TRADE-BRAZIL: Aeronautics Company Heads Exports

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Nov 19 1999 (IPS) - The Brazilian Aeronautics Company, Embraer, has shot to the head of the class in exports, feeding Brazil’s national pride by competing in the market for high-tech products.

As Embraer outstripped the mining concern Compañia Vale do Rio Doce as Brazil’s top exporter, airplanes, a high-tech product, shoved aside a raw material, iron ore. In the July-September quarter, Embraer’s sales for the year stood at 1.234 billion dollars, against the mining company’s 1.185 billion.

Both firms were privatised, even though they were considered strategic in terms of economic development – in the case of the Compañia Vale do Rio Doce – and technological development in the case of Embraer.

Business really began to take off for Embraer in 1997, when its sales climbed to 902 million reals – nearly the same amount in dollars at the exchange rate at that time – a twofold increase on the 1996 level.

And in 1998, sales soared 75 percent above the previous year’s level, while this year’s sales are expected to be 100 percent higher than last year’s, although revenues will be lower in dollars due to the January crash of the local currency, the real.

Medium-size jet planes with a capacity of 37 to 50 passengers used in domestic flights have formed the basis of Embraer’s success in increasing its sales eightfold in just three years.

The company’s market is international, and both its biggest clients and its main competitors are in the industrialised North. Exports account for 92 percent of the firm’s revenues.

Success is here to stay for Embraer, at least for the foreseeable future, due to the 17.2 billion dollars worth of orders on its order-book, with 6.5 billion confirmed and the rest in call options.

The firm’s factory in Sao José dos Campos, 100 kms from Sao Paulo, which currently produces 10 planes a month, should be manufacturing 12 next year and 16 in 2001, according to Embraer’s vice-president of finances, Antonio Pizarro Manso.

The company has also begun to manufacture bigger airplanes, for 70 and 108 passengers, the latter at a cost per unit of 24.5 million dollars.

Thus the company is gaining ground in the airplane industry dominated by the U.S. company Boeing and Airbus in Europe.

The tendency of those two giants to manufacture ever-larger craft was what allowed the emergence and growth of smaller firms producing medium-sized planes for domestic flights, such as Embraer and its biggest rival, Canada’s Bombardier.

Embraer and Bombardier mutually accuse each other of unfair competition due to government subsidies. The dispute was brought before the World Trade Organisation (WTO), which ordered both companies to revise their financing strategies.

The Brazilian company’s strategy is based on plans to sell 4,500 30 to 110-seat airplanes on the international market over the next 10 years, equivalent to 98 billion dollars in exports.

The tendency of airlines worldwide is to increase the number of non-stop flights between a larger number of cities, for which jet planes with greater autonomy than those presently available are needed, said Boeing’s vice-president of marketing Randy Baseler.

To grow, Embraer sought foreign partners that would ensure it access to technologies and markets in industrialised countries. It thus sold 20 percent of its shares to the French companies Dassault, Aerospatiale-Matra, Thomson-CSF and Snecma, for around 200 million dollars.

The company also sold a 49 percent stake in its subsidiary EDE, which builds landing systems and hydraulic components, to the German company Liebherr.

But those deals disturbed Brazil’s armed forces, which created Embraer in the 1970s, and only reluctantly agreed to privatise it in 1994, when the firm was caught in the grip of a severe financial crisis.

The government holds a 30 percent stake in the company as well as a “golden share” guaranteeing it veto power over management decisions.

The Bozzano Simonsen bank, the majority partner in Embraer, pledged not to allow the complete de-nationalisation of the company, the military’s greatest fear.

Embraer, which owes its existence to the Brazilian air force, and to retired colonel Osiris Silva in particular, employed around 8,000 people in the 1980s, when its success was based on the small passenger plane Bandeirantes and the Tucan military training plane.

With the crisis and privatisation, the payroll was slashed nearly in half, but today it has bounced back to its previous level, and plans to hire 3,500 additional employees over the next two years.

Embraer is the motor of the economy of Sao José dos Campos, where it has developed an industrial and aerospace complex complete with a meteorological institute and satellite manufacturing plant.