A major war was raging between Bolivia and Paraguay in the late twenties/early thirties. Both nations had for many years been disputing sovereignty of the Chaco Boreal, a dispute fuelled by the belief by foreign interests that large oil deposits lay undeveloped in the territory. In 1928 Paraguayan forces had seized a Bolivian fort and immediately a series of isolated but bloody clashes followed. A truce had been negotiated by the Pan American Conference and League of Nations but this failed to hold and in 1932 all-out warfare between the two states erupted
The small Paraguayan air force possessed a number of Italian Fiat CR 30 biplane fighters. Bergamaschi AP 1 monoplane fighters, Caproni Ca 101 three engine bombers and Breda Ba 44 transports, while the larger Bolivian Cuerpo de Aviacion flew about 60 Curtiss Wright Osprey general – purpose aircraft, Curtiss Hawk IA fighters and Junkers W 34s converted as bombers. From 1933 onward both sides made considerable use of their air forces. A high proportion of the aircrews were foreign mercenaries although, with the assistance of an Italian military aviation mission, the standard of training among Paraguayan flying personnel quickly improved. Numerous air combats took place, particularly when both sides began flying bombing raids and it has been suggested that each air force lost about 30 aircraft. Best known pilot of the war was undoubtedly Major Rafael Pavon who, in Curtiss Hawks, was credit ed with three combat victories and came to be dubbed the Bolivian ace of aces.
A further truce was arranged in 1935 and the Chaco Treaty was signed at Buenos Aires dividing the Chaco Boreal between the two belligerents, Paraguay gaining by far the greater area. Both sides had suffered heavy casualties (Paraguay 36,000 men and Bolivia 52,000), and both were rendered economically exhausted by the Chaco War which achieved precious little, as the oil interests that had led to such bitter jealousies were not to be realised for many years to come.