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A Nose For  Business

It reached the brink of collapse 15 years ago but is now flying high. Brendan Sobie discovers the story behind aviation giant Embraer

It may not be the most obvious place for the world’s third largest commercial aircraft exporter, but Brazil has found success in aircraft manufacturing. Established by the government in 1969 to produce a 21-seat turboprop aircraft, Embraer is third only to Airbus and Boeing,  but how it got there is something of a miracle. Indeed, the company almost disappeared in the early 1990s after running into financial problems, but foreign backing in 1993 for the development of its first jet, the ERJ 145, and privatisation in 1994 assured its survival.

Embraer has since delivered more than 1,500 regional jets, including more than 1,000  ERJ 145s and more than 500 E-Jets, a new family of larger regional jets seating 70–115 passengers. Last year it delivered a record 204 jets, including 162 commercial aircraft, 36 business jets and six aircraft to military customers. This pales in comparison to Airbus’ 483 commercial aircraft and Boeing’s 375, but puts Embraer ahead of its biggest rival, Canada’s Bombardier. 

Together, Embraer and Bombardier have revolutionised the commuter airline industry, which historically operated turboprops on short sectors. The 50-seat jet allowed commuter airlines to fly further and faster, making travel to smaller cities more comfortable and opening previously unviable routes. Over 10 years, nearly 2,000 were built, but Embraer almost missed the party. 

In 1989, the Brazilian outfit watched as Bombardier launched the 50-seat CRJ100. Embraer had its own concept for a 50-seater but, having seen its defence business dry up during the Cold War, was running out of cash. “The government was not in position to invest and grow Embraer anymore,” recalls executive vice-president Horacio Forjaz. “Embraer went into a deep financial crisis. We almost disappeared.” 

Backed into a corner, the company devised a new structure for launching an aircraft programme, securing four risk-sharing partners, including Spain’s Gamesa and Belgium’s Sonaca, to invest in the ERJ 145. “We knew we had a good product, a revolutionary idea. We just lacked the funds,” says Forjaz. 

“An innovative industrial structure was conceived. But in this case it was more than innovation, it was the only way out,” adds Forjaz, who joined Embraer as an intern in 1974, working on key programmes as an engineer, including the ERJ 145, before reaching his current position. 

The formula worked and at the beginning of 1997 the ERJ 145 entered service. “It found immediate and very enthusiastic acceptance in the market. Those next few years were very positive,” says Forjaz. “The economy was growing, the price of fuel was much more favourable than lately and the concept of the turboprop was challenged following a few accidents in the 1990s. So we saw an explosion of the regional jet.” 

Although Embraer had succeeded in its first two decades at exporting the Banderiente and a 30-seat turboprop, the Brasilia, it was the ERJ 145 that put Brazil on the map of major commercial aircraft producers. Dubbed Jungle Jet, the ERJ 145 initially was seen by many in the West as beyond Brazil’s capabilities. But Embraer quickly silenced the critics, by developing, producing, selling and supporting a jet to the standard of Airbus and Boeing. The firm became Brazil’s poster child and was, for a few years, its largest exporter. Several other Brazilian firms have tried to emulate Embraer’s global success but, even with government support, have largely failed. 

Embraer’s unlikely emergence as a global player is credited to Brazilian Maurício Botelho, who, says Forjaz, “shaped the company for growth and instilled a new culture”. The dynamic Botelho, CEO from 1995 to 2007, refused to let Embraer pause to enjoy the ERJ 145’s success. Instead he decided Embraer should get to work on a new regional jet that would be just as revolutionary. 

While Bombardier decided to simply stretch the fuselage of its CRJ into new 70- and 90-seat variants, Embraer decided to launch, in 1999, a totally new aircraft for the large regional jet category. The E-Jet family of aircraft featured a wider fuselage which, unlike the narrow ERJ and CRJ, matched the comfort of an Airbus A320 or Boeing 737 

It was a huge gamble for Embraer but it quickly paid off as regional airlines began to look for larger aircraft and demand for 50-seaters fell. Embraer secured a launch order from Switzerland’s Crossair, and has since sold around 900 E-Jets, 400 of which are yet to be delivered. The E-Jet has easily outsold the rival CRJ700/900 in recent years, allowing Embraer to overtake Bombardier in commercial jet sales and deliveries. 

Embraer also diversified into corporate aviation, launching, in 2000, its first business jet programme. The Legacy, a derivative of the ERJ, helped to lay the groundwork for a larger business jet initiative. 

In 2005, the Phenom family of light business jets, was launched, followed in 2006 by the Lineage family of larger business jets. The Phenom was of particular importance as it was the first business jet by Embraer not derived from a regional jet. It also helped grow Embraer into the world’s sixth largest business jet manufacturer, behind Bombardier, Cessna, Dassault, Gulfstream and Hawker Beechcraft. The first Phenom was delivered at the end of of last year and Embraer has more than 800 orders for the Phenom 100 and larger Phenom 300.  

“Our long-term vision is to be an important player by 2012,” explains Forjaz. “Our goal is to have business aviation responsible for 25% of our income at that time. Our indications are that we’re on track with that goal.” 

Embraer is also enjoying a renaissance of its defence business, with several sales of its Super Tucano advanced trainer and more currently under negotiation. Embraer also expects to sign a contract this year with the government for development of a new military transport aircraft, the C-390, and to secure a major role in Brazil’s new generation fighter acquisition, which will involve local production of a Western model. Both programmes are part of the plan by Brazil’s defence ministry to promote the development of sophisticated military systems in-country. “It’s a prime goal of the government to conquer and dominate defence technology that allows Brazil to be autonomous in terms of military products,” says Forjaz. 

The military business could help Embraer cushion any blow from the expected decline in commercial aircraft and business jet sales due to the current economic downturn. But with a healthy backlog of orders for E-Jets and business jets, Embraer is well positioned even if new sales do slump. “We’re predicting it will be a difficult two to three years, but we’re doing our best to face the difficulties,” says Forjaz. “The challenge is to go through the uncertain future and keep the company profitable and solid.”