I talked to Karneck about it. According to him, how 'gather dice' works is that when you declare an attack you gather dice for the specific range, if you can't gather any dice for the range then the attack is cancelled. But that isn't actually the part that's tripping you and me up. I did a little digging and I think I've found the definitive explanation:
Look at the requirements of the card:
1) 'While attacking...'
2) '... a squadron ...'
3) '... before you gather dice ...'
Those are it. The timing window is actually massive. Iv'e found atleast two different places where it can slot in BEFORE you measure range during the 'Declare attack step'.
So what it looks like the timing happens something like this:
1) Declare the target (ALL of HFZ's conditions are filled here)
- HFZ has an opportunity to slot in here (the early timing)
2) Check if it is in the arc (these two are separate steps in the 'check if squad/defending hullzone is in the arc and in range' sub-step on page 7 of the rules reference)
- HFZ has an opportunity to slot in here (the late timing)
3) Check if it is in range
4) You know if the target is valid.
The key is the insanely broad timing, just fulfill the condition of declaring the defending squadron and you can replace the blues with reds.