COMPANY SPOTLIGHT: Empresa Brasileira de Aeronautica SA
by JUSTIN CARRIGAN
SAO JOSE DOS CAMPOS, Brazil -- Ozires Silva, the bureaucrat who founded
Brazilian jetmaker Empresa Brasileira de Aeronautica SA, remembers the day he
first urged a government minister to sell the state-owned company.
``He wanted to throw me out the window,'' Silva said.
Yet Silva persevered, convincing the government to unload the money-losing
company to private investors to help it grow.
The rest is aviation history. Embraer has become a global leader in the
market and will turn a profit this year for the first time since its sell-off in 1994.
Now it's considering its next big step: teaming up with a global aerospace partner.
The 67-year-old Silva, a retired colonel with the former military government
founded Embraer in 1972, said an international partnership makes sense.
``It's becoming much more difficult to survive in today's world market,''
who's just finished a book on Embraer's rags-to-riches story. ``Joining with a
foreign company will make us much more competitive.''
Though Silva is no longer involved in the day-to-day operations of Embraer,
said the engine behind Embraer's change of fortunes has been its staple product,
the 50-seater EMB-145 regional jet, launched in August 1995 after the
government got out of the airplane business.
Until then, Embraer had focused mainly on the military market, with its
the Brazilian air force.
As other manufacturers around the globe, such as Boeing Co., concentrated
making long-haul jets, Embraer carved out a niche for itself in the regional market,
providing airlines with smaller planes for short flights. The EMB-145 has helped
Embraer gain a 51 percent share of the $5.5 billion regional jet market, followed
closely by arch-rival Bombardier Inc. of Canada, at 47 percent.
``The trend in recent years has been towards regional jets and that's where
Embraer has been really clever,'' said Sergio Goldman, head of research at
Santander Investment Securities Inc. in Sao Paulo. ``They discovered where the
demand would be in advance.''
Its planes are flown around the world, with customers in the United States,
including AMR Corp.'s American Airlines, British Midland in the U.K. and
Portugalia in Portugal.
The company recently delivered its 100th EMB-145, to Continental Airlines
in a ceremony at its factory in Sao Jose dos Campos. And next year it will start
delivering a new 37-seater EMB-135, which the company hopes will enjoy even
greater demand. Embraer also won a contract recently with the Greek government
to build four military planes worth $200 million over five years.
The results speak for themselves. In the first nine months of 1998, the
earned $65.8 million, compared with losses of $67.5 million in the same period
last year. In 1994, the year it was off-loaded by the government, it lost nearly
Investors have taken notice. Embraer's shares have fallen about 22 percent
year, but that compares well with a decline on the main Bovespa stock index of 35
Embraer's order books are bulging too, mainly because of the 50-seater's
The company's current demand backlog is worth $4.5 billion, equivalent to about
2 1/2 years of production.
The backlog has led to speculation about a foreign partner for Embraer,
company urgently looks for ways of speeding up production, especially of the
ground-attack planes and early warning aircraft it produces for the Brazilian air
Although Embraer turns out an average nine aircraft per month, including
commercial planes, company president, Mauricio Botelho, has said the need for a
new partner is urgent.
Analysts have pointed to Sweden's Saab AB and Dassault Aviation SA of France
as possible candidates, but neither will confirm any solid plans.
``We are always in discussions with aerospace companies around the world,''
Dassault spokesman, Jean-Pierre Robillard in Paris. ``We have visited Embraer
but there have been no talks about a merger.''
Embraer's turnaround has paid off for the three controlling shareholders,
154.2 million reais (then equivalent to $182 million) for Embraer four years ago.
The investors include Previ, the Banco do Brasil pension fund; Sistel, the pension
fund for Telecomunicacoes Brasileiras SA and Banco Bozano, Simonsen
Already in the first nine months of this year, Embraer has sold $1.1 billion
aircraft, compared with $766.5 million in the whole of 1997.
To bolster sales, Embraer will raise investment by 53 percent next year
million, spending money in a range of areas including product development.
Still, Embraer faces several challenges in coming months, including a possible
slowdown in aircraft demand as the global economy slows. Boeing, for example, is
slashing up to a fifth of its workforce, in part due to sluggish demand in Asia.
What's more, Embraer is still locked in a lengthy trade dispute with Canada's
Bombardier over alleged state subsidies.
``We're not going to lose,'' Botelho said. ``I think in the end, both companies
have to compromise.''