(CNN) One of Brazil’s most traditional defense companies is about to be sold to an Australian group. And the Army Command, in contrast to many critics who raise concerns about the risk of denationalization, welcomes the deal.
For the military, the transfer of control helps the continuity of strategic projects developed jointly with the Army and guarantees the delivery of multimillion-dollar orders placed by the ground force, which were threatened by the company’s pre-bankruptcy situation.
Founded in 1961 by a group of engineers from the Technological Institute of Aeronautics (ITA), Avibras is based in Jacareí (SP) and was one of the country’s pioneers in the production of cutting-edge military equipment, such as missiles and rocket launchers.
Today the company is controlled and chaired by João Brasil Carvalho Leite, son of one of the founders, and is in judicial reorganization. With debts of over R$600 million and labor problems, Avibras announced on Monday (2) the existence of “advanced negotiations” with the Australian group DefendTex.
“Both companies are committed and working diligently to finalize the specific terms and conditions of the investment,” concludes the two-paragraph statement released earlier this week.
Since then, critics and experts have expressed concerns about the risk of denationalization of the company. On social media, left-wing profiles have called for government action against the continuation of the deal. There have been frequent comparisons with the Embraer-Boeing merger attempt – a conversation that was born in 2017, lasted three years and ended up not prospering.
The Army, however, plays down the problems and believes that there are positive aspects to the operation to transfer control of Avibras.
According to reports made by military officials to CNN, the Army has around R$60 million in orders from Avibras for products that have not yet been delivered.
In addition, the highlight of the ground force’s partnership with the Vale do Paraíba company revolves around Astros – one of the Army’s strategic projects.
Astros aims to provide the force with an artillery rocket system with long range and high precision. Avibras is an important part of the program.
“A large part of the Astros program, as far as the Army’s artillery command is concerned and as far as the capabilities provided by Avibras are concerned, has already been delivered. More than 80% has already been delivered,” said General Rocha Lima, head of the Army’s Project Office (EPEx), in a live broadcast this week on the channel of geopolitical analyst and reserve officer Paulo Filho.
According to the general, the biggest project pending completion by Avibras is the development of the tactical cruise missile, which would allow the Army’s artillery to hit a target 300 kilometers away with an error of no more than nine meters.
Today, according to Rocha Lima, only 11 countries in the world have this capability. “It’s something that would give Brazil a lot of projection,” he explained.
In the opinion of military personnel who were spoken to privately by CNN, although the Astros program is close to completion, it is bad to have a company in a pre-bankruptcy situation dealing with strategic projects for the Armed Forces.
For this reason, the transfer of control to the Australian group is downplayed. Many army officers believe that the worst-case scenario is that Avibras goes bankrupt and the Astros program is delayed.
Strategic Defense Company
In the Army’s assessment, one point that gives the process more peace of mind is the classification of industries in the sector as a Strategic Defense Company (EED).
Companies classified in this way benefit from exemption from the Tax on Industrialized Products (IPI) and PIS/Cofins. They can also win tenders from the Ministry of Defense even if their prices are up to 25% higher than those of their competitors.
Among the requirements for becoming an EED, the company must have its headquarters and administration in Brazilian territory, as well as ensuring its productive continuity in the country.
“The group of foreign partners or shareholders and groups of foreign partners or shareholders [cannot] exercise in each general meeting a number of votes greater than 2/3 (two thirds) of the total votes that can be exercised by the Brazilian shareholders present,” says an excerpt from Law 12.598, sanctioned in 2012.
In other words: today there is a legal framework that discourages a foreign group from simply acquiring a national company and moving away from the country. Brazilian citizens may even have fewer preferred shares (without voting rights), but they will still need to maintain a relevant share in decisions guaranteed by ordinary shares (with voting rights).
*** Translated by DEFCONPress FYI Team ***