Financial Times - Defence: Contractors lured as India and Brazil rearm

19 junho 2011


 junho 19, 2011

CEIRI no Financial Times/ Por John O’Doherty – 19/06/2011

The rapid growth of the Brazilian and Indian economies is the subject of much detailed analysis, but the development of these countries’ militaries often gets far less attention. That is about to change however, as both countries seek to bolster their defence capacity, and in so doing, they are attracting the attention of the world’s largest defence groups.

This year the world of military aerospace was focused on the question of who would be awarded a $35bn contract to provide 179 refuelling air-tankers to the US air force. The selection of Boeing drew a line under one of the largest and most contentious contracts in military aerospace in recent history. But as the fervour of this contract starts to fade, two new military aerospace contracts are coming into focus.

The Brazilian and Indian governments are evaluating a number of fighter aircraft as part of competitions to re-equip their air forces with the military heft to match growing economic clout.

With a combined value of potentially more than $17bn, the two competitions are attracting the attention of the main defence groups. Only one aerospace company is competing in both competitions: Dassault of France is offering its Rafale fighter.

In Brazil, the other competitors are Sweden’s Saab, which is proposing the Gripen. Boeing is competing with the F-18 Super Hornet.

In addition to the Rafale, India is now only considering the Eurofighter Typhoon, having ruled out Saab’s Gripen as well as a Russian MiG and Lockheed Martin’s F-16 in a shortlist it drew up in April.

The stakes are high for the companies involved, which are keen to secure export opportunities for their aircraft. For example, outside of its home market of France, Dassault has yet to secure any export orders for the Rafale, and the F-18 has only secured sales from Australia and the US Navy.

For the countries themselves, the competitions highlight their growing wealth and eagerness to have a defence capacity to match their economic power. It also comes as both countries take notice of the evolving security situations in their neighbourhoods.

For India, the need is simple. Its ageing fleet of Russian-built aircraft are fast becoming unusable, throwing into contrast the growing strength of China and Pakistan. “All the juice has been squeezed out of the current fleet of MiG 21s,” says WPS Sidhu, a senior fellow at New York University’s Centre on International Co-operation.

“These constitute more than a third of the rapidly depleting Indian Airforce. Even with all the fixes and extensions, there’s a very serious depletion in the number of squadrons of the Indian air force.”

In the case of Brazil, analysts highlight that the fighter contract comes amid a broader updating of defence capacity in the region, and Brazil’s realisation of a need to protect the still embryonic offshore oil industry.

“Across South America, countries are re-equipping their militaries as well, and we need the ability to maintain a balance in the region,” says Marcelo Suano, director of CEIRI, a thinktank in São Paulo, who points to the increasing military expenditure of Venezuela, Colombia and Peru.

“We’re a country the size of Europe, and our air force is relatively small. The investment in the fighter jets is actually small compared to the amount that is being spent on the navy.”

In addition to strict cost considerations, both countries will have to balance the strategic implications of their choice. Choosing military hardware from a certain country can cement political ties with that country, making defence spending another form of diplomacy.

India has already signed an agreement with Russia to develop jointly the next generation of fighter jets, the so-called fifth generation, of which the Lockheed Martin F-35 Joint Strike Fighter is the most high-profile. This may have played a role in the decision not to put the MiG-35 on the short list, as India sought to forge a strategic link with a second partner.

Similar considerations are at work in Brazil, where strong links have already been established between the French and Brazilian navies. Brazil purchased an aircraft carrier from France and the two countries are collaborating on nuclear propulsion for submarines. However, the political nature of the decision began to come under scrutiny.

“There were complaints in the media in Brazil that the process had been politicised to favour the French bid,” says Paulo Sotero, director of the Brazil Institute at the Woodrow Wilson Institute in Washington DC.

This pressure, combined with a budgetary squeeze, led the new president, Dilma Rousseff, to announce that no decision would be made on the fighter competition until the end of this year at the earliest.

“It was in part a financial consideration, and in part it also reflected a desire to re-situate this decision back within a technical framework to say ‘we’ll do whatever corresponds best to the needs of the air force’,” says Mr Sotero.

Aside from concerns over political strategy, the winner of the competitions will also be decided by which offers the best deals in terms of so-called “offsets” – additional benefits given by a winning company to the purchasing nation. Offsets can come in the form of offering to build part of the aircraft in the country, or limited transfer of the technology involved to help build the domestic aerospace industry.

 Mr Sotero points out that Brazil’s national defence doctrine explicitly mentions the military’s role in fostering the development of the defence industry alongside other countries.

Stephen Cohen, a senior fellow at the Brookings Institute and an author of a book on the modernisation of the Indian military, says the Indians will also be searching for help in building up an indigenous defence industry.

“One reason India is the world’s largest arms importer is that they can’t make anything themselves,” he says, pointing to a costly failure to build the H-24 jet based on German technology, and the lengthy delays in building a light combat aircraft. “The Indians have a huge demand for offsets.”

Mr Cohen reckons that offsets concerning the seemingly unsophisticated issue of metallurgy would be especially attractive to India.

“Metallurgy in engines is critical, because that means the planes don’t need to be repaired or rehabilitated after every two flights. Western planes are much, much better in that regard and India does not have the latest technology to do the really cutting-edge stuff.” Mr Cohen’s view echoes that of the US ambassador to India, who in cables released by Wikileaks, criticised standards at an Indian aerospace factory he visited, where a local company was assembling aircraft kits made by BAE Systems.

Brazil is expected to make a decision this year or early next. India estimates a decision will be made by the end of March. However, not all those familiar with the competition believe the decisions will come so quickly.

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