US defence manufacturers are confident about broadening their appeal in Latin America, despite the lack of original equipment orders
US arms traders remain bullish about pursuing new deals in a tight Latin American marketplace, but mainly with the goal of leveraging a small pool of defence sales into a broader market for services to governments and commercial industry.
In recent years, the USA's aerospace industry has captured regionally significant military contracts in Argentina, Brazil, Chile, Colombia and Mexico, as well as smaller deals elsewhere in the region. Two milestone awards to US industry have been the sale of 10 Lockheed Martin F-16C/D Block 50s to Chile in February 2002, and the privatisation of commercial and military maintenance work to Lockheed Martin Aircraft Argentina in 2002.
Some of the deals became possible only after the repeal nearly eight years ago of a restrictive US policy on arms exports to the region (see inset box P36).
This steady trickling of new business, while still dwarfed by US industry presence in other world arms markets, is serving to build key in-roads for defence contractors into the wider Latin American economy. Moreover, it has spurred engagement in a market once held at arms-length by US government officials who were wary of contributing to, or perhaps triggering, a regional arms race inside their own hemisphere.
One other unlikely effect of open trade has been the fostering of tighter links between US and Latin American aerospace companies. Last year, Lockheed Martin and Embraer paired in the US Army's Aerial Common Sensor (ACS) competition, which defeated a rival bid based on a US-made Gulfstream aircraft.
Lockheed's growing presence in the region encouraged its interest in the Embraer ERJ-145 for ACS, although Jerry Lindfelt, Lockheed's deputy vice-president for integrated systems and solutions, says that an accident of circumstance also helped. No one in Lockheed's senior chain-of-command believed the company's ACS bid was likely to win, he says, and largely left the team alone to choose what made the most sense for the army.
However, the opening of US arms exports to the region has had no dramatic effect on the dynamics of Latin America's modest taste for military spending. Russian, European and Israeli industry interests also gathered pace in recent years. But despite persistent fears of an imminent arms build-up, making US-made weapons more accessible has failed to muster significant growth in demand. Even with many Latin American economies now in recovery, there has been almost no talk in the region of increasing spending on defence.
The goal for US suppliers that have secured a foothold in the market is to branch into other markets. Raytheon, for example, has gained a spot on Brazil's system for the vigilance of the Amazon (SIVAM) programme, and is pursuing major air traffic control modernisation programmes in Brazil and elsewhere. Lockheed has spread its influence in a variety of ways, capturing information technology service contracts for the Colombian military and a major supplier deal for critical parts on patrol boats in Mexico.
"Exactly what we said was going to happen is happening," says Ron Covais, Lockheed's president of the Americas. Relaxing the US arms policy did not open the "flood gates" of an arms race, he says, adding that US industry had forecast continued moderate growth in defence spending, supplemented by penetration into non-military markets.
In 1997, however, Covais had spoke of a multi-billion-dollar potential market in Latin America for Lockheed within five years, a vision that has not materialised. Canada remains Lockheed's largest non-US market in the Americas, and Latin America still constitutes the smallest portion of international business, which provides nearly one-fourth of the company's annual revenues. But Covais considers the company's slim-but-steady growth in the region as a source of company pride.
Pursuing business
"For us [the strategy] has been successful. I think we've been at least one of the most successful US aerospace companies in pursuing business in the region," Covais adds.
If anything, the mood on military budgets in Latin America is in reverse, with both Brazil and Chile holding off – and perhaps scrapping – planned procurements of new fighters, namely Brazil's F-X BR requirement and Chile's second batch of 10 new-build F-16C/D Block 50s. Instead, both countries have considered purchasing used F-16s from The Netherlands or Turkey.
Brazil and Chile also have been slow to move on acquisitions of other major requirements, such as search-and-rescue helicopters, air-refuelling tankers and – in Chile – a lead-in fighter trainer for F-16 pilots, in which the Raytheon T-6 Texan II was considered a likely candidate.
In Venezuela, President Hugo Chavez has been loudly touting new agreements to buy helicopters and machine guns from Russia, air transports and fast corvette ships from Spain and fighter jet trainers from Brazil. However, the agreements only grant Venezuela the authority to buy the equipment and Chavez has yet to sign a contract that would solidify any of these deals. An industry source in Brazil, where Embraer has been waiting for several years to conclude a deal with Caracas on Alenia/Aermacchi/Embraer AMX-T attack trainers, is doubtful of seeing a firm order in the near-future.
The deep rift between Chavez and the Bush administration, which voiced no objection to an attempted bloodless coup in 2002, has naturally affected arms sales, particularly spares and upgrade support for Venezuela's small F-16 fleet. Lockheed is in talks about performing limited structural upgrades to maintain the fleet's airworthiness, but Venezuela is being made to reach out to Israel for a desired mid-life upgrade.
More importantly, the anti-American stance seen in Chavez's acquisition prospects is indicative of a larger regional backlash against US policies generally, and also of the US industry's emerging influence on arms sales in Latin America. In perhaps a more disturbing sign of this trend, US manufacturers winced when Chile last year opted to purchase used Dutch frigates despite a strong push by Washington to sell ex-US Navy warships.
US suppliers can point to capturing competitive deals that have spanned the market from managing depot centres to selling airlifters, helicopters and fighters. For example, Chile has purchased Dutch frigates, but has purchased Boeing Harpoon Block IV missiles in a major blow to the European competition. Another regional counter point to anti-US interests may be Colombia, which has been flush with direct military assistance from US officials seeking a strong partner to fight the narcotics trade. Colombia has used billions of US-supplied foreign aid to buy a new fleet of Bell UH-1 Huey and Sikorsky UH-60 Black Hawk utility helicopters.
However, Colombia's commitment to supporting US interests will soon be tested. Bogotá is using its own funds to acquire a new fleet of 24 light turboprop combat trainers.
The presumed favourite in the competition is the armed Raytheon T-6B, but that will be measured against rival bids from Embraer and South Korea.
STEPHEN TRIMBLE/WASHINGTON DC
Source: Flight International
