend, says Antonio de Vicariis, Vice President of Marketing and Commercial Affairs at Italy’s Finmeccanica. Brazil’s contract with EADS was due to be signed on April 29.
While shelving high-visibility, controversial purchases, South American countries will continue to upgrade and modernize their existing military inventories, but the bulk of future spending will go to helicopters, maritime patrol aircraft, small naval ships and digital communications networks, he said.
Many manufacturers attending LAAD say Brazil is the key market in South America because its emerging status as a regional “elder brother,” supported by the current government’s diplomatic charm offensive, makes it an attractive platform for re-export of military equipment throughout the region, and for outsourcing of component manufacturing.
“Brazil has a world-class aerospace industry, built around aircraft manufacturer Embraer, combined with a long-term industrial vision and with comparatively low manpower costs,” says Christian Gras, Senior Vice-President - Latin America of EADS International. “This means it is both able and willing to assume regional leadership role in defense manufacturing.” EADS, jointly with Dassault Aviation, electronics group Thales and Safran (formerly Snecma), owns a 20% equity stake in Embraer, and also indirectly owns 76 percent of Helibras, the Brazilian helicopter manufacturer.
Other industry executives note that local assembly or manufacturing is a key element in Brazil’s weapons selection process, and see in this requirement an opportunity for re-exporting their equipment to other South American countries, with Brazilian industry contributing its low manpower costs and geographical proximity to ensure after-sales support for customers throughout the region.
“Political leaders throughout the region are now beginning to recognize the need to modernize their military services, funding is more easily available because of the region’s economic recovery, and there is an increasing recognition of the need to patrol borders and fight drug smuggling, so procurement programs are beginning to emerge, says EADS’ Gras.
Venezuela is the country which currently best exemplifies this trend. In late March, it signed a major deal, worth 1.3 billion euros ($1.69 billion), to buy four coastal patrol vessels, four corvettes, 10 C-295 transport planes and two C-295 maritime surveillance planes from Spain. Only weeks earlier, it had signed a $120 million contract to buy ten Russian military helicopters. Venezuela also plans to buy over 100,000 Russian assault rifles, and is studying the purchase of Russian MiG-29 fighter aircraft, according to Russian press reports.
Russia also is seeking to enter the Brazilian defense market. “This is a very interesting market for us, especially since we can offer a full range of weapons,” says Ivan Skrylnik, deputy spokesman for Rosoboronexport, the Russian Federation’s arms export agency. “In China and India, we have also demonstrated our ability to set up joint ventures for local production or development of new weapons, such as the BrahMos anti-ship missile with India, and we are open to any sort of cooperation that our customers require.”
Russia has established a strong beach-head in South America, having for example sold more than 100 helicopters in Mexico alone, he said, while the Mil Mi-171A helicopter was awarded its Brazilian civil certification on April 24. “Brazil is interested in local production, and we’re ready to do that,” he added.
The Brazilian government has ambitious plans for its defense industry, as evidenced by a multiyear plan to develop its defense industrial base. This plan calls for investment of 3 billion reals (approx. $1.5 billion) to strengthen its export capabilities as well as research and development in defense-related sectors. The aerospace industry, mainly Embraer, currently account for about 5 percent of all Brazilian exports, and with annual sales of about $3.5 billion the industry accounts for 1.8 percent of the country’s gross domestic product.
Brazil’s increasing attractiveness as a regional defense hub is demonstrated by the fast growth in attendance at the LAAD exhibition. This year, 300 companies exhibited (up from 250 in 2003), and the exhibition floor area grew by about 20 percent.
Fighter Purchase Still Uncertain
To the disappointment of many observers, Brazilian authorities attending the LAAD show did not provide any information about their plans to procure new fighters. Brazil still must replace its old Mirage IIIs, which Defense Minister José Alencar Gomes da Silva said will be retired beginning at the end of the year. In February, the government allowed bids from several foreign manufacturers for its F-X fighter program to lapse, but has provided no guidance since.
"Visibility is zero regarding purchasing prospects," acknowledged Sami Youssef Hassuani, commercial director of Brazilian company Avibras, which partnered Russia’s Sukhoi in the fighter tender. "Now is no time to say if we are ready to go back to the project, because nothing is clear at the government level." Russian industry is drafting two new proposals, one based on used Su-27SKs from Russian Defense Ministry stocks and one based on new-production Su-27SKM from Sukhoi's inventory.
Owe Wagermark, spokesman for Sweden’s Gripen International, said “there are ex-Swedish Air Force Gripens available for lease or purchase, and we are waiting to see how the Brazilian government decides to go forward with this project,” while Dassault Aviation has reportedly gained French government approval to offer a squadron of former French air force Mirage 2000s.
Sources here say that Gripen is the leading European candidate for a second-hand buy, in competition with used F-16 fighters being offered by Lockheed Martin. The latter’s case was strongly pushed by US Secretary of State Condoleeza Rice during her visit to Brazil this week, these sources say.
-ends-
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