Love on the Rocks II: The Divorce is Official

C-295 hits American chill
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In our 2006 Valentine’s Day article “Love on the Rocks: CASA’s $600M Venezuelan Plane Sale In Heavy Turbulence,” DID discussed the blockage of a EUR 500 million sale from Spain to Venezuela under the USA’s ITAR regulations on military technology transfer. Despite the protests of the Spanish government, which claimed that the planes were not potential offensive weapons, the US held firm in its insistence that no ITAR-qualifying technologies could be part of the order for 10 EADS-CASA C-295 light transports, and 2 CN-235MPA Persuader advanced maritime patrol aircraft.

DID’s article explained why this was a likely deal-breaker, in spite of vocal support for the sale from the Spanish government. Things worked out pretty much as predicted…

CN-235MPA
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Our analysis said that the combination of engineering and political/commercial challenges would likely prove as fatal to this sale as they had to the sale of Super Tucano/ALX trainer and light attack aircraft from Brazil. As we explained, the engineering challenges were real, the US market was too important to EADS, and the shift toward a pan-European defense industry had ironically deprived Zapatero (a large proponent of that shift) of the tools he could once have used in order to force the issue. As such, EADS-CASA would find a face-saving way to wriggle out of the contract while doing its best to avoid hard feelings, and there was nothing the Spanish or Venezuelan governments could do.

As it happens, EADS Eurocopter won the $3 billion LUH competition in early July 2006, breaking into the large and lucrative US defense market. Then, on July 30, a Venezuelan government spokesman declared the EADS-CASA contract nullified. General Alberto Muller, Staff advisor to President Hugo Chavez, said: “They (Spain) needed to replace the aircraft parts, which were made in the United States, with other components, and it seems that this alters significantly the planes’ value.”

In other words, Zapatero could not force the sale through. EADS-CASA gracefully bowed out by setting a price Venezuela must refuse, and otherwise making it clear that no sale would be forthcoming. FINIS, close curtain.

Hello, Again, Hello?

Indian AN-32
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As one play ends, however, another begins. The other major event that happened in late July was a $3 billion order for Russian helicopters and high-end fighters. Further defense deals with Russia are said to be under negotiation, and light Russian transports like the AN-32 could easily be part of those deals. If so, the timing of Venezuela’s nullification announcement may be more than coincidence… and Chinese options like the Y-7/An-26 or even the larger Y-8 MPA maritime patrol variant may also be available.

In November 2010, reports surfaced that Venezuela was negotiating for 10-12 Y-8 transports.