Source: DTN News - - This article compiled by Roger Smith from reliable sources By Ken Parks of Dow Jones - WSJ
The company's historical weakness has been its dependence on the Argentine Air Force as its sole client, which has made it hostage to volatile defense budgets.
"The task at hand is to lay out a strategy to make it sustainable and independent of the ups and downs of the budget," Mirta Iriondo, Defense Ministry deputy secretary of scientific research and technological development, said in an interview.
The administration of President Cristina Fernandez has sought to revive strategic industries like aviation and nuclear energy where Argentina's advances in those fields during the 20th century were derailed by political and economic problems.
The aircraft maker, known by its Spanish acronym of Fadea, has built more than 1,500 aircraft since it was founded in 1927 in the industrial city of Cordoba.
Fadea enjoyed its golden years during the first government of President Juan Domingo Peron from 1946 to 1955. Eager to create a domestic defense industry that would free the country from its dependence on foreign arms suppliers, Peron lavished funding on the factory.
At one point it employed more than 9,000 people in a sprawling industrial complex that produced not only airplanes and aircraft parts and motors, but tractors, automobiles and motorcycles.
Fadea's greatest technological achievement during this period was an advanced jet fighter prototype, the Pulqui II, whose development was cut short by budget problems and fatal crashes during test flights.
Fadea went on to develop and build about 100 of its IA 58 Pucara ground attack aircraft during the 1960s and 1970s. The Pucara was followed in the 1980s by the IA 63 Pampa advanced trainer, of which about two dozen have been built to date.
Fadea's manufacturing activities largely ceased after former President Carlos Menem awarded a subsidiary of Lockheed Martin Corp. (LMT) a 25-year concession in 1995 to use the factory to provide maintenance and modernization services to the Air Force.
The Fernandez administration reached an agreement with Lockheed Martin to acquire the factory, with the transfer in ownership completed in late 2009. The Defense Ministry now holds 99% of Fadea's shares.
Today, Fadea, which employs around 1,000 people and does about ARS400 million ($100 million) in annual sales, survives largely on maintenance contracts with the Air Force. The company is also upgrading the Pampa with new motors and avionics, and has a government contract to build eight new Pampa airframes.
With a view to eventually win private sector business in Latin America, Fadea is investing in training and the certification of its workforce, while the Defense Ministry is investing $27 million in the company, including the purchase of new equipment.
"I would estimate that in two years we will be in the position, depending on our abilities and the niche markets that we find, to go out and look for maintenance business," Iriondo said.
The company is also negotiating with Empresa Brasileira de Aeronautica SA ( ERJ, EMBR3.BR), or Embraer, to supply basic parts to the Brazilian aircraft maker, Iriondo said.
Like Fadea, Embraer was set up as a military aircraft manufacturer by the Brazilian government in 1969. However, the company was privatized in 1994 and went on to become one of the world's leading producers of regional and business jets, with sales of $5.47 billion last year.
A parts contract with Embraer would help Fadea develop the skill sets necessary to get its manufacturing business back on its feet after years of neglect, she added.
A far more ambitious project is Fadea's participation in the development of the KC-390 twin-engine military cargo aircraft.
Embraer is designing the turbofan aircraft from scratch as it looks to expand its military aviation business.
The defense ministers of Argentina and Brazil signed a declaration of intent in October to move ahead with the program. The two countries are now in talks to establish the terms and conditions of Argentina's participation, through Fadea, in the design and production of the aircraft.
"On the manufacturing side we are already looking at what parts Fadea is going to make ... For Fadea it's going to be a technological challenge to resolve the fabrication of those elements," Iriondo said.
-By Ken Parks, Dow Jones Newswires; 54-11-4103-6740; ken.parks@dowjones.com
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