Forecast1 Says Moscow Is Leveraging Helo Sales To Dominate Market

Convinced that the highly competitive Latin American defense market is one area of the world in which it can be truly competitive, Russia is moving to dominate the market. Helicopter sales have proved to be the wedge, and Russia is working energetically to further increase its share, with particular emphasis on aircraft and weapons. Russia’s sales strength lies in its willingness to engage in barter deals to finance arms sales.

Right now Peru and Venezuela are Russia’s best sales prospects. Venezuela, which is reaping the financial benefits of high oil prices, has already ordered transport helicopters and assault rifles, and is rumored to be on the verge of ordering assault helicopters and as many as 50 MiG-29 fighters.

The possibility of a MiG-29 order is making neighbor Colombia anxious since it is not financially capable of countering such orders – its available defense funding being used to fight a bloody insurgency.  Other countries also interested in Russian equipment are Brazil (the Su-35 is touted as the choice of Air Force pilots for the service’s next-generation fighter) and Chile (helicopters).

The region’s defense markets are characterized by pent-up demand. According to Forecast International’s longtime Latin American defense analyst Tom Baranauskas, "One need only look at the aged or even obsolete equipment that makes up so much of the military inventories in the region to realize that force structures need major overhauls."  Chile is perhaps the only country in the region whose military has been fairly successful in modernizing its force structure, although it still has a way to go.

The region’s militaries are well aware that they are not keeping up with the technological advances in modern warfare. As always, funding remains the major impediment. Yet, the further the re-equipment cycle is delayed, the more a bow wave is created of equipment needing modernization, and the more the overall expense grows.

Thus, in 2004 it was interesting to see both Bolivia and Peru begin to set up special funds for their militaries that would leverage income from commodities, natural gas sales, and for Peru, copper. The more expensive requirements such as aircraft and ships impose heavy burdens on the usually small amounts available to the region’s militaries for procurements. Borrowing is an option, but only good risks get decent borrowing rates, or even qualify for a loan, and the interest makes the procurement that much more expensive.

These special funds are thus seen as a more viable alternative for those countries with commodities in demand, and in Peru’s case the extra money for the military could turn out to be a substantial amount. Peru’s special fund will allocate money annually from natural gas and copper sales. The funding level will increase from $40 million in 2005 to $130 million by 2008 and reach $170 million by 2012. The initial focus will be on restoring to service much of the air fleet, and revitalizing the naval fleet.

Forecast International expects military spending in the region to increase modestly from about $27.3 billion in 2005 to just over $29 billion annually by 2009. Although on average about 80 percent of this spending is tied up in salaries and pensions and other entitlements, quite a bit of money will remain available for procurement. It must be cautioned, however, that procurement needs encompass everything from uniforms to fighters.

FMI: www.forecast1.com