Future of the Brazilian Defense Industry Market Attractiveness, Competitive Landscape ... · PDF fileFuture of the Brazilian Defense Industry – Market Attractiveness, Competitive

Future of the Brazilian Defense Industry –

Market Attractiveness, Competitive

Landscape and Forecasts to 2019

Future of the Brazilian Defense Industry – Market Attractiveness, Competitive Landscape and Forecasts to 2019

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TABLE OF CONTENTS

1. Introduction ......................................................................................................................... 10

1.1. What is this Report About? ..........................................................................................................10

1.2. Definitions .....................................................................................................................................10

1.3. Summary Methodology .................................................................................................................12

1.4. SDI Terrorism Index ......................................................................................................................13

1.5. About Strategic Defence Intelligence ..........................................................................................13

2. Executive Summary ............................................................................................................ 14

3. Market Attractiveness and Emerging Opportunities ........................................................ 16

3.1. Defense Market Size Historical and Forecast..............................................................................17

3.1.1. Brazilian annual defense expenditure valued US$XX billion in 2014 ..................................................... 17

3.1.2. Modernization of defense systems, development of indigenous defense capabilities, and large defense

procurement projects expected to drive the Brazilian defense expenditure ....................................................... 19

3.1.3. Defense expenditure as a percentage of GDP is expected to average XX% during the forecast period 20

3.2. Analysis of Defense Budget Allocation .......................................................................................22

3.2.1. The majority of Brazil’s defense budget is allocated for revenue expenditure ........................................ 22

3.2.2. Overall capital expenditure is expected to grow at a CAGR of XX% during the forecast period ............. 24

3.2.3. Army accounted for the largest percentage share during the review period .......................................... 26

3.3. Homeland Security Market Size and Forecast ............................................................................27

3.3.1. Homeland security expenditure is expected to grow at a CAGR of XX% during the forecast period ...... 27

3.3.2. Brazil is expected to invest US$XX billion cumulatively on homeland security during the forecast period29

3.3.3. Brazilian sporting events will be the key factor driving homeland security ............................................. 29

3.3.4. SDI Terrorism Index rates Brazil to be a “low risk” region ..................................................................... 30

3.3.5. Brazil faces minimal threat from terrorists............................................................................................. 31

3.4. Benchmarking with Key Global Markets .....................................................................................32

3.4.1. Brazil defense expenditure is expected to grow faster than the majority of the largest global defense

budgets ........................................................................................................................................................... 32

3.4.2. Brazil set to continue its high defense expenditure ............................................................................... 34

3.4.3. Brazil expected to spend an average of XX% of its GDP on defense over the forecast period .............. 35

3.4.4. Brazil faces “low risk” by acts of terrorism ............................................................................................ 36

3.5. Market Opportunities: Key Trends and Drivers ..........................................................................38

3.5.1. Border security .................................................................................................................................... 38

3.5.2. Fighters and Multi-role aircraft.............................................................................................................. 39

3.5.3. Homeland Security Infrastructure ......................................................................................................... 40

3.5.4. Conventional and Nuclear Submarines ................................................................................................ 42

3.5.5. Offshore Patrolling Vessels .................................................................................................................. 43


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3.5.6. Transport and Utility Aircraft ................................................................................................................. 44

3.5.7. Military Software Infrastructure............................................................................................................. 45

4. Defense Procurement Market Dynamics ........................................................................... 46

4.1. Import Market Dynamics ...............................................................................................................46

4.1.1. Modernization of defense systems expect to drive arms imports .......................................................... 46

4.1.2. Stringent offset obligations in a highly competitive market .................................................................... 47

4.1.3. Aircraft, armored vehicles, missiles and ships were the key defense imports during 2008-2012 ............ 48

4.2. Export Market Dynamics ..............................................................................................................49

4.2.1. Development of domestic defense capability is expected to fuel exports in Brazil’s emerging military

industry ........................................................................................................................................................... 49

4.2.2. Customized aircraft systems expected to drive exports during the forecast period ................................ 50

4.2.3. Aircraft was the main exported defense product during 2008-2012 ....................................................... 51

5. Industry Dynamics .............................................................................................................. 52

5.1. Five Forces Analysis.....................................................................................................................52

5.1.1. Bargaining power of supplier: low to medium ....................................................................................... 53

5.1.2. Bargaining power of buyer: medium to high ......................................................................................... 53

5.1.3. Barrier to entry: medium ...................................................................................................................... 53

5.1.4. Intensity of rivalry: low to medium ........................................................................................................ 53

5.1.5. Threat of substitution: medium to high.................................................................................................. 53

6. Market Entry Strategy ......................................................................................................... 54

6.1. Market Regulation .........................................................................................................................54

6.1.1. International and domestic defense procurement deals are primarily decided by competitive bidding ... 54

6.1.2. Stringent offsets requirements for all defense procurements ................................................................ 54

6.2. Market Entry Route .......................................................................................................................55

6.2.1. Foreign OEMs follow direct offset route to enter defense market .......................................................... 55

6.2.2. Collaborations provide market entry opportunities ................................................................................ 55

6.3. Key Challenges .............................................................................................................................56

6.3.1. Complying with Brazil’s requirement for extensive technology transfer ................................................. 56

6.3.2. Delay in the closure of defense deals and low allocation for capital defense expenditure ...................... 56

7. Competitive Landscape and Strategic Insights ................................................................ 57

7.1. Competitive Landscape Overview ...............................................................................................57

7.2. Key Domestic Companies ............................................................................................................57

7.2.1. Embraer: overview ............................................................................................................................... 57

7.2.2. Embraer: products and services ........................................................................................................... 57

7.2.3. Embraer: recent announcement and strategic initiatives ....................................................................... 58

7.2.4. Embraer – alliances ............................................................................................................................. 59

7.2.5. Embraer: recent contract wins.............................................................................................................. 60


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7.2.6. Embraer – financial analysis ................................................................................................................ 61

7.2.7. Forjas Taurus SA: overview ................................................................................................................. 63

7.2.8. Forjas Taurus SA: products and services ............................................................................................. 63

7.2.9. Forjas Taurus SA: recent announcement and strategic initiatives ......................................................... 65

7.2.10. Forjas Taurus SA: alliances ................................................................................................................. 66

7.2.11. Forjas Taurus SA: recent contract wins ................................................................................................ 67

7.2.12. Forjas Taurus SA: financial analysis .................................................................................................... 67

7.2.13. Avibras Industria Aerospacial: overview ............................................................................................... 69

7.2.14. Avibras Industria Aerospacial: products and services ........................................................................... 69

7.2.15. Avibras Industria Aerospacial: recent announcement and strategic initiatives ....................................... 70

7.2.16. Avibras Industria Aerospacial: alliances ............................................................................................... 70

7.2.17. Avibras Industria Aerospacial: recent contract wins .............................................................................. 70

7.2.18. Companhia Brasileira de Cartuchos: overview ..................................................................................... 71

7.2.19. Companhia Brasileira de Cartuchos: products and services ................................................................. 71

7.2.20. Companhia Brasileira de Cartuchos: recent announcement and strategic initiatives ............................. 72

7.2.21. Companhia Brasileira de Cartuchos: recent contract wins .................................................................... 73

7.2.22. Helibras: overview ............................................................................................................................... 74

7.2.23. Helibras: products and services ........................................................................................................... 74

7.2.24. Helibras: recent announcement and strategic initiatives ....................................................................... 74

7.2.25. Helibras: alliances ............................................................................................................................... 75

7.2.26. Helibras: recent contract wins .............................................................................................................. 75

7.2.27. Helibras: financial analysis ................................................................................................................... 76

7.2.28. Industria de Material Belico do Brasil (IMBEL): overview ...................................................................... 77

7.2.29. Industria de Material Belico do Brasil (IMBEL): products and services .................................................. 77

7.2.30. Industria de Material Belico do Brasil (IMBEL): recent announcement and strategic initiatives .............. 79

7.2.31. Industria de Material Belico do Brasil (IMBEL): alliances ...................................................................... 80

7.2.32. Industria de Material Belico do Brasil (IMBEL): recent contract wins ..................................................... 80

7.2.33. Industria de Material Belico do Brasil (IMBEL): financial analysis ......................................................... 81

7.2.34. Aeroelectronica: overview .................................................................................................................... 83

7.2.35. Aeroelectronica: products and services ................................................................................................ 83

7.2.36. Aeroelectronica: recent announcement and strategic initiatives ............................................................ 84

7.2.37. Aeroelectronica: alliances .................................................................................................................... 84

7.2.38. Aeroelectronica: recent contract wins ................................................................................................... 85

7.2.39. Indústria Naval do Ceará: overview ...................................................................................................... 85

7.2.40. Indústria Naval do Ceará: products and services.................................................................................. 85

7.2.41. Indústria Naval do Ceará: recent announcement and strategic initiatives .............................................. 86

7.2.42. Indústria Naval do Ceará: recent contract wins .................................................................................... 86

7.2.43. Northrop Grumman Brazil: overview .................................................................................................... 87


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7.2.44. Northrop Grumman Brazil: products and services ................................................................................ 87

7.2.45. Northrop Grumman Brazil: recent announcement and strategic initiatives ............................................ 88

7.2.46. Northrop Grumman Brazil: alliances ..................................................................................................... 88

7.2.47. Northrop Grumman Brazil: recent contract wins ................................................................................... 88

7.2.48. EADS Brazil: overview ......................................................................................................................... 90

7.2.49. EADS Brazil: products and services ..................................................................................................... 90

7.2.50. EADS Brazil: recent announcement and strategic initiatives ................................................................. 91

7.2.51. EADS Brazil: alliances ......................................................................................................................... 91

7.2.52. EADS Brazil: recent contract wins ........................................................................................................ 92

7.2.53. Lockheed Martin Brazil: overview ......................................................................................................... 93

7.2.54. Lockheed Martin Brazil: products and services ..................................................................................... 93

7.2.55. Lockheed Martin Brazil: recent announcement and strategic initiatives ................................................. 93

7.2.56. Lockheed Martin Brazil: alliances ......................................................................................................... 93

7.2.57. Lockheed Martin Brazil: recent contract wins........................................................................................ 94

8. Business Environment and Country Risk ......................................................................... 95

8.1. Demographics & Social Statistics ................................................................................................95

8.1.1. Population – Rural ............................................................................................................................... 95

8.1.2. Population - Urban ............................................................................................................................... 96

8.1.3. Population – Number of Households .................................................................................................... 97

8.2. Economic Performance ................................................................................................................98

8.2.1. Gross Domestic per Capita .................................................................................................................. 98

8.2.2. Gross Domestic Product, current US$.................................................................................................. 99

8.2.3. Exports of Goods and Services .......................................................................................................... 100

8.2.4. Imports of Goods and Services .......................................................................................................... 101

8.2.5. Gross National Disposable Income .................................................................................................... 102

8.2.6. Manufacturing Output ........................................................................................................................ 103

8.2.7. Consumer Price Index ....................................................................................................................... 104

8.2.8. Wholesale Price Index ....................................................................................................................... 105

8.2.9. Local Currency Unit per USD ............................................................................................................. 106

8.2.10. Market Capitalization of Listed Companies ......................................................................................... 107

8.2.11. Market Capitalization of Listed Companies (% of GDP) ...................................................................... 108

8.2.12. Total Government Cash Surplus/Deficit (LCU bn) .............................................................................. 109

8.2.13. Goods Exports as a % of GDP ........................................................................................................... 110

8.2.14. Goods Imports as a % of GDP ........................................................................................................... 111

8.2.15. Goods balance as a % of GDP .......................................................................................................... 112

8.2.16. Services Imports as a % of GDP ........................................................................................................ 113

8.2.17. Services Exports as a % of GDP ........................................................................................................ 114

8.2.18. Services balance(% of GDP) ............................................................................................................. 115


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8.2.19. Net Foreign Direct Investment (BoP, current US$ bn) ........................................................................ 116

8.2.20. Net FDI as a % of GDP ...................................................................................................................... 117

8.2.21. International reserves, including Gold (US$ bn) ................................................................................. 118

8.3. Energy and Utilities ..................................................................................................................... 119

8.3.1. Total Conventional Thermal Electricity Net Generation (Bn KWH) ...................................................... 119

8.3.2. Hydroelectricity Net Generation (Billion KWh) .................................................................................... 120

8.3.3. Nuclear Electricity Net Generation(Billion kWh) .................................................................................. 121

8.3.4. Total Conventional Thermal Electricity Installed Capacity(Million kW) ................................................. 122

8.3.5. Proved reserves of Natural Gas(Trillion Cubic Feet) ........................................................................... 123

8.3.6. Total Petroleum Consumption(Thousand Barrels Per Day) ................................................................ 124

8.4. Infrastructure Quality and Availability ....................................................................................... 125

8.4.1. Rail lines (total route km) ................................................................................................................... 125

8.4.2. Air transport, freight (Million ton-km) .................................................................................................. 126

8.4.3. Overall Construction (US$ million) ..................................................................................................... 127

8.5. Minerals ....................................................................................................................................... 128

8.5.1. Mining, Manufacturing, Utilities Output (US$ billion) ........................................................................... 128

8.6. Technology .................................................................................................................................. 129

8.6.1. Research and development expenditure (thousands LCU) ................................................................. 129

8.6.2. Patents Granted ................................................................................................................................ 130

8.7. Telecommunication..................................................................................................................... 131

8.7.1. Telephone lines (in mn) ..................................................................................................................... 131

8.7.2. Telephone lines Penetration Rate (per 100 people) ............................................................................ 132

9. Appendix ............................................................................................................................ 133

9.1. About SDI ..................................................................................................................................... 133

9.2. Disclaimer .................................................................................................................................... 133


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LIST OF FIGURES

Figure 1: Brazilian Defense Expenditure (US$ Billion),2010–2014 ............................................................................................................................. 17 Figure 2: Brazilian Defense Expenditure (US$ Billion), 2015–2019 ............................................................................................................................ 18 Figure 3: Brazilian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2010–2014 ....................... 20 Figure 4: Brazilian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2015–2019 ....................... 21 Figure 5:Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2010–2014 .................................................................... 22 Figure 6: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2015–2019 ................................................................... 23 Figure 7: Brazilian Capital Expenditure (US$ billion), 2010–2014............................................................................................................................... 24 Figure 8: Brazilian Capital Expenditure (US$ billion), 2015–2019............................................................................................................................... 25 Figure 9: Brazilian Defense Expenditure Allocation (US$ billion), 2010–2014 ........................................................................................................... 26 Figure 10: Brazilian Homeland Security Budget (US$ billion), 2010–2014 ................................................................................................................. 27 Figure 11: Brazilian Homeland Security Budget (US$ billion), 2015–2019 ................................................................................................................. 28 Figure 12: SDI Terrorism Heat Map, 2012 ................................................................................................................................................................... 30 Figure 13: SDI Terrorism Index, 2012 .......................................................................................................................................................................... 31 Figure 14: Benchmarking with Key Markets – 2009–2013 vs. 2014–2018 ................................................................................................................. 33 Figure 15: Defense Expenditure of the World’s Largest Military Spenders (US$ Billion), 2013 and 2018 ................................................................ 34 Figure 16: Defense Expenditure as a Percentage of GDP of Largest Military Spenders (%), 2013 .......................................................................... 35 Figure 17: Border Security (US$ Million), 2014–2024.................................................................................................................................................. 38 Figure 18: Fighters & Multi-Role Aircraft(US$ Million), 2014–2024 ............................................................................................................................. 39 Figure 19: Homeland Security Infrastructure (US$ Million), 2014–2024 ..................................................................................................................... 41 Figure 20: Submarines Market (US$ Million), 2014–2024 ........................................................................................................................................... 42 Figure 21: Offshore Patrolling Vessels(US$ Million), 2014–2024 ............................................................................................................................... 43 Figure 22: Transport and Utility Aircraft (US$ Million), 2014–2024 ............................................................................................................................. 44 Figure 23: Military Software Infrastructure (US$ Million), 2014–2024 ......................................................................................................................... 45 Figure 24: Brazilian Defense Import Trend, 2008–2012 (TIV values) ......................................................................................................................... 46 Figure 25: Brazilian Defense Imports by Country (%), 2008–2012 ............................................................................................................................. 47 Figure 26: Brazilian Defense Imports by Category (%), 2008–2012 ........................................................................................................................... 48 Figure 27: Brazilian Defense Exports By Value (US$ million), 2008–2012................................................................................................................. 49 Figure 28: Brazilian Defense Exports by Country (%),2008–2012 .............................................................................................................................. 50 Figure 29: Brazilian Defense Exports by Category (%),2008–2012 ............................................................................................................................ 51 Figure 30: Industry Dynamics – Porter’s Five Forces Analysis ................................................................................................................................... 52 Figure 31: Embraer – Revenue Trend Analysis (R$ million), 2008–2012 ................................................................................................................... 61 Figure 32: Embraer – Operating Profit Trend Analysis (R$ Million), 2008–2012 ........................................................................................................ 62 Figure 33: Embraer – Net Profit Trend Analysis (R$ Million), 2008–2012 .................................................................................................................. 62 Figure 34: Forjas Taurus SA – Revenue Trend Analysis (R$ Million), 2008–2012 .................................................................................................... 67 Figure 35: Forjas Taurus SA – Operating Profit Trend Analysis (R$ Million), 2008–2012 ......................................................................................... 68 Figure 36: Forjas Taurus SA – Net Profit Trend Analysis (R$ Million), 2008–2012.................................................................................................... 68 Figure 37: Industria de Material Belico do Brasil (IMBEL) – Revenue Trend Analysis (R$ Million), 2007–2011 .................................................... 81 Figure 38: Industria de Material Belico do Brasil (IMBEL) – Operating Profit Trend Analysis (R$ Million), 2007–2011 .......................................... 82 Figure 39: Industria de Material Belico do Brasil (IMBEL) – Net Profit Trend Analysis (R$ Million), 2007–2011 ..................................................... 82 Figure 40: Brazil Population – Rural (In Millions), 2010–2019..................................................................................................................................... 95 Figure 41: Brazil Population – Urban (In Millions), 2010–2019 ................................................................................................................................... 96 Figure 42: Brazil Population – Number of Households (In Millions), 2009–2018 ....................................................................................................... 97 Figure 43: Brazil GDP per capita, 2010–2019 .............................................................................................................................................................. 98 Figure 44: Brazil Gross Domestic Product (current US$ Mn), 2010–2019 ................................................................................................................. 99 Figure 45: Brazil Exports of goods and services (current US$ Bn), 2003–2012....................................................................................................... 100 Figure 46: Brazil Imports of goods and services (current US$ Bn), 2002–2011 ....................................................................................................... 101 Figure 47: Brazil Gross national disposable income (US$ Bn), 2003 – 2012 ........................................................................................................... 102 Figure 48: Brazil Manufacturing Output (US$ Bn), 2003–2012 ................................................................................................................................. 103 Figure 49: Brazil Consumer Price Index, 2009–2018 ................................................................................................................................................ 104 Figure 50: Brazil Wholesale Price Index, 2003–2012 ................................................................................................................................................ 105 Figure 51: Brazil LCU per US$, 2009–2018 ............................................................................................................................................................... 106 Figure 52: Brazil Market Capitalization of listed Companies (US$ Bn), 2003–2012................................................................................................. 107 Figure 53: Brazil Market Capitalization of listed companies as a % of GDP, 2004–2013 ........................................................................................ 108 Figure 54: Brazil Government cash surplus/deficit (LCU Bn), 2001–2010................................................................................................................ 109 Figure 55: Brazil Goods Exports as a % of GDP, 2004–2013 ................................................................................................................................... 110 Figure 56: Brazil Goods Imports as a % of GDP, 2004–2013 ................................................................................................................................... 111


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Figure 57: Brazil Goods balance as a % of GDP, 2004–2013................................................................................................................................... 112 Figure 58: Brazil Services Imports as a % of GDP, 2004–2013 ................................................................................................................................ 113 Figure 59: Brazil Services Exports as a % of GDP, 2004–2013 ................................................................................................................................ 114 Figure 60: Brazil Services balance as a % of GDP, 2004–2013 ............................................................................................................................... 115 Figure 61: Brazil Net Foreign Direct Investment (current US$ bn), 2004–2013 ....................................................................................................... 116 Figure 62: Brazil Net FDI as a % of GDP, 2004–2013 ............................................................................................................................................... 117 Figure 63: Brazil International reserves, including Gold (US$ Bn), 2004–2013........................................................................................................ 118 Figure 64: Brazil Total Conventional Thermal Electricity Net Generation (Bn KWH), 2003–2012 ........................................................................... 119 Figure 65: Brazil Hydroelectricity Net Generation (Bn KWH), 2003–2012 ................................................................................................................ 120 Figure 66: Brazil Nuclear Electricity Net Generation (Bn KWH), 2003–2012 ........................................................................................................... 121 Figure 67: Brazil Total Conventional Thermal Electricity Installed Capacity (Million Kilowatts), 2003–2012........................................................... 122 Figure 68: Brazil Proved reserves of Natural Gas (Trillion Cubic feet), 2004–2013 ................................................................................................. 123 Figure 69: Brazil Total Petroleum Consumption (Thousand Barrels per Day), 2004–2013 ..................................................................................... 124 Figure 70: Brazil Rail lines (Total route Km), 2007–2012 .......................................................................................................................................... 125 Figure 71: Brazil Air transport, freight (Million ton-Km), 2003–2012 ......................................................................................................................... 126 Figure 72: Brazil Overall Construction (US$ Bn), 2009–2018 ................................................................................................................................... 127 Figure 73: Brazil Mining, Manufacturing, Utilities Output(US$ Bn), 2004–2013 ....................................................................................................... 128 Figure 74: Brazil Research and Development (thousands LCU), 2001–2010 .......................................................................................................... 129 Figure 75: Brazil Patents Granted, 2003–2012 .......................................................................................................................................................... 130 Figure 76: Brazil Telephone lines (in mn), 2003–2012 .............................................................................................................................................. 131 Figure 77: Brazil Telephone lines Penetration Rate (per 100 people), 2004–2013 .................................................................................................. 132


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LIST OF TABLES

Table 1: Brazilian Defense Expenditure (US$ Billion), 2010–2014 ............................................................................................................................. 17 Table 2: Brazilian Defense Expenditure (US$ Billion),2015–2019 .............................................................................................................................. 18 Table 3: Brazilian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2010–2014 ......................... 20 Table 4: Brazilian GDP Growth vs. Defense Expenditure Growth and Defense Expenditure as Percentage of GDP, 2015–2019 ......................... 21 Table 5: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2010–2014 .................................................................... 22 Table 6: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2015–2019 .................................................................... 23 Table 7: Brazilian Capital Expenditure (US$ billion), 2010–2014 ................................................................................................................................ 24 Table 8: Brazilian Capital Expenditure (US$ billion), 2015–2019 ................................................................................................................................ 25 Table 9: Brazilian Homeland Security Budget (US$ billion), 2010–2014 .................................................................................................................... 27 Table 10: Brazilian Homeland Security Budget (US$ billion), 2015–2019 .................................................................................................................. 28 Table 11: Benchmarking with Key Markets – 2009–2013 vs. 2014–2018 .................................................................................................................. 32 Table12: SDI Terrorism Index ....................................................................................................................................................................................... 36 Table 13: Brazil – Offset Guidelines and Agreements ................................................................................................................................................. 54 Table14:Embraer– Product focus ................................................................................................................................................................................. 57 Table15:Embraer– Alliances ......................................................................................................................................................................................... 59 Table16:Embraer– Recent Contract Wins .................................................................................................................................................................... 60 Table17:Forjas Taurus SA– Product focus................................................................................................................................................................... 63 Table18: Forjas Taurus SA– Alliances ......................................................................................................................................................................... 66 Table19:Embraer– Recent Contract Wins .................................................................................................................................................................... 67 Table20:Avibras Industria Aerospacial– Product focus ............................................................................................................................................... 69 Table21:Avibras Industria Aerospacial– Alliances ....................................................................................................................................................... 70 Table22:Avibras Industria Aerospacial– Recent Contract Wins .................................................................................................................................. 70 Table23:Companhia Brasileira de Cartuchos– Product focus ..................................................................................................................................... 71 Table24: Companhia Brasileira de Cartuchos (CBC)– Recent Contract Wins ........................................................................................................... 73 Table25:Helibras– Product focus .................................................................................................................................................................................. 74 Table26:Helibras– Alliances .......................................................................................................................................................................................... 75 Table27:Helibras– Recent Contract Wins .................................................................................................................................................................... 75 Table28:Industria de Material Belico do Brasil (IMBEL)– Product focus ..................................................................................................................... 77 Table29:Industria de Material Belico do Brasil (IMBEL)– Alliances............................................................................................................................. 80 Table30:Industria de Material Belico do Brasil (IMBEL)– Recent Contract Wins ....................................................................................................... 80 Table31:Aeroelectronica– Product focus ...................................................................................................................................................................... 83 Table32:Aeroelectronica– Alliances.............................................................................................................................................................................. 84 Table33:Aeroelectronica– Recent Contract Wins ........................................................................................................................................................ 85 Table34:Indústria Naval do Ceará– Product focus ...................................................................................................................................................... 85 Table35:Indústria Naval do Ceará– Recent Contract Wins ......................................................................................................................................... 86 Table36: Northrop Grumman– Product focus .............................................................................................................................................................. 87 Table37:Northrop Grumman– Alliances ....................................................................................................................................................................... 88 Table38:Northrop Grumman – Recent Contract Wins ................................................................................................................................................. 88 Table39:EADS Brazil– Product focus ........................................................................................................................................................................... 90 Table40: EADS Brazil– Alliances .................................................................................................................................................................................. 91 Table41: EADS Brazil– Recent Contract Wins ............................................................................................................................................................. 92 Table42: Lockheed Martin– Product focus ................................................................................................................................................................... 93 Table43: Lockheed Martin– Alliances ........................................................................................................................................................................... 93 Table44:Lockheed Martin– Recent Contract Wins ....................................................................................................................................................... 94


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1. Executive Summary

Brazil has the largest defense budget in Latin America and is expected to spend approximately

US$XX billion over the forecast period

Historically, the countries north of the Atlantic such as the US and Canada have been the major markets for

oil & gas and other natural resources and most of the region’s international trade has originated or ended up

in these nations. However, the past decade has witnessed a shift in focus to Latin American countries such

as Brazil and Mexico, where substantial oil reserves have recently been discovered. One of the major

initiatives taken by the government to foster domestic growth is the development of the indigenous defense

manufacturing industry. Recent years have witnessed increased efforts by Brazilian manufacturers, such as

Embraer, to produce KC-390 tactical transport aircraft and Avibras to develop a self-propelled multiple rocket

launcher called ASTROS. Furthermore, in order to strengthen its naval force and increase its maritime

surveillance, the country is procuring submarines, corvettes, and destroyers. Another factor driving the

country’s defense budget is the urgent need to replace the aging military hardware and technology, which will

further modernization of the armed forces. The Brazilian defense industry is expected to grow at a CAGR of

XX% over the forecast period, from an estimated US$XX billion in 2015 to US$XX billion in 2019.

The Brazilian defense industry is one of the fastest-growing global defense markets, and aims to decrease its

dependence on foreign OEMs (original equipment manufacturers) by enhancing its domestic defense

capabilities. The country’s capital expenditure grew at a CAGR of XX% over the review period and is

expected to record a CAGR of XX% during the forecast period, to reach a value of US$XX billion by 2019.

Furthermore, Brazil is expected to allocate as much as an average of XX% of its defense budget towards

revenue expenditure, of which almost XX% will be used to pay pension allowances to its retired military

personnel.

The country is expected to procure fighter aircraft, transport and tanker aircraft, patrol vessels, submarines,

satellite communication systems, armored vehicles, soldier modernization equipment, software infrastructure,

and missile systems, during the forecast period. In addition, with a strong focus on developing indigenous

capabilities, attractive opportunities are anticipated to flow in the Brazilian defense sector, in the form of

technology transfers agreements and joints ventures.


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2. Market Attractiveness and Emerging Opportunities Brazil which is the largest defense spender in Latin America is projected to spend US$XX billion on its

armed forces during the forecast period. Its defense expenditure registered a negative CAGR of XX%

during the review period, primarily due to the recent fiscal budget cuts in 2013. However, it is anticipated

to record a CAGR of XX% during the forecast period driven primarily by aggressive procurement of

naval vessels, the border monitoring program- SISFRON (Sistema Integrado de Monitoramento de

Fronteiras) and SISGAAZ (Sistema de Gerenciamento da Amazônia Azul) to be implemented during the

forecast period. The Brazilian defense industry is expected to focus its expenditure on the FX-2

program, nuclear-powered attack submarines (SSN), aircraft carriers, transport helicopters and also

modernizing its armored vehicles. The country allocated an average of XX% of its total defense budget

for revenue expenditure during the forecast period which will include spending on retirement pensions of

military personnel and social services and maintenance.

The country’s major domestic defense manufacturers include Embraer and Helibras which account for a

significant share of domestic supply. However there is a substantial demand supply gap in the country’s

military market which is fulfilled by foreign imports. Thus the country’s strategic focus is to reduce its

reliance on foreign arms suppliers and work towards enhancing its indigenous defense capabilities

through technology transfer agreements. The current scenario provides opportunities for both foreign

and domestic manufacturers. With continuous modernization in the defense arena, the country is

proving to be a lucrative market for manufacturers and aims to be a regional exporter of defense

hardware and integrated software.

Brazil’s total defense expenditure stands at US$XX billion in 2014 and is expected to grow at a CAGR of

XX% over the forecast period, to reach US$XX billion in 2019. Capital expenditure will see a marginal

increase due to the country’s heavy procurement pattern during the forecast period. The Brazilian

defense industry is expected to be one of the fastest-growing defense markets in the world over the next

five years.


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2.1. Defense Market Size Historical and Forecast

2.1.1. Brazilian annual defense expenditure valued US$XX billion in 2014

The country’s defense expenditure, which valued US$XX billion in 2010, witnessed a decline at a CAGR

of XX% during the review period, to reach US$XX billion in 2014. Of the total defense expenditure in

2014, XX% is allocated to the Army, XX% for navy, XX% for Air Force and the remaining XX% for

Ministry of Defense itself). Cumulatively, the Brazilian government spent a total of US$XX billion during

the review period on enhancing its defense capabilities.

The following table and figure show the Brazilian defense expenditure during the review period:

Table 1: Brazilian Defense Expenditure, 2010-2014

Year Defense expenditure (US$ bn)

Defense growth percentage

2010 XX XX

2011 XX XX

2012 XX XX

2013 XX XX

2014 XX XX

CAGR 2010-2014 XX%

Source: Ministry of Defense and SDI analysis © SDI

Figure 1: Brazilian Defense Expenditure, 2010-2014


0%

20%

40%

60%

80%

100%

120%

2010 2011 2012 2013 2014

De

fen

se

Ex

pe

nd

itu

re

Capital Expenditure Revenue Expenditure Growth rate (%)


13

The following table and figure show projected defense expenditure of the Brazilian over the forecast period:

Table 2: Brazilian Defense Expenditure, 2015-2019

Year Defense expenditure (US$ bn)

Defense growth percentage

2015 XX XX

2016 XX XX

2017 XX XX

2018 XX XX

2019 XX XX

CAGR 2015-2019 XX%


Figure 2: Brazilian Defense Expenditure, 2015-2019


0%

20%

40%

60%

80%

100%

120%

2015 2016 2017 2018 2019

De

fen

se

Ex

pe

nd

itu

re

Capital Expenditure Revenue Expenditure Growth rate (%)


14

2.2. Analysis of Defense Budget Allocation

2.2.1. The majority of Brazil’s defense budget is allocated for revenue expenditure

During the review period, Brazil allocated an average of XX% of its total defense budget for revenue

expenditure, and the remaining XX% for capital expenses. The share of revenue expenditure decreased

consistently throughout the review period. The capital expenditure though occupying a smaller share has

increased due to the massive defense procurements by the Brazilian Ministry of Defense.

The following table and chart display the Brazilian defense budget share of capital and revenue

expenditure during the review period:

Table 3: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2010-2014

Year Capital Expenditure Share Revenue Expenditure Share

2010 XX XX

2011 XX XX

2012 XX XX

2013 XX XX

2014 XX XX


Figure 3: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2010-2014


0%

20%

40%

60%

80%

100%

120%

2010 2011 2012 2013 2014

% o

f D

efe

ns

e E

xp

en

dit

ure

Capital expenditure share (%) Revenue expenditure share (%)


15

The following table and chart display the Brazilian defense budget share of capital and revenue

expenditure over the forecast period:

Table 4: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2015-2019

Year Capital Expenditure Share Revenue Expenditure Share

2015 XX XX

2016 XX XX

2017 XX XX

2018 XX XX

2019 XX XX


Figure 4: Brazilian Defense Budget Split Between Capital and Revenue Expenditure (%), 2015-2019


0%

20%

40%

60%

80%

100%

120%

2015 2016 2017 2018 2019

% o

f D

efe

ns

e E

xp

en

dit

ure

Capital expenditure share (%) Revenue expenditure share (%)


16

2.3. Homeland Security Market Size and Forecast

2.3.1. Homeland security expenditure is expected to grow at a CAGR of XX% during the forecast period

Brazilian homeland security expenditure registered a negative CAGR of XX% during the review period,

and is expected to grow at a CAGR of XX% during the forecast period to reach US$XX billion by 2019.

The Brazilian government is expected to cumulatively spend US$XX billion on its homeland security

(HLS) market over the forecast period, which will be directed towards border protection, security

spending for world sporting events, and protection against illegal immigration and drug trafficking .

The following table and figure show the Brazilian HLS budget during the review period:

Table 5: Brazilian HLS Budget (US$ Billion), 2010-2014

Year HLS budget (US$ bn)

2010 XX

2011 XX

2012 XX

2013 XX

2014 XX


Figure 5: Brazilian HLS Budget (US$ Billion), 2010-2014


XX

XX

XX

XX

XX

XX

XX

2010 2011 2012 2013 2014

Ho

me

lan

d S

ec

uri

ty E

xp

en

dit

ure


17

The following table and figure show the Brazilian HLS budget over the forecast period:

Table 6: Brazilian HLS Budget (US$ Billion), 2015-2019

Year HLS budget (US$ bn)

2015 XX

2016 XX

2017 XX

2018 XX

2019 XX


Figure 6: Brazilian HLS Budget (US$ Billion), 2015-2019


Documents

Future of the Brazilian Defense Industry Market Attractiveness, Competitive Landscape ... · PDF fileFuture of the Brazilian Defense Industry – Market Attractiveness, Competitive