EADS sees S. America entry with Chile deal

June 5, 2012 at 3:08 PM
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SANTIAGO, Chile, June 5 (UPI) -- European defense consortium EADS is seeking a greater presence in Latin American markets for aviation and defense equipment with a new partnership in Chile.

The EADS entry follows similar endeavors by Boeing, France's Dassault Aviation, Sweden's Saab and other European, Israeli and Asian manufacturers who see Latin America as a major growth area for defense acquisitions.

One major contract in immediate sight of the rival manufacturers is Brazil's FX-2 jet fighter replacement program worth up to $8 billion-$9 billion. EADS lags behind Dassault, Boeing and Saab in the competition to win a lucrative defense contract for the supply of up to 36 fighter aircraft.

Brazil is looking to replace obsolete fighter aircraft, including French Mirage jets, at the high end of its air force inventory as part of the so-called FX-2 fighter competition.

Six major contenders -- Boeing's F/A-18 E/F Super Hornet, Dassault's Rafale, EADS' Eurofighter, Lockheed Martin's F-16 Block 60, Saab's JAS-39 Gripen NG and Sukhoi's SU-35 -- are in the race to win a contract that is variously valued at up to $8-9 billion but may be worth double that with repeat orders, maintenance and parts.

Chile's plans are nowhere near those ambitious Brazilian acquisition targets but the country is hoping to develop its defense manufacturing industry both to meet domestic demand and boost export potential.

The EADS partnership aims to reconfigure Chile's ENAER aviation and manufacturing company as a manufacturing partner and facilitator in the European group's plan to expand sales in Latin America and the Caribbean.

Officials said the partnership will result in a new company with the active participation of the Chilean air force but revealed no further details in Chilean media reports.

The new company aims to will manufacture aircraft components and provide maintenance services, apparently to benefit from lower wages in Chile when compared with Europe but also to satisfying Chilean expectations of technology transfers.

The EADS marketing drive in Chile has resulted in sales for the supply of C-212, C-235, C-295 military aircraft, Super Puma and other helicopters and a satellite.

The economic downturn throughout Europe and military drawdown in Afghanistan and Iraq have dampened defense demand worldwide driving manufacturers toward potential new markets -- Latin America being chief among them.

However, European defense suppliers are up against local competition from Brazil's Embraer aviation manufacturer which has emerged as a major rival to manufacturers in the United States, Europe and Asia.

Analysts said the EADS' choice of ENAER as partner was both pragmatic and political, because ENAER isn't in the best of financial health. It has been laying off skilled work force personnel since the economic downturn began in 2009 and has posted losses in its business performance.

Despite that adverse outlook, however, ENAER has been finding markets for its T-35 Pillan basic trainer aircraft and subsisting on the servicing of Chilean air force inventories of aircraft of various sizes, most in need of modernization and upgrade.

ENAER has also earned revenue servicing civilian aircraft.

EADS revamped its top management last month. The consortium comprises Airbus, Astrium, Cassidian and Eurocopter and operates in aerospace, defense and related services.

In 2011, the group generated revenues of $61 billion and employed a workforce of over 133,000. But official data indicated EADS needs to develop new markets to sustain its long-term profitability. Rivals include Boeing, Brazil's Embraer and all European and Russian manufacturers outside the consortium.

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