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Brazil aerospace and defense industry evolves

For most of its 23-year existence, São José dos Campos-based Friuli Aerospace was content occupying third-tier status in the Brazilian supply chain, machining parts such as aluminium floor rails for Embraer's 190 regional jet and composite panels for the Phenom very light jet.

But Friuli's exhibit booth at the LAAD 2011 convention this year highlighted a new project - a guided wing-kit for Mk-82-class bombs. It is not an insignificant project for a company founded on machining parts based on Embraer design drawings. Friuli's engineers must master complex aerodynamics and precision navigation to field the newly christened FPG-82 guided bomb on the Brazilian air force's A-1s, F-5s and A-26s.

In the past year, Friuli has established an engineering office, hired aeronautical graduates from Brazil's prestigious Institute of Aeronautical Technology (ITA) and launched the FPG-82 wing-kit programme under a grant from the Brazilian air force.

"We don't want to stay just in manufacturing," says Mateus Gomes Filgueiras, a Friuli aeronautical engineer and recent ITA graduate. "We want to keep growing."

Friuli is not the only one. Change is rapidly spreading from the bottom to the top of Brazil's aerospace and defence supply chain.

The week-long LAAD show in Rio de Janeiro witnessed the formal launch of two new major competitors to Embraer's standalone Defense and Security business, which itself was created less than five months ago and has already acquired interests in two Brazilian defence companies - OrbiSat and Atech.

The challengers come from within Brazil's wider industry and beyond to the global market.

On the eve of the LAAD event, Odebrecht, a Brazil-based, multinational construction conglomerate - more usually associated with large-scale infrastructure projects - formally launched a defence and security company, having already acquired Brazilian missile and radar specialist Mectron and formed a joint venture with EADS subsidiary Cassidian.

Meanwhile, Israel Aerospace Industries and Synergy Group, another Brazilian conglomerate with interests in Latin American airlines and airports, established a new joint venture aimed at the Brazilian defence sector called EAE Aerospace Solutions.

And Brazilian aerospace insiders do not believe the end of the consolidation is near. Avibras, a 50-year-old supplier to the Brazilian army and air force, remains non-aligned with a major corporation. Meanwhile, another major Brazilian construction company, Camargo Correa, is also understood to be looking for aerospace and defence partners.

Even major US firms are hoping to gain a larger presence. Raytheon officials, for example, confirm the company is in partnership discussions with Brazilian suppliers. Raytheon was Brazil's prime contractor for the system for the surveillance of the Amazon (SIVAM), which was deployed in 2002.

Embraer has dominated the Brazilian defence sector for much of the past four decades, but executives publicly welcome the wave of new competitors entering Brazil's defence and security sector.

"We compete everywhere on the planet," says Orlando Neto, Embraer Defense and Security's executive vice-president for sales and marketing.

Competition will be good for the defence ministry, too, Neto says, increasing the quality and prices of the products and services acquired by the armed services.

But Embraer is clearly moving quickly in an attempt to stay ahead of the market. In addition to its recent acquisitions, Embraer also announced a new partnership with Brazilian avionics specialist Aeroelectronica (AEL), which is owned by Israel's Elbit Systems.

According to Neto, changes began in 2008 with the consolidation of the defence ministry. A big part of that involved divesting the air force's control of the country's air traffic control system in the aftermath of a commercial aviation crisis.

The following year, the ministry released a new national defence strategy, which set an ambitious vision for defence and security to match the country's growing political and economic clout.

Embraer realigned its own corporate structure the following year, announcing the formation of Defense and Security in December 2010.

"We are putting ourselves as a national champion," Neto says.

The new competitive landscape will take clear form by the end of the year, as the Brazilian army is expected to issue a request for proposals for the system for integrated border security.

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