Opportunities in the Brazilian defense market
Above The termination of the F-X program increased the importance of the F-5 modernization, being carried out by Embraer. The photo shows the first modernized prototype, a two-seater. The first modernized single-seater was delivered to the FAB in February 2005 (Photo: Segurança & Defesa).
When it comes to defense, each country has its own specific context, which must be taken into consideration by those professionally involved in this field. The text that follows is meant to help LAAD visitors to better understand the Brazilian defense scenario.
• Mário Roberto Vaz Carneiro
Even taking into consideration the modest level of resources dedicated to defense acquisitions, Brazil offers some good business opportunities. Those foreign defense industries that are keen enough to perceive them and understand the very specific and extremely complex context in which they are generated may get good results.
In common with all other South American countries, Brazil demands from foreign suppliers of defense material a good dose of patience, as deals are rarely agreed upon quickly. It is easy to explain why it is so. Not being rich nations, resources are really limited, so funds must be strictly applied according to priority — and, generally speaking, defense is not a priority. Countries of the continent have serious problems in crucial areas, so priority lies with programs that combat or prevent poverty, hunger, unemployment and other similar social plagues. Although a few countries have internal security problems, internationally speaking there are few border disputes, and those that exist are under control.
Acquisition programs for defense equipment tend to go along at a much slower pace than what is normal in some other parts of the world. To do business with the Brazilian Armed Forces, one must be prepared for long and much disputed campaigns. Having a local office or a good and trusted local representative, with extensive contacts and a clean record, is very helpful. Indeed, most of the time this could be considered as a “sine qua non” condition. I hope S&D’s publishers do not get upset (after all, it is for a good cause) if the author borrows for use here the phrase used in the magazine’s own advertisements abroad, slightly changing it from “Insiders know better!” to “Locals know better!”. In all probability, this is truer in Brazil than anywhere else. Of course, in common with practically all other countries in the world, foreign companies must also engage the full support of their countries’ ambassadors, defense attachés and chambers of commerce.
There are also some other very important points. Unless the items involved are very limited in number and specific in nature, gone are the days when defense items were simply sold as “black boxes” — therefore, “turn key” sales are mostly a thing of the past. Nowadays, in addition to the ever-present offsets, one must be prepared to transfer technology (something that companies must be cleared to do by their respective governments), and to engage in cooperation with Brazilian companies (production of components, assembling, etc.). Foreign companies that are not willing to do that are non-starters. The Brazilian defense industry is growing and needs to expand its exports — so, most companies will be willing to discuss the possibility of two-way agreements that could be interesting and profitable for all parties involved. The true extent of the recently-enhanced government policy of strengthening, encouraging and expanding the defense industry must be correctly evaluated and appreciated.
One of the keys to the Brazilian defense market is to be on the alert even when nothing seems to be happening, taking advantage of this “dead” time to act in such way as to be in a better position than other competitors when the wheels start rolling. A good example of that is the Memorandum of Understanding (MoU) recently signed by EADS with Imbel, a company owned by the Brazilian Army and which produces explosives, communications equipment, etc. We will go deeper into this specific MoU further on, when covering the needs of the Army. It was a brilliant move on the part of EADS. It cost nothing, and can bring important returns.
Aerospace
The most controversial on-going acquisition program in Brazil is undoubtedly that of a new fighter to replace first the Mirage IIIE/IIID and later on the F-5E/F (which currently are being submitted to a modernization program at Embraer). Due to a combination of insufficient budgets and less-than-ideal management, the Brazilian Air Force (FAB) arrived at the turn of the century with the bulk of its fleet reaching block obsolescence. The result for this is that there were several simultaneous high-value programs, such as the F-X (the fighter replacement we are talking about), CL-X (light cargo plane to replace the Buffalo), P-X (acquisition of an anti-submarine capability which has been absent from the FAB since the Grumman Tracker was retired long ago), C-X (expansion of the C-130E/H fleet), CH-X (acquisition of a heavy helicopter), VC-X (acquisition of a new VIP aircraft), modernization of the F-5E/F, modernization of the A-1A/B, acquisition of the ALX, etc. These programs required heavy investments, with the attached political burden.
Before leaving office, former president Fernando Henrique Cardoso saw that the selection phases for the CL-X and P-X programs were concluded, and the process for the acquisition of these two aircraft seems to be in the final stages now. Immediately upon assuming command of the nation, the new president, Luiz Inácio Lula da Silva, postponed the decision on the F-X program. The official explanation was that all funds available would first be channeled to the social area. Resources for the acquisition of a new fighter were to come from external financing operations, which means the postponement would have no effect upon the application of resources to social projects. The move obviously had clearly a political motivation, with the clear aim of pushing away the “hot potato”, at least for the time being.
In its first phase the F-X program was worth around US$1 billion, US$700 million of which are earmarked for the acquisition of 12 fighters, with the balance being destined to armament and various other items. In the long term, up to 72 aircraft might be procured, which explains why the program attracted so much interest. Contenders were Gripen International (with the Gripen), Lockheed Martin (F-16), Rosoboronexport (offering the Sukhoi Su-35, in partnership with Avibras), the Embraer/Dassault consortium (Mirage 2000BR) and RAC-MIG (MiG-29). The program was badly conducted, and in trying to please everyone sucessive governments ended up giving too much emphasis to the political component. As it always happens when politicians get involved with technical matters totally outside of their understanding, the situation became increasingly complicated. Realizing that any decision that might be taken would leave it vulnerable to attacks from displeased sectors, in February 2005 the government cancelled the F-X program.
However, this has not altered the fact that the Mirage III is being retired in 2005. At least theoretically, this could lead to the leasing of a second hand fighter as an interim solution, but, in the short term, the most probable alternative is for a number of modernized F-5Es to be stationed at Anápolis AFB to provide air defense to Brasília.
Above Embraer is now in the first stages of the A-1 modernization program. A Brazilian radar (Mectron SCP-01) will be installed, as well as avionics compatible with those of the modernized F-5 and the ALX. The photo shows the aircraft as presently operated by the FAB (Photo: Segurança & Defesa).
Anyhow, the FAB will need a new combat aircraft, and the competing groups cannot afford to turn their backs on it, since too much is at stake. The acquisition of several items and systems will come in the wake of the eventual selection of the winning aircraft. For example, the new fighter will use both short-range and BVR missiles, so EADS is actively promoting the MICA (in both IR and radar-guided versions), while Denel is pushing the R-Darter, and the Russian have offered a whole family of missiles. Avionics and self-defense systems are also important items, and will represent a substantial share of the funds applied in any fighter program. The dispute is bound to be a lively one. The main countries and companies involved have been jockeying for position for some time — seeking local partnerships, setting up local offices, lobbying in the local press, etc.
One FAB organization and three private companies could be considered key elements in the Brazilian aerospace scenario. The military organization in question is the Centro Técnico Aeroespacial (CTA, or Aerospace Technical Center), a highly-regarded and capable nucleus of excellence headquartered in São José dos Campos. Among its many attributions, CTA is in charge of certification of aircraft, development and certification of related systems, etc. It would thus be in the receiving end of any technology transfer.
The three companies referred to are Embraer, Mectron and Aeroeletrônica. Embraer does not need further introduction, as it is well known worldwide. Due to its substantial know-how and expertise in the design, production and integration areas, it is a given that it will be involved in any major FAB program related to new high performance combat aircraft.
The new situation, however, may bring some adjustments in the products being offered by each group. One exemple is that the Rafale may be offered instead of the Mirage 2000BR, which Embraer faithfully, strongly and unconditionally supported during the F-X program. Independently from anything, it seems to be clear that Embraer will be involved in the production process of the new fighter. The main reason for that is that at the moment Embraer is the only company in Brazil whose labor force is technically capable of quickly absorbing the transfer of advanced aerospace technologies and undertaking assembling and/or production of components for sophisticated military aircraft at relatively short notice.
Above Israel’s Elbit is firmly established as the supplier of avionics for the modernized F-5 and A-1, and for the ALX (pictured). The company seems to have its future in Brazil assured, largely due to its acquisition of Aeroeletrônica, formerly a subsidiary of Aeromot (Photo: Segurança & Defesa).
Embraer, by the way, has a successful line of modern ISR (Intelligence, Surveillance and Reconnaissance) aircraft, and is already looking at ways of making them even better. One possibility, already under study, would be to give the EMB-145AEW&C true 360º capability (the present configuration, with an electronic-scanned Erieye radar mounted on top of the aircraft, leaves small blind arcs to the direct front and rear). Also to be followed with interest is the development of a new AEW&C solution based on the EMB-145 for India, with a different radar. The other two members of the ISR triad are the EMB-145RS (Remote Sensing) and the EMB-145MP (Maritime Patrol). There is scope in these programs for several different equipment configurations, and partnerships with Embraer are, in general, sure-fire recipes for success.
The development of missiles in Brazil followed a tortuous path for many years, and problems included bad management, duplication of efforts, etc. However, the scenario seems to have been cleansed of unwanted appendages and Mectron, based at São José dos Campos, is now recognized as the Brazilian “missile house”. It is responsible for the MAA-1 Piranha air-to-air missile and the MSA-1.2 anti-armor missile (developed from OTO Melara’s MAF). Besides, it is involved in the development of the MAR-1 air-launched anti-radiation missile, the MAA-2 Piranha II air-to-air missile, the MSA-1 surface-to-air missile and some other classified projects. At least one foreign country has perceived Mectron’s importance at an early stage and has been closely working with the company in crucial areas such as seekers, etc. Mectron is also responsible for the SCP-01 radar, a cooperative project with Italy for a multi-role radar to be used in the modernized A-1.
Below Mectron and the Air Force are developing the MAR-1 anti-radiation missile, a mock-up of which is seen here under the wing of an AMX. Range is reported to be 25km when launched from an altitude of 10km (Photo: Segurança & Defesa).
Located in the state of Rio Grande do Sul, in Southern Brazil, Aeroeletrônica began life as a subsidiary of Aeromot. In the eighties, the company gained importance when it became heavily involved with the AMX program, as the sole supplier of several items both to the Brazilian and the Italian aircraft. Perceiving that an association with a local company would boost its chances of doing business in Brazil, Israel’s Elbit Systems Ltd. acquired a controlling interest (60%) in Aeroeletrônica. Nowadays, the company may be seen as Brazil’s “avionics house”, and will have an increasing participation in the defense scenario, since Elbit’s avionics are present in the ALX, modernized F-5, modernized A-1 and most probably in the F-X and in the Navy’s future modernized A-4. Besides the three companies mentioned, there are several others that, thanks to their capability, may be interesting partners for foreign companies wanting to strengthen their ties with Brazil.
Below Mock-up of the MSA-1 surface-to-air missile, on which the FAB is working for the defense of its air bases. Performance parameters include a range of 6km (Photo: Segurança & Defesa).
The Marinha do Brasil (MB, or Brazilian Navy) has some interesting aviation programs whose implementation is waiting for money to be made available. One of them is the midlife modernization of its fleet of Skyhawks, acquired second-hand from Kuwait some years ago and already operating from the aircraft carrier São Paulo. The Navy’s fleet is composed of twenty single-seaters (A-4KU) and three two-seaters (TA-4KU), and the upgrading program would probably involve a total of 18 aircraft. The main point in the project is the adoption of a multi-role radar, improved armament, new communication and navigation systems, and a data link system.
Another important project is the acquisition of a small number of aircraft to operate as Airborne Early Warning platforms from the deck of the São Paulo. The most attractive solution seems to be the adaptation of second-hand re-engined Grumman Tracker airframes, into which radar and other equipment would be integrated. Possibly, a couple of similar airframes could be acquired for conversion into tankers, which would not only boost the range of the Skyhawks but also significantly increase the safety of flight operations.
Above The Navy plans to upgrade its fleet of A-4 Skyhawks, installing a multi-role radar and generally increasing its combat capability (Photo: Segurança & Defesa).
The Brazilian military rotary-wing scene is dominated by Eurocopter, which owns a Brazilian subsidiary, Helibras, with industrial facilities at Itajubá, in the state of Minas Gerais. Even so, from time to time, niches may be opened to non-Eurocopter products. Examples are a program for the acquisition of ten UH-60 Black Hawk by the FAB and another for the acquisition of a small batch of heavy helicopters (which has been frozen by the FAB, at least for the time being). The Navy intends either to modernize or to replace its fleet of SH-3 anti-submarine helicopters, and this could present an opportunity for Sikorsky and AgustaWestland to challenge Eurocopter.
Land systems
The Exército Brasileiro (EB, or Brazilian Army) has an extensive list of equipment that it would like to acquire and operate. In terms of sheer volume, the most important program waiting on the wings is the acquisition of a family of 8x8 wheeled armored vehicles: more than one thousand in several versions (ICV, Command Post, Mortar Carrier, Ambulance, etc.).
Some of the probable competitors have already been demonstrated, if not officially evaluated, in Brazil: Iveco’s Centauro, MOWAG’s Piranha III and Patria’s AMV. This could seem to be a premature move, but physical presence is an important way of letting local authorities know that a company is keenly interested in the local market and is willing to invest. The 8x8 vehicle will involve turrets, weapons, gearboxes, engines, and many other components, so there clearly will be large interest from abroad.
Above Both the Army and the Air Force (pictured) use the Igla anti-aircraft missile, but both services are eager to acquire a light surveillance radar to increase the effectiveness of their systems (Photo: Segurança & Defesa).
Even if there is not yet an official program or tender, some points are already very clear. The most important of them is that heavy involvement of the local industry will be mandatory. Some partnerships are practically automatic (such as Italy’s Iveco with Brazilian Fiat), but several other foreign suppliers started looking for local companies to pair up. In this aspect EADS (which partially owns Finland’s Patria) scored an important point, by signing a MoU with Army-owned Imbel. Even though the agreement is very general and covers a wide area, the main goal of EADS is obviously the 8x8 wheeled AFV competition.
The needs of the Brazilian Army cavalry in terms of tanks have largely been met by the acquisition, some time ago, of second-hand Leopard 1 (from Belgium) and M60A3TTS (from the US). However, the land force could surely use some more tracked armored recovery vehicles, and also some mine-clearing tanks. There is no official requirement for those, but most probably the Army would not refrain from studying unsolicited proposals if the price and conditions are right.
Below The only modern land-based mobile surveillance radar in Brazil is the sole Ericsson Giraffe 50AT operated by the Marine Corps. There is a market niche for this kind of equipment in Brazil (Photo: Segurança & Defesa).
Anti-aircraft artillery is a sector which is sure to bring about acquisitions of material. The Army is re-thinking its “triple A”, the main deficiency of which is obvious: the total lack of surveillance radars. Believe it or not, there is not even one such radar in operation in the Brazilian Army, so the need is clear. The Army would also need a medium-range anti-aircraft missile, to fill the gap between the Igla and the upper altitude limit of the air space for which it is responsible (higher altitudes are the realm of the Air Force). Many officers in the Army’s AAA have been pointing out the need of some kind of armored vehicle capable of providing anti-aircraft protection for armored forces, especially when traveling cross-country. A German offer for the supply of a number of Gepards was not taken up, which does not mean that the decision is final.
In 2004, the Army signed a relatively small contract for the refurbishing of its remaining inventory of Igla surface-to-air missiles. This same type of missile, by the way, is also used by the Air Force, which has an anti-aircraft company for air base defense. At the end of 2004, the FAB signed a contract for the acquisition of two simulators, refurbishing of the existing missiles and acquisition of some new missiles to bring the inventory up to the original level. Logically the FAB intends to establish other similar units, and there is a clear need for small portable radars (such as IAI’s M-2106, Lockheed Martin PSTAR and the Swedish HARD). Besides, the Iglas (both the Army’s and the Air Force’s) could benefit from the adoption of IFF.
The Corpo de Fuzileiros Navais (CFN, or Marine Corps), which is part of the Navy, has an anti-aircraft battery equipped with Mistral missiles and 40mm BOFI guns. This unit operates a single Ericsson Giraffe AT50 radar, which is an obvious shortcoming. More radars are urgently needed, this being a well-defined niche.
Above The Navy is planning to acquire one battery of a modern 155mm howitzer for the Marine Corps Artillery Battalion, to replace the obsolete M114 (Photo: Segurança & Defesa).
No significant acquisitions are expected for the Brazilian Army’s field artillery for the time being, although the need for progressive replacement of the M101 105mm and M114 155mm howitzers is real. The situation of the CFN is different. The Marines have an artillery group with three batteries of modern 105mm Light Guns, plus one battery of 120mm mortars and one of old 155mm M114 howitzers. The acquisition of the Light Guns created an interesting distortion: the range of the 105mm guns is significantly longer than that of the 155mm material! A program is foreseen for the acquisition of six modern 155mm howitzers, with emphasis on lightness and mobility. Also foreseen is the acquisition of communications and electronic warfare equipment for the CFN.
In the realm of land systems, there are several companies in Brazil with significant expertise. The best known is Avibras, which for decades has been engaged in the design and production of several items, ranging from air-to-ground rockets to armored vehicles and artillery systems. Besides, the company has a significant know-how in propellants; together with Mectron, Avibras is refurbishing the Navy’s inventory of AIM-9H missiles. In fact, the company seems to be strengthening its position in the missile business. Small-caliber ammunition is the area of CBC, while both Imbel and the Navy Ammunition Plant produce first rate ammo for larger-caliber guns, mortars and howitzers. Avibras, Mectron, CBC and Imbel, by the way, have booths at LAAD 2005.
Naval platforms
In June 2003, the Marinha do Brasil handed to the Ministry of Defense a new Plano de Reaparelhamento da Marinha (PRM, or Navy Re-equipment Plan), which one month later was handed over to the President for approval. This plan covers a 16-year time frame (2004-2019), a very important period for the Navy. No less than 73 ships will be decommissioned until 2019, representing 80% of the present fleet. The PRM covers acquisitions (including second-hand), new constructions, and modernizations not only of ships and their systems, but also of aircraft, weapons and material for the Marine Corps.
Below The ModFrag (Modernization of the “Niterói”-class Frigates) program was very ambitious and gave Brazil a much-needed expertise in the integration of naval systems and in the software area (Photo: Segurança & Defesa).
Among the types of platforms that will have to be obtained in the 2004-2019 period are escort ships (the Navy believes it needs around twenty, and of the present force only the six frigates of the “Niterói” class and the corvette Barroso — not yet delivered — will still be active in 2019), new submarines (see below), oilers, transport ships, offshore patrol vessels, tugs, hydrographic/oceanographic ships, riverine ships, etc.). It is an ambitious program, and although the intention is to use Brazilian items whenever possible, there are many opportunities for the foreign industry as well.
Presently, submarines are the main priority for the MB. Five submarines of the IKL-209/1400 class have been built by the Arsenal de Marinha do Rio de Janeiro (AMRJ, or Rio de Janeiro Naval Shipyard), and four of them are operational. The latest, the Tikuna, was launched on March 9, and will be commissioned by the end of the year.
A second “Tikuna” was cancelled , and efforts will be concentrated on the locally designed “SMB-10” class of SSKs, five of which are foreseen. Work on this future class (the first preliminary studies are being carried out at the Centro de Projetos de Navios — CPN, or Ship Design Center) is being closely followed by the main conventionally-powered submarine-building countries. In order not to have to “reinvent the wheel”, Brazil will have to count on support from abroad to design the submarine. This means, in practice, the adoption of the German, French or Russian design philosophy. Obviously the country that wins the contract to assist in the design will be in a better position when the time comes for the specifications of the on-board systems.
The Brazilian Navy is currently carrying out the ModSub (Modernization of Submarines) program, which started in 2004 and is scheduled for completion in 2008. The project includes the replacement or updating of the communications equipment, sensors, fire control system, air conditioning and some components of the propulsion system.
With a view to equipping its present and future submarines with a modern torpedo, Brazil signed in 1997 a contract with Saab Bofors Underwater Systems for the integration into the IKL-209/1400 of the Torpedo 2000, as well as the supply of a quantity. This contract was terminated in 2004, opening a new opportunity for torpedo-producing industries.
Above Modernization of the aircraft carrier São Paulo will include a point defense anti-missile and anti-aircraft system (Photo: Segurança & Defesa).
The acquisition, a few years ago, of the French aircraft carrier Foch (which was re-christened as São Paulo) represents a jump in capability when compared to the previous carrier, the Minas Gerais. However, the ship was sold to Brazil without any armament. So, the MB intends to equip the São Paulo with a point defense system, and will also replace some sensors. Several companies from various countries (South Africa, Germany/UK/France/Italy, Russia) are eyeing this program with interest.
In 1982 the Navy set up a company called EMGEPRON (Empresa Gerencial de Projetos Navais, literally Naval Project Management Company), based in Rio de Janeiro. This public company, linked to the Navy, is headquartered in the AMRJ and among its goals are the overseeing of the Brazilian naval shipbuilding industry and the marketing its products abroad. It also oversees important naval projects, such as the ModFrag (Frigate Modernization) program, which is due to be completed in 2005. Foreign suppliers of equipment for naval ships are strongly advised to visit the EMGEPRON stand at LAAD 2005 and check the areas of common interest.
Above Brazil is the only country in the Southern hemisphere to have an on-going submarine-building program. The Tupi (pictured), first of its class, was built in Germany, but subsequently Brazil built four similar subs. The next step will be a new class, of local design (Photo: Segurança & Defesa).
Conclusion
There are a lot more opportunities for business than mentioned in this brief text, which is only meant as an overview. For instance, one item that was not mentioned so far but which is bound to grow in importance is the Veículo Aéreo Não Tripulado (VANT, or Unmanned Air Vehicle). In 2004 the Ministry of Defense issued the guidelines of the policy to be adopted by the Armed Forces to develop and obtain VANTs. They are perceived as an item of great importance in the arsenal of any modern armed force, and the three services have already identified the need for them in their respective spheres. The doors are thus open for foreign companies to establish cooperation agreements with the local industry.
The Brazilian defense scene has its own special characteristics. A good knowledge of them and their acceptance will make things easier for foreign companies which want to achieve penetration in the Brazilian market. In spite of difficulties, Brazil has a large territory that must be defended, and its growing international commitments, responsibilities and aspirations require adequate means to be implemented, supported and defended.
Do not expect to arrive on Monday, sign a contract on Tuesday, go to the beach on Wednesday and fly back home on Thrusday. Things just do not happen this way. The market exists and rewards await those whose efforts are serious and persistent enough.
Being backed by the Brazilian government and local industry association, LAAD-Latin America Aero & Defence is living proof of that. The new name reflects an expansion in scope, but the defense component of the show is clearly LAD-Latin American Defentech, of which this is the fifth edition. This continuity reveals firmness of purpose, sharpness of intent and steadiness of will, resulting in substantial investments in time and resources in order to reach the desired goals.
Do not see the exhibition just as a showcase for equipment and services. More than anything else, it is an invaluable occasion for establishing contacts, identifying common interests and discussing business opportunities. Feel free to talk to the author and further discuss this fascinating matter with him at Segurança & Defesa’s booth (K-71). Have a nice stay in Rio, enjoy the show and be back again in two year’s time for LAAD 2007, if not earlier! •
The author has been working as editor of Segurança & Defesa since the first issue was published more than twenty years ago. He has a degree in Civil Engineering and has been continuously working for more than twenty years as a consultant for several Brazilian and foreign defense companies. He has acted as Brazilian correspondent for various foreign defense publications, and his articles have been widely published in the international media. He has been decorated by the three branches of the Brazilian Armed Forces, and worked in the first three editions of LAD (1997, 1999 and 2001), as Exhibition Manager and Market Intelligence Manager. During the show he may be contacted at S&D’s booth (K-71); afterwards, he may be reached through Contec Editora Ltda.
Contec Editora Ltda.
Av. das Americas 2300 Bloco A s/316 - Rio de Janeiro/RJ - 22640-101 - Brazil
E-mail at contec@aviation.com.br
Tel.: +55 (21)3325-8091/+ 55 (21)3325-5512
Fax: +55 (21)3325-5512
