Friday, July 24, 2015

Navy's Largest Ship on Lease to Canada

The Navy is leasing out a fleet replenishment ship to Canada, earning some rental fees while helping an allied nation. Canada agreed to pay Chile $4.8 million to use the Almirante Montt for 40 days, according to Defense News. The rental leaves Chile without its largest ship, but the 42,000-ton vessel is not critical to the Navy because it has another tanker ship, the 26,000-ton Araucano. The smaller ship was added to the fleet in 2010, when it was purchased second-hand from a company called Ultragas. The Araucano underwent improvements at the Asmar shipyard until 2013 to bring it up to the requirements to serve as a fleet tanker. Chile uses the two supply ships for joint training exercises, including some that are conducted as part of international security treaties. Canada has retired its two supply ships, and construction of two replacement vessels has been delayed until 2021. That's left Canada scrambling to find ships that can serve as stop-gap solutions.

Saturday, July 11, 2015

Chinese Fishing Ships Get the Attention of Chile's Navy

No fish, no foul
The Navy scrambled a patrol ship and a couple of aircraft after a flotilla of Chinese fishing vessels suddenly showed up in Chilean territorial waters. A fast-deployment force boarded the ships but found no evidence of illegal fishing, so the Chinese fishermen were allowed to continue. A separate group of Chinese fishing boats was boarded off the island of Chiloe. It was unusual to find Chinese boats that far into the eastern Pacific, and it made for an awkward situation for China, which is wooing Chile for space and military deals. Chile has an exclusive economic zone that runs 200 miles off the shoreline. Fishing and fish farming are some of Chile's most important industries, and shipping lanes are vital to the country's foreign trade. But with only eight surface warships and three offshore patrol vessels capable of reaching the deeper waters of that zone, there are plenty of coverage gaps. In fact, it was Chilean fishermen who spotted the Chinese boats, not the Navy. Several reconnaissance aircraft share patrol responsibilities, but they also seem inadequate in number to watch over an area that is five times larger than Chile's land mass. In addition, Chile has search and rescue responsibilities for an even larger ocean zone that spans about 1 1/2 times the total surface area of South America. Chile is building a fourth offshore patrol vessel, and has plans for a fifth. There are no immediate plans to add long-range airplanes. The few P-3 Orions are being refurbished extensively.

Friday, July 3, 2015

President's Plane Again Breaks Down

An Air Force 767 jet that serves as the official plane for the president was in the news for the wrong reasons. The plane was forced to scrap a flight to a political summit in Peru after a fuel problem was detected. President Michelle Bachelet and her entourage had to board a smaller Boeing 737 to make the trip. The problem wasn't so unusual, but it was a reminder of the maligned state of VIP transports in FACh's inventory. Politicians want to find a newer, better plane, rather than continue sharing planes that are normally used to ferry troops. The Boeing 767 was purchased second hand in 2008, and it's had major problems before. Still, don't expect a VIP transport to be acquired anytime soon. A plush jet fresh out of the assembly line would be a budgetary luxury, and potentially a political backlash for any president who would board it.

Saturday, June 27, 2015

'Ethnic Conflict' Shows No Sign of Letting Up

Radical indigenous groups continue to attack ranchers, police and logging companies, and their firepower seems to be increasing. Setting fire to trucks and logging facilities remains a favorite tactic of Mapuche militants. But a few incidents this year show a more dangerous side to what the government calls an "ethnic conflict." A police armored vehicle was shot up with what's believed to be 7.62 mm assault rifles. In March, a Mapuche leader believed to be cooperating with the investigation into the attack against a prosecutor had her house set on fire by hooded men, and her husband was shot. Some Mapuches are getting shot, too. A watchman fired his shotgun at one of several men who had set trucks on fire, leaving him seriously wounded. Officials count more than 130 incidents in the disputed territory during the first four months of the year, The Mapuche rebellion stems from the loss of ancestral lands that were stripped from them. The government has had little success trying to solve the problem or in curtailing the violence.

Saturday, June 20, 2015

Chile Looking to China for Satellite Acquisition

Fasat Charlie
As Chile's only satellite nears the end of its operational life, the Air Force is looking to acquire a replacement. Plans are to have the new satellite in orbit in 2017. The current unit, called Fasat Charlie, was launched in December 2011. Although FACh operates the satellite, it has limited military use. Its powerful optics are used mainly for mapping, geological research, agricultural surveying and other civilian uses. It's come in handy in coordinating aid for the various natural disasters that hit Chile every year. The FACh officer in charge of Chile's space program said he will visit China to shop for a replacement. That's a curious declaration to make so early in the selection process, and one that suggests Chile has already found a supplier for its next orbiter. Or, it could be just a negotiating ploy. The first few Chilean satellites were built in Europe.

Wednesday, June 10, 2015

Chile: Market Attractiveness, Competitive Landscape and Sales Forecasts 2015-17

By Jose Miguel Pizarro

Chile can be considered one of the best overall market prospects in the region for U.S. and European defense companies for the simple reason that its financial situation has been remarkably stable for an extended period of time (more than 40 years). This financial position has been further improved recently by massive increases in the funds allocated to the military via what's known as the copper law.  Those intakes from copper exports are how the Chilean military funds its major multibillion dollar procurement programs. (The law requires that these additional funds are to be used on new weapon systems and tactical equipment purchases.)

The transparency of the Chilean military's procurements is becoming increasingly comparable to that of other European governmental procurement programs.  This, in turn, makes the Chilean military market that much more competitive, and provides a level playing field for all contenders. In fact, Chile has been pushing military spending transparency for the region as a whole as a means of reducing tensions. Although there is a strong purchasing preference for U.S.-made tactical equipment, very few small- and medium-size North American defense firms are aware of the existence of the Chilean military markets. Not surprisingly, even fewer U.S. defense companies are currently promoting their brands or competing to be awarded contracts in this country. As a result, small Israeli and European defense manufacturers dominate the Chilean markets with a wide variety of extremely expensive tactical products that are often discredited due to poor after-sales support.

While criticism has been widespread (mostly from anti-American organizations) that a "relaxation" in U.S. arms sales policy has set off a regional arms race, such complaints all too often reflect shallow knowledge of Latin American arms inventories and their age. What Chile is undergoing today is a simple re-equipment cycle in which aged, unreliable and obsolete weapon systems and tactical equipment are being replaced. This cycle is being done at a measured pace that carefully blends affordable new equipment and used equipment that will continue to provide years of service. Chile is simply looking to modernize an aged inventory to extend the viability of its force structure. Putting the emphasis on new tactical equipment simply reflects the perception that new always provides better value over the long run. Considering that new jet fighters, tanks and frigates for example, can be kept in service for 30+ years, the same goes for smaller tactical equipment such light 4x4 armored vehicles and UAV’s. The revitalization of the force structure will quickly achieve significant cost savings as inefficient and maintenance-intensive systems continue to be taken out of the Chilean inventories on a monthly basis.

Unfortunately, the purchases led to expressions of alarm in neighboring Argentina, Peru, Bolivia and even in the distant Venezuela. Some of the neighboring countries do not enjoy the economic boom of export-driven Chile and suffer from 50%-plus poverty rates and constant political instability that characterize the region. Moreover, tensions still persist as a result of the bitter legacy of the 19th century War of the Pacific (a military conflict between Chile against both Bolivia and Peru), which made Bolivia a landlocked country by stripping it of its coastline. Today, Peru and Chile vehemently disagree over their territorial and maritime border, while many Peruvians and Bolivians still hold a grudge over the immense amount of Bolivian and Peruvian territory lost to Chile during that war. Despite that Peru and Bolivia already have smaller, far less-equipped forces than Chile, current intelligence reports suggest that — in the event of a military confrontation — Venezuela could provide technical assistance, Russian-made weapon systems and logistical support to both countries to face the modern fleet of Chilean F-16s and the heavy armored and mechanized infantry brigades of the army.

A foreign perspective, or why Chile?
Chile has several competitive advantages that make this country an attractive location for foreign companies looking to export, develop new business and to expand the sale of its military products and services in Latin America. One of the country’s most valuable characteristics is its stable and transparent policy framework for foreign investment. The country has an active Free Trade Agreement with the U.S. and with almost every single European nation. Foreign investors in Chile can own up to 100% of a Chilean-based company and there is no time limit on property rights. These facts make Chile a much more attractive "market entry platform" than Brazil.

Also, due to a strong German influence in military training and operational doctrine lasting more than 120 years — that focused on advanced officer training and constant doctrinal modernization — Chile possesses the most modern and capable armed forces in Latin America. Chile also has one of the largest defense industries in the region, pursuing an aggressive modernization strategy over the past decade. Chile’s defense budget for 2015 is US$7.4 billion, with a projected increase of 5.3% of GDP per year for the next three years. Defense expenditure is expected to reach US$10.5 billion by 2017.

Market Opportunity and Entry Strategy: Analyses and Forecasts 2015-2017.

The Chilean armed forces are well funded. As a result they are buying and they are buying quickly. The main projected areas of growth are expected to be in modern infantry tactical weapons and individual equipment, hundreds of 4x4 tactical vehicles, aviation support systems, attack helicopters, troop transport aircraft, aerial surveillance and sensors, optics, and a wide variety of mechanized infantry weapon systems (to include logistical support and expeditionary equipment) capable to carry out both offensive combat operations in desert and mountain areas and for secondary rescue operations in times of natural disasters.

For large-scale sales, joint ventures, collaborations and strategic partnerships are the name of the game in Chile right now. In recent years, there have been a growing number of joint ventures between international companies and their Chilean counterparts. The Chilean government is encouraging these joint ventures and technology-sharing agreements, which enable domestic firms to enhance their capabilities while increasing diplomatic relations between the countries. Examples of these collaborations include the U.S.-Chile agreement on sharing military technical data to maintain the advanced F-16 fighters and AMRAAM (beyond visual range) air-to-air missiles, and the declaration of intent signed by Brazil and Chile to jointly develop the KC-390 military transport aircraft.

More recent programs include co-production of 45,000 assault rifles, Gatling guns, weaponization and upgrades of thousands of 4x4 tactical vehicles, combat simulation systems, new infantry gear for 44,000 soldiers, 60+ coastal patrol boats, decade-long maintenance contracts to provide logistical support to a mechanized force of more than 3,000 Infantry Fighting Vehicles and 400+ Leopard 2 Main Battle Tanks, etc. In conclusion, Chile seems to be an interesting defense market where it might be worth the effort to take a second look.

Jose Miguel Pizarro , 47, is a former Chilean Army officer and a former U.S. Marine with more than 27 years of active military experience in the Latin American region as a military analyst. He also served in the Middle East as a private security contractor. Mr. Pizarro also worked for CNN en EspaƱol and for the German-based Monch publishing group as a columnist for Military Technology. He lives in Washington, DC, with his family. E-mail: jm.pizarro@chilecompany.com