Poised for Prime Contractorship

Jun. 10, 2012 By PIERRE TRAN Defense News

Has Embraer Made Right Moves To Win Border Deal?

PARIS — Embraer will bid for an estimated $400 million contract for a first stage of the Brazilian Army’s vast SISFRON border surveillance program, CEO Luiz Carlos Aguiar said.

The request for proposals for a prime contractor went out last week with a 30-day deadline for submissions, Aguiar said here June 5 on the sidelines of a pre-Farnborough International Airshow news conference.

The Brazilian company’s bid for the SISFRON job marks a step in realizing its ambitions to play a leading role in defense and security, diversifying from its traditional role as a civil and military aircraft maker. The first stage of SISFRON is intended to monitor the 1,000-kilometer border between Brazil’s Mata Grosso state and neighboring Bolivia and Colombia.

“It’s a very complex project,” Aguiar said.

The requirement calls for seven subsystems: C4I, cybersecurity, ground radars, communications and electronic intelligence, satellite communications, UAVs and armored vehicles. Logistics and client support are also part of the package. A contract award is expected in 2013, with implementation due over two and a half years.

“This is a prototype,” Aguiar said.

The second stage will cover 17,000 kilometers of Amazonian rainforest, where Brazil shares borders with 10 countries.

The full SISFRON program is estimated to be worth $4 billion over the next 10 years, Aguiar said. Foreign companies are expected to supply technology solutions while Embraer would act as integrator.

As part of preparations for its bid, Embraer bought stakes or partnered with companies that include C4I specialist Atech, radar maker Orbisat, satellite house Visiona and mini-UAV maker Santos Lab. Embraer also has set up a joint venture with Elbit Systems of Israel to build UAVs for the border patrol project and other missions for the Brazilian Air Force.

News of Embraer’s acquisition of a 50 percent stake in Atech, a Brazilian company, emerged at last year’s Latin American Aerospace and Defense show, where Elbit displayed a command-and-control center.

For the satellite communications portion, Embraer has signed up with Telebras, a major Brazilian telecommunications company.

Domestic construction firms are likely to compete for the contract, Aguiar said.

Embraer’s experience in producing aircraft helps position it for a prime contractorship, said Robbin Laird at consulting firm ICSA, based here and in Washington.

“Embraer is moving in that direction,” he said. “Developing and building aircraft such as the Super Tucano positions you as a prime contractor.”

For example, Lockheed Martin has only a direct 30 percent stake in the F-35 Joint Strike Fighter, in the final assembly stage, and acts as integrator and prime contractor for the multinational program, Laird said.

A particular challenge for Embraer is Brazil’s diverse geography and austere conditions in the Amazon region, he said. Brazil also has a huge maritime border, which requires policing.

The border security program will force the country’s authorities to set priorities, since it is impossible to tackle all of the tasks in managing the frontier.

Deciding on the priorities will allow the Brazilian Army to identify threats and “surge assets,” Laird said, as it is useless to identify a threat and not be able to do anything about it.

Beyond SISFRON

In Embraer’s traditional military aircraft activities, the KC-390 tanker/transport program is increasing its contribution to defense and security annual sales as the government funds development and work expands. The KC-390 is expected this year to account for 39 percent of sales for Embraer’s defense and security business, compared with 19 percent in 2011.

Embraer plans to freeze the final design of the KC-390 next March, offering the prospect of setting a price on the military aircraft and going to market, Aguiar said.

“The KC-390 is on schedule,” he said, with a final configuration due in the first quarter of 2013, with terms and conditions to be fixed. That will allow Embraer to go to market and “to aggressively sell it,” Aguiar said.

The KC-390 is intended to replace the C-130 Hercules cargo plane in its various versions. Embraer estimates a world market of 2,000 units for a Hercules replacement, of which 700 are open to sales of the KC-390 — excluding the U.S., Russian and Indian markets, which are effectively closed to the Brazilian aircraft.

Embraer’s “very, very conservative approach” is to win 15 percent to 18 percent of the 700-unit market, worth more than $50 billion, Aguiar said.

Some 800 people and 50 to 55 companies are working on the KC-390 program, which is in the joint definition phase. All of the plane’s main suppliers have been selected. A first flight is due in 2014, with entry into service two years later.

France is among the 77 countries seen as potential customers, as there is a market gap between the four-engine Airbus A400M and twin-engine CN235/C295 transports, built by EADS CASA.

“If we can get it, it will be great,” Aguiar said.

France said in 2009 it would acquire a squadron of KC-390s as a counterpoint to a Brazilian purchase of the Dassault Rafale fighter jet in its long-running FX-2 competition. But the Rafale selection has yet to materialize.

The FX-2 competition did not appear in the Embraer media presentation. Aguiar said he had no knowledge of the Brazilian government’s plans for the fighter program.

Embraer hopes to benefit from changes in the U.S. Air Force’s evaluation of its Super Tucano in an upcoming tender for 20 light attack aircraft. The company will resubmit its light attack/trainer plane in a new Air Force competition to equip Afghanistan’s military.

The new evaluation allocates more points to aircraft deemed fit for counterinsurgency rather than the basic trainer mission, Aguiar said, which “will benefit us.”

Another change in the evaluation method is the absence of a fly-off between competing aircraft, he said. Data from the fly-off demonstration under the previous Air Force tender will be excluded from the evaluation, Aguiar said.

The requirements remain the same as those set in the previous competition, he said.

The U.S. service on March 2 canceled its selection of the Super Tucano, a single-engine turboprop, after a legal challenge from Wichita, Kan.-based Hawker Beechcraft, maker of the rival AT-6.

Embraer partnered with Sierra Nevada, Sparks, Nev., to bid for the previous $355 million contract.

It hopes to win half of a 300-unit, $3.5 billion market for light attack/trainer aircraft.