Embraer - The Brazilian Aircraft Manufacturers Turnaround and Growth (2007)

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ICMR Center for Management Research
Embraer: The Brazilian Aircraft Manufacturers Turnaround and

Growth
This case was written by Regani S, under the direction of George S, ICMR Center for
Management Research (ICMR). It was compiled from published sources, and is intended to be
used as a basis for class discussion rather than to illustrate either effective or ineffective
handling of a management situation.
2007, ICMR Center for Management Research
ICMR, Plot # 49, Nagarjuna Hills, Hyderabad 500 082, India
Email: [email protected].
www.icmrindia.org
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Embraer: The Brazilian Aircraft Manufacturers

Turnaround and Growth
Embraer is one of the hottest manufacturers in the industry today. Theyre willing to push into
areas that others havent explored.
- Donald Burr, the founder of People Express Airlines1, in 2004.2
A lot of people have tried and failed. But since 1960 only one new company and one new country
have successfully entered the commercial aircraft market.
- Richard Aboulafia, an analyst at the Teal Group Corporation3, in 2005.4
Years ago our competitors said: How dare those ugly ducklings from South America try to sell a
jet in the Northern Hemisphere Fortunately, they underestimated us.
- Satoshi Yokota, Embraers Executive Vice-President for engineering and development,
in 2006.5
EMBRAER LAUNCHES NEW BUSINESS JET

In May 2006, Empresa Brasileira de Aeronutica S.A. (Embraer) announced the launch of its new
business jet, the Lineage 1000 (Lineage). The Lineages design was based on Embraers successful
E-190 regional passenger jet6 platform, and the aircraft had the capacity to seat between 13 and 19
passengers, depending on the cabin design. The cabin could be split into five zones, and customers
could choose from a variety of interior design options, which included putting in a standup shower
and a full-size bed. The Lineage was a long haul plane, with a range of 4,200 nautical miles.
Embraer called the Lineage an ultra-large business jet, and was expected to position it against the
Boeing Business Jet7. The first Lineage aircraft, which was priced around $41 million8, was
scheduled to enter service in late 2006. The Lineage was the newest addition to Embraers range of
business jets, which included the Legacy 600, the Phenom 100, and the Phenom 300.
As of mid-2006, Embraer was the fourth largest aviation company in the world (in terms of aircraft
deliveries), behind Airbus SAS (Airbus), The Boeing Company (Boeing), and Bombardier
Aerospace (Bombardier) (Refer Exhibit I for a note on the aviation industry and the profiles
of major aircraft manufacturers). In addition to business jets, Embraer also manufactured
commercial, military and agricultural aircraft (Refer Exhibit II).
1
2
3
4
5
6
People Express Airlines was a low cost airline that operated in the US between 1981 and 1987.
Jonathan Wheatley, Diane Brady and Wendy Zellner, Brazil's Embraer Hits the Stratosphere,
BusinessWeek, April 19, 2004.
An aerospace and defense consulting firm based in the US.
Russ Mitchell, The Little Aircraft Company That Could, Fortune, November 14, 2005.
Geri Smith, Embraer: An Ugly Duckling Finds Its Wings, BusinessWeek, July 31, 2006.
Regional passenger jets are small aircraft usually seating between 70 and 110 people, and generally used
by airlines on short haul flights or on low traffic routes.
The Boeing Business Jet family, introduced in the late 1990s, consisted of a series of aircraft based on the
Boeing 737 design platform. The jets could seat between 25 and 50 passengers depending on the cabin
configuration.
Dollars ($) refers to US dollars in this case study.
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Embraer was set up in the late 1960s, as a public sector enterprise by the Brazilian government.
After some initial successes, the company ran into trouble in the late 1980s, and was privatized in
1994. Under private management, Embraer concentrated on developing regional jets, which pitted
it directly against Canada-based Bombardier (the first company to introduce regional jets) in the
aviation market. Embraer made a major foray into business jets with the successful launch of its
Legacy 600 in 2000. After this, analysts said that the company was well positioned to take
advantage of the rapidly growing market for small and mid-sized aircraft and business jets in the
early 2000s. In 2005, Embraer had a net income of $446 million from revenues of $3.8 billion, and
employed nearly 17,000 people (Refer Exhibit III for Embraers key performance indicators).
BACKGROUND NOTE
Embraer was set up on July 29, 1969 by Brazils Ministry of Aeronautics. It was the culmination
of the countrys aviation ambitions,9 which began to take shape in the 1940s when the Brazilian
government formed the General Command for Aviation Technology (CTA - Centro Tcnico
Aeroespacial) in 1946, and the Aeronautics Technological Institute (ITA - Instituto Tecnolgico de
Aeronutica) in 1950.
The CTA was a unit of the Brazilian Air Force, and was the national military research center for
aviation and aerospace. It coordinated all technical and scientific activities related to aerospace on
behalf of the Brazilian Ministry of Defense. The ITA was a government-sponsored engineering
institution and one of the most prestigious colleges in Brazil. It was set up by the Brazilian
government to nurture and develop engineering talent in the country. It was a part of the CTA, and
its facilities, including its laboratories and R&D centers, were located on the CTA campus. Both
the CTA and the ITA played an important role in the 1950s with respect to aeronautical training
and development in Brazil.
Over the years, CTAs Research and Development wing, the IPD10, worked on several aircraft
projects for the Brazilian government. Most of these projects were commissioned by the Brazilian
Air Force and were not for commercial use, but through them IPD acquired considerable expertise
in aircraft technology.
In 1965, IPD was commissioned by the Brazilian Air Force to design and manufacture a turboprop
biplane11 to replace its aging fleet of medium range aircraft. The project, which was known
internally as the IPD-6504, was led by French engineer Max Holste, who helped design the
aircraft. The aircraft was later named Bandeirante12. A prototype of the Bandeirante flew for the
first time in 1968.
The following year, the Brazilian government decided to put the Bandeirante into commercial
production, and established a state owned company, Embraer, based in Sao Jose dos Campos in the
Sao Paulo state of Brazil, for the purpose (Refer Exhibit IV for a note on Brazil and its
9
10
11
12
Since the early 1900s, the Brazilian government had made several unsuccessful attempts at building
aircraft. However, it was only after the end of the Second World War (1939-1945) that the government
started systematically investing in the necessary infrastructure to develop the capital-intensive aviation
industry. Several government supported programs were launched after the War, which resulted in the
creation of the CTA and ITA
IPD stood for Instituto de Pesquisas e Desenvolvimento, or the Research and Development Institute. The
IPD was later known as the IAE (Instituto de Aeronutica e Espao or the Aeronautics and Space
Institute). IPD was set up in 1954.
A turboprop engine is a type of gas turbine engine, which uses most of its power to drive a propeller.
Turboprop engines are generally used on small or slow subsonic aircraft, although there may be
exceptions. A biplane is a fixed-wing aircraft with two main wings of similar spans; normally one set of
wings is mounted on the top part of the aircrafts fuselage, and the other is on level with the underside of
the fuselage.
Bandeirante means pioneer in Portuguese.
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economy). When Embraer was set up, it had 500 employees (many of whom were from the CTA
and the ITA), and was headed by Ozires Silva (who had played an important role in developing the
Bandeirante prototype). The companys initial target was to build two Bandeirante aircraft a
month.
The first few Bandeirante were delivered to the Brazilian Air Force in 1973. In the same year, the
company also recorded its first commercial sale of the aircraft when TransBrasil13 bought one
Bandeirante. In 1975, Embraer started exporting the Bandeirante, and eventually sold 500 aircraft
in over 35 countries before its production was halted in the early 1990s. The success of the
Bandeirante served to enhance the companys reputation in the global aviation industry.
In the early 1970s, Embraer also began manufacturing agricultural planes for the Brazilian
government. Through the 1970s, Embraer developed several models of aircraft for the government
as well as commercial clients. Embraers noteworthy products in the 1970s were the Xingu (which
was the companys first pressurized aircraft14) and the Tucano (which was its first combat aircraft).
The Tucano was considered to be one of the most advanced military training aircraft at that time,
and was later used by the defense forces of 14 countries including the UK and France.
In the late 1970s, Embraer started developing a new aircraft, the Brasilia, which was a turboprop
regional plane with a capacity of 30 to 40 passengers. 15 The Brasilia was certified in May 1985, and
the first aircraft was sold to the US-based Atlantic Southeast Airlines (ASA)16 in the same year. At
the time of its launch, the Brasilia was the fastest and lightest aircraft in the 30 to 40 seat range.
In the early 1980s, Embraer collaborated with Aeritalia (later known as Alenia Aeronautica) and
Aermacchi (both Italian aircraft manufacturing companies) to develop a subsonic fighter plane.
This project, known as the AMX Program, gave Embraer access to new technologies, which were
to play an important role in its future.
The second half of the 1980s however, turned out to be a dark period for Embraer. In the late 1980s,
Embraer had partnered with FMA (later known as Lockheed Martin Aircraft Argentina)17, to
manufacture the CBA 123 Vector plane (Vector), which was supposed to be the most advanced
turboprop aircraft at that time. True to expectations, the Vector prototype included some of the best
technologies of the time. But the aircrafts prohibitive price led to its commercial failure. The project,
which had cost $300 million, was eventually cancelled without even a single plane being sold.
The failure of the Vector, combined with the new Constitution of 1988 (which reduced the
governments support to the aviation industry)18, and the end of the Cold War19 (which led to
reduced interest in defense matters), resulted in serious financial trouble for Embraer.
13
14
15
16
17
18
19
TransBrasil was a Brazilian International Airline. The airline stopped operating in December 2001.
In pressurized aircraft the cabin pressure is maintained at levels close to the ambient atmospheric
pressure at around 8000 feet or less, even when the aircraft is flying at much higher altitudes.
The production of Brasilia officially ended in 2002, with 350 units sold.
Atlantic Southeast Airlines is an airline based in Atlanta, Georgia.
The Fbrica Militar de Aviones (FMA, or Military Aircraft Factory) was Argentinas main manufacturer
of military aircraft. Formed on October 10, 1927, it was owned by the Argentinean government until
1995, when it was bought by Lockheed Martin. Lockheed Martin is a leading aerospace manufacturer
and advanced technology company formed in 1995 by the merger of Lockheed Corporation with Martin
Marietta. It is headquartered in Maryland, USA.
Brazil has had a number of constitutions over the years. As of 2006, the constitution in effect was the one
ratified in October 1988. The Constitution of 1988 was promulgated under the presidency of Jos Sarney,
and was the seventh constitution of Brazil.
The Cold War was the protracted geopolitical, ideological, and economic struggle between capitalism
and communism that emerged after World War II, centering around the global superpowers of the United
States and the Soviet Union, and their military alliance partners. It lasted from about 1947 to the period
leading to the collapse of the Soviet Union on December 25, 1991. Between 1985 and 1991 Cold War
rivalries first eased and then ended. (www.wikipedia.com)
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Being a government company, Embraer had lacked a business orientation, and failed to stay in
touch with the changes in the business environment over the years. Its products, though
technologically advanced, no longer matched the markets needs. In the early 1990s, Embraer
drastically cut costs and laid-off more than 50 percent of its employees (from nearly 13,000
employees in 1990, only around 6,100 remained in 1994). In fiscal 1994 Embraer posted $250
million in revenue and $330 million in loss.20
PRIVATIZATION AND TURNAROUND

In December 1994, Embraer was privatized by the Brazilian government. Even after the
privatization, the government retained a golden share with veto power which gave it control over
strategic issues like sale of shares to foreign investors, employee relationships, and the terms of
sale of aircraft to the military. Control over the company was acquired by a syndicate of Brazilian
investors, consisting of the Bonazo Group (a holding company with interests in industrial and
financial ventures) and two of Brazils largest government-owned pension funds, Previ21 and
Sistel.22 Each of these investors held 20 percent of the voting capital of the company.
Mauricio Botelho (Botelho), the former Executive Director of the Bozano Group, became the new
President and CEO of Embraer. Botelho was a mechanical engineer, who had previously worked
in the construction and telecommunications sectors in Brazil. He had had no experience in the
aviation industry, but Embraers board apparently had confidence in his ability to revive the
company.
Within two months of joining Embraer, Botelho unveiled a strategic turnaround plan to the board.
The plan for the first two years of the turnaround period was to concentrate on improving
productivity and regaining solvency. Although Embraer had already laid off a large part of its
workforce over the early 1990s, Botelho believed that more job cuts were needed in the interests of
productivity. Against the advice of many of his associates, he approached Embraers union leaders
to negotiate further layoffs.
At this time, relations between Embraers management and the trade unions were tenuous, and
verged on open conflict. Therefore it was not easy to push for more layoffs. But Botelho reportedly
approached the union leaders and offered to share his business plan with them. The union leaders
agreed to talk, and Botelho opened Embraers books to them, and explained his turnaround
strategy. He proposed laying-off 600 workers and imposing a 10 percent cut in wages for the rest,
with overtime hours reduced by half. He promised the union that he would build up the workforce
after Embraer achieved a turnaround.
The union leaders analyzed Botelhos plan with the help of an outside consultant. After two weeks
of deliberation, the union agreed to cooperate on the condition that, like the rest of the workers,
Botelho and the rest of the top management also take a 10 percent pay cut. Botelho agreed and the
union finally assented to the layoffs and wage cuts.
Botelho said later that this was the turning point in the revival of Embraer. The management had
proved that it was committed to the company and its workers, and the workers had in turn
embraced the turnaround efforts.23
20
21
22
23
Sandra Arnoult, Interview: Embraers President and CEO Mauricio Botelho, Air Transport World,
August 2006.
Previ was the Bank of Brazil employees pension fund. It was the largest pension fund in Brazil.
The pension fund of Brazilian telecom major Telebras. Telebrs was the Brazilian state-owned monopoly
telephone system, which was broken up in July 1998 into twelve separate companies and privatized.
Edvaldo Pereira Lima, Flying high: Embraers Mauricio Botelho has taken a flagging, state-owned
company and turned it into the fourth-largest aircraft maker in the world Profile, The Chief Executive,
January-February, 2003.
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Creating a Customer-centric Organization

After securing the unions support, Botelho started implementing his turnaround strategy. He
realized that while the company faced no dearth of technical talent (Sao Jose dos Campos, where
the headquarters of Embraer was situated, was one of the most technically advanced cities in
Brazil, and was home to several institutions from where Embraer recruited qualified engineers),
Embraers management and workers lacked a business orientation. Botelho recalled that when he
first joined the company, he asked the acting CEO what Embraers business was. Reportedly, the
reply was, Our business is to manufacture aircraft. Botelho recalled telling him, You are wrong.
Your business is not to manufacture aircraft. If it is, why not just put a machine to work turning
out airplanes? Youll have plenty on the tarmac, and then what? Your business is to serve your
customer. 24 In the past, as a government-owned company, Embraer had been largely insulated
from the competition in the highly dynamic global aviation industry. However, Botelho understood
that the post-privatization Embraer had to be distinctly customer-oriented. To this end, he started
making several changes at the company to bring about a market-focused approach to business.
To emphasize the importance of being customer-oriented, Botelho pointed to the example of the
ill-fated Vector, the Embraer aircraft that had failed to sell despite its technical superiority.
According to Botelho, the Vector was a plane designed by engineers for pilots while ignoring
the customer. He said that it exemplified the danger of giving engineers so much free rein that they
forgot to focus on customer needs. Reportedly, after he took over, Botelho insisted on having a
picture of the Vector in Embraers offices, as a constant reminder of the dangers of forgetting the
customer.25
Botelho also reorganized Embraer, creating five new profit centers. Three of these profit centers
focused on specific geographic regions; the fourth was for light aircraft; and the fifth for
government sales. Botelho put an entrepreneur in charge of each profit center with the specific
task of improving customer relationships.
However, Botelho did not make any drastic personnel changes. For example, instead of bringing in
new marketing professionals, he trained the existing engineers to direct their skills towards
customer needs and expectations in every project they undertook. He also launched a program to
provide onsite training in business administration for all managers, and announced that all lower
level workers would be brought up to a high school level of education. Botelho also made very few
changes in the top management, retaining most of the senior managers and bringing in only three
new top executives from outside.
FOCUS ON REGIONAL JETS

When Botelho became the CEO of Embraer, with projects running behind schedule, most of the
companys new product development initiatives were in a shambles. Consequently, Embraer had
few products that showed commercial potential. An exception was the ERJ-145 project26, which
had been launched in 1989. The ERJ-145 was a 50-seat regional passenger jet, which was being
designed to compete against Bombardiers comparable CRJ-20027 aircraft.
In 1995, Botelho cancelled all other projects and staked Embraers future on the ERJ-145. This
was an extremely risky move for Embraer, as Bombardier clearly dominated the market for
regional jets at that time. Besides, Embraer had little experience in manufacturing jet passenger
aircraft. Turboprop aircraft (which the company had considerable experience in designing and
manufacturing) were cheaper to build, but were not very popular with passengers and airlines as
they were noisy and the ride bumpy. Therefore, Botelho believed that regional jet planes were a
better option for the company.
24
25
26
27
David J. Lynch, Comeback kid Embraer has Hot Jet, Fiery CEO to Match, USA Today, March 7, 2006.
ERJ stood for Embraer Regional Jet.
CRJ stood for Canadair Regional Jet. At that time, in addition to the CRJ-200, the Bombardier regional
jet family included the CRJ-100 and the CRJ-440.
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Subsequently, the development of the ERJ-145 was carried out in a very systematic manner.
Embraer studied the regional jet market carefully to understand the needs and requirements of
airlines that used regional jets. Funds to develop the ERJ-145, however, were not easy to come by.
Embraer took a $98 million loan from the Brazilian government to fund the project, with more
money being provided by Embraers new owners The Bonazo Group, Previ and Sistel. In
addition to this, Embraer also entered into partnerships and technical alliances with companies like
Parker Hannifin Corporation28, Allison Engine Company29, and Honeywell Space and Aviation
Control (Honeywell)30, who collaborated on producing the parts for the plane.
The ERJ-145 flew for the first time in August 1995, and Embraer made the first delivery of the
aircraft to ExpressJet Airlines (the regional division of US-based Continental Airlines) in
December 1996. More orders soon followed, and the ERJ-145 went on to become a major
commercial success. During the second half of the 1990s, as the market for regional jets expanded,
market leader Bombardier did not have the capacity to meet the increased demand. Embraer
moved in to take advantage of the situation. Embraers planes were also cheaper than those of
Bombardier, because of the lower cost of labor in Brazil.
Between 1995 and 1997, the revenue per employee at Embraer rose from $75,000 to $185,000.
Embraer returned to profitability in the third quarter of 1997, and in fiscal 1997, the company
posted a net income of three million dollars on revenues of $764 million. In 1998, this increased to
a net income of $145 million, from revenues of $1.3 billion.
The success of the ERJ-145 prompted the company to focus on making regional jets to take
advantage of the expanding market. Over the late 1990s, Embraer added new models to the ERJ145 family, launching the ERJ-135 and the ERJ-140, which were modified versions of the ERJ145. By the end of the 1990s, a total of 192 aircraft31 from the ERJ-145 family were delivered to
various commercial airlines.32
THE E-JET ERA

The success of the ERJ-145 demonstrated the potential for regional jets and prompted Embraer to
consider manufacturing a full range of regional jets to tap more segments of the market. For a
better understanding of the regional jet market, Embraer surveyed more than 60 airlines around the
world. The survey indicated that the segment for mid-sized regional jets was greatly under-served.
Bombardier was the leader in the 50-seat jet segment, while Boeing and Airbus competed in
the 130-seat segment. However, no aircraft were available in the 70 to 110-seat segment. This
also seemed to be the segment with the maximum potential. (According to analyst estimates,
more than 60 percent of all flights in the US had been taking off with passenger headcounts in
this range.) 33
28
29
30
31
32
33
Parker-Hannifin Corporation manufactures fluid power systems, electromechanical controls, and related
components. Its aerospace segment offers hydraulic and primary flight control systems that include
hydraulic, electrohydraulic, and electromechanical components used for control of aircraft rudders,
elevators, ailerons, and other aerodynamic control surfaces and utility hydraulic components. The
company is based in Ohio in the US.
Allison Engine Company was a US based manufacturer of aircraft engines. It was acquired by RollsRoyce Plc. in 1995 to become a subsidiary, Rolls-Royce Corporation.
Honeywell Space and Aviation Control was a part of Honeywell International Inc., a major US based
conglomerate with interests in aerospace, automation and control systems, specialty materials and
transportation systems.
This number does not include the ERJ-140 as the commercial deliveries for this aircraft started in 2001.
Embraer Annual Report 2000.
Jonathan Wheatley, Diane Brady and Wendy Zellner, Brazils Embraer Hits the Stratosphere,
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Although some of the smaller Boeing and Airbus aircraft could be (and were being) used to serve this
segment, analysts said that these planes came with the same avionics and engineering as the larger
planes, and hence were not cost effective. Airlines are operating with the wrong aircraft, and theyre
making a loss, said Botelho.34 So, Embraer decided to concentrate on this segment. It was decided that
the new Embraer planes would fill the gap between 50-70 seat regional jets and larger jets.
The project was announced at the Paris Air Show in 1999. Embraer said that it would introduce
four aircraft in what was to be known as the Embraer Jet or more commonly, the E-Jet family.
The four new planes the E-170, E-175, E-190 and E-195 were to span the 70-110 seat market.
The aircraft shared several features, with only minor differences. For instance, the wings and
engines of the E-170 and E-175 were the same, and they only differed in fuselage length and
maximum take-off weight. The same applied to the E-190 and E-195. Reportedly, the four aircraft
had 89 percent commonality. The prices of the aircraft were to start from $20 million 35 (Refer
Table I for the seating capacity of the E-Jets vis--vis that of Bombardiers regional jets).
Table I
Seating Capacities: Embraer and Bombardier Aircraft

Embraer
Bombardier
Aircraft
Seating Capacity
Aircraft
Seating Capacity
E-170
70-80
CRJ-440
40-44
E-175
78-88
CRJ-100/200
up to 50
E-190
98-114
CRJ-700
64-75
E-195
108-122
CRJ-900
86-90
Compiled from various sources.
The E-Jets were designed to allow airlines to operate short haul flights and to fly between
secondary cities where it was not cost effective to operate larger planes. Usually, on secondary
routes the passenger traffic was not enough to make the operation of a 150-seat aircraft viable, and
many of the aircraft on these routes often took off with empty seats. Because of this, airlines either
avoided serving secondary routes, or risked increasing costs by flying half-empty planes. The EJets were designed to address this problem by providing an aircraft that would allow airlines to
serve these routes in the most cost effective way possible.
Embraers engineers developed a new design for the aircraft, with an innovative fuselage design,
which the company called the double bubble. (The aircrafts top half was wide and tall like a big
jet, while the lower half was narrow like a small plane.) This design gave passengers more head
and shoulder space in the cabin, while retaining most of the efficiencies of a smaller aircraft body.
The cabin was configured for a single aisle with two seats on each side, which meant that every
passenger had either a window seat or an aisle seat, doing away with the unpopular middle seat.
This was aimed at making flying more comfortable for passengers, who reportedly disliked the
cramped design and narrow fuselages of small regional planes.
Embraer estimated that the development costs for the E-Jets would be around one billion dollars.
Funds to meet a part of the project cost were raised through an issue of American Depository
Receipts (ADRs), which were listed on the New York Stock Exchange in June 2000.36 Embraer
issued 52.8 million new shares and raised $244.2 million. The syndicate of Brazilian investors in
Embraer also sold a part of their stake raising $202.6 million.
34
35
36
The company had previously been listed in Brazil, on the Sao Paulo Stock Exchange (Bovespa) in 1989.
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In addition to this, Embraer enlisted 16 cost sharing partners for the project, including the General
Electric Company (GE) to develop the engines, and Honeywell to make the cockpit information
system. The partners were to bear about one-third of the total project cost, and according to the
contract they signed with Embraer, would share in the profits if the project succeeded.
Most of Embraers partners in the E-Jets project were international firms operating from outside
Brazil, but as the project evolved, many of these companies set up subsidiaries and offices in
Brazil to achieve production and logistic efficiencies. For instance, in the early 2000s, US-based
C&D Aerospace built a plant in Brazil to supply Embraer with cabin interiors for its jets. Another
American firm, Pilkington Aerospace also built a factory in Brazil to supply Embraer with aircraft
windows. Other examples were ENAER, a Chilean firm that supplied the rear fin and other parts,
and Gamesa, a Spanish firm that made engine parts, who built manufacturing facilities near Sao
Jose dos Campos.
However, despite its partnerships with some of the leading aerospace companies in the world,
Embraer retained the development of the aircrafts fuselage (thought to be one of the most critical
and technically complex aspects in aircraft design) with itself. (Previously, to obtain greater
technological expertise, Embraer had invited Thales Avionics (Thales), 37 Dassault Aviation
(Dassault)38 European Aeronautic Defense and Space Company (EADS)39, and SNECMA,40 all of
whom were leaders in various aspects of electronic systems and industrial electronics in the
aerospace industry, to become shareholders in the company. The consortium formed by these four
companies acquired 20 percent of Embraers shares in 1999. Thales, Dassault and EADS acquired
5.67 percent of the shares each, while SNECMA acquired 2.99 percent.41)
The E-Jets project was one of the most technologically advanced projects undertaken by Embraer.
For this project, the company used virtual mockups (instead of physical ones) and 3D modeling
technology for the first time, to evaluate designs and improve the time-to-market of the new
aircraft. Virtual mockups allowed Embraer to visualize the aircraft and correct design problems
without having to go through the cumbersome process of building multiple physical models.
Among the E-Jets, the E-170 was the first to be flight-tested in February 2002, followed by the E175, the E-190 and the E-195. The aircraft made an impact on the aviation market very soon after
their launch. They were popular mainly because of the element of passenger comfort they brought
to the regional jet market. Additionally, they were also reported to be cheap to operate and
maintain, and could achieve break-even even on routes where they had to fly half-full. This was an
important consideration for airlines, which were facing a decline in passenger numbers after the
September 11, 2001 attacks42.
37
38
39
40
41
42
A part of the France-based Thales Group, Thales Avionics is a leading international aircraft avionics
manufacturer supplying complete aircraft avionics systems and customized products for all types of
aircraft. Before 2000, the Thales Group was known as Thomson-CSF.
A major French manufacturer of civil and military aircraft.
EADS is a global leader in aerospace, defense and related services. The group includes the aircraft
manufacturer Airbus, the world's largest helicopter supplier Eurocopter and the joint venture MBDA, the
international leader in missile systems. EADS emerged in 2000 from the link-up of the German
DaimlerChrysler Aerospace AG, the French Aerospatiale Matra and CASA of Spain.
SNECMA was formed as Socit Nationale d'tude et de Construction de Moteurs d'Aviation in 1945.
The name is roughly translates as National Company for the Study and Construction of Aviation
Engines. In 2005 Snecma merged with Sagem, a major French conglomerate with interests in defense
and consumer electronics and telecommunications, to form SAFRAN.
www.wikipedia.com
On September 11, 2001, terrorists hijacked four planes in the US. Two were flown into the twin towers of
the World Trade Center while one was flown into the Pentagon. One aircraft crashed into a wooded area
in Pennsylvania.
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Embraer also marketed the E-Jets aggressively. In 2001, even before the E-Jets were flight tested,
Botelho reportedly sent a DVD to Robert Milton (Milton), the then CEO of Air Canada, asking
him to take a look at the mock-up of the interiors of the new planes, which were being trucked
around North America at that time.
Air Canadas headquarters were located next to those of Bombardier, and the airline had had a
long standing relationship with the Canadian aircraft manufacturer. Milton was hesitant to consider
unproven Brazilian aircraft. But he said that the DVD whetted his curiosity, and he went to check
out the planes. Apparently, one look at the cabin and interiors convinced him that the new aircraft
had immense potential. Eventually, Air Canada ordered 15 E-175 planes.43
The biggest order for the E-Jets came in mid-2003, from US based low cost airline JetBlue
Airways Corp. (JetBlue), which placed an order for 101 E-190s, with another 100 on option, in a
deal valued at approximately six billion dollars (including the options).44 This order was
particularly significant, as JetBlue, like most other low cost airlines, had stuck to flying a uniform
fleet of aircraft until then. At the time of the order, JetBlue had a fleet of Airbus A320s. Most
analysts had expected the airline to opt for the Airbus A318 if it expanded its fleet to include
smaller aircraft. The Airbus A318 shared many features with the A320, and would contribute to
the operational efficiency of the airline.
But JetBlues CEO David Neeleman (Neeleman) said that when the companys management
evaluated the new E-Jets family, they were quite impressed. When they looked at it, it was like,
Not only is this not a risk, its probably a risk if we dont do this, he said.45
The success of the E-Jets made Embraer a competitor to Boeing and Airbus, as the E-Jets were
comparable to some of the smaller models manufactured by the two majors. Analysts said that the
regional jets manufactured by Bombardier and Embraer were suddenly making a huge impact on
the aviation industry, which until the late 1990s had been dominated by Boeing and Airbus.
The increasing demand for regional jets could be attributed to the growing number of low cost
airlines around the world in the late 1990s and early 2000s. Low cost airlines tried to work with
maximum efficiency so as to cut costs and keep fares low. Therefore, on some routes they did not
find it economical to fly large aircraft. The regional jets allowed airlines to match capacity with
passenger demand. They were also more efficient than larger jets on short or medium haul flights
and allowed for faster turnarounds46, which allowed the aircraft to spend more time in the air.
THE EMBRAER - BOMBARDIER FACE-OFF

Competition in the market for regional jets intensified in the late 1990s. Until the launch of the
ERJ-145, Bombardier had been the dominant player in the regional jet market, with its family of
CRJ aircraft. (Bombardiers CRJ-100, delivered to Lufthansa in 1992, had been the first 50-seat
jet aircraft in aviation history.)
At the end of 2005, Bombardier had more orders and deliveries than Embraer. But Embraer had
more orders on hand. Besides, the net increase in the number of orders over the previous year was
higher for Embraer than for Bombardier. The regional jet market had also been growing very
43
44
45
46
Jeff Fischer, JetBlue Changes Planes, www.fool.com, June 10, 2003.
Turnaround time is the time that an aircraft that has just landed needs to spend on the ground before it is
ready to take off again.
10
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rapidly since the mid 1990s (According to Fortune, a prominent business magazine, the market for
regional jets had grown by 1,000 percent in Europe and around 1,400 percent in the US between
1995 and 2005)47.
Bombardier had an established reputation in the aviation industry, while Embraer tended to be
viewed as an upstart from the developing world. Bombardiers planes were also thought to be
technologically more advanced than those of Embraer. However, Embraers lower manufacturing
costs gave it an advantage in the market. Assembling an aircraft is a labor-intensive process. Being
based in a developing country, Embraer had access to cheap labor, which translated into lower
manufacturing costs.
Moreover, Embraer had access to a large pool of skilled engineers and technicians. As of mid
2006, nearly 35 percent of Embraers employees had at least a graduate level education (nearly
4000 employees were engineers). In addition to this, 63 percent of the employees had high-school
level education. The company recruited regularly from the several technology institutes in the Sao
Paulo region, and the ITA too was an important source of potential recruits.
Embraer also invested in developing the education infrastructure in Brazil. In the early 2000s,
Embraer launched an intensive, 18-month aeronautical engineering program. The graduates from
the program were recruited to work at Embraer. The first batch of 164 students graduated in
August 2002.
In 2002, Embraer set up a school in Sao Paulo to provide quality education to poor students in that
region. The school, named after Juarez Wanderley, a former head of Embraer, took in 200 students
every year for the 10th Grade slot as of the early 2000s. The quality of education at the school
(which had cost Embraer $2.7 million48 to set up) was top notch, and the company also assisted the
students in pursing higher qualifications by providing stipends. It was reported that more than 40
percent of the students from the school went on to become engineers. In 2006, the company
upgraded the laboratories at the school at a cost of $16,000 each, to provide students with a
foundation in engineering subjects at high school level.
While Embraer did not promise employment with the company to the students it sponsored, it did
rely heavily on local talent for its workforce. Reportedly, employees at the company felt a sense of
pride in working for Embraer.
But rival Bombardier said that Embraer was taking advantage of cheap labor and government
subsidies to undercut its prices in the regional aircraft market. It said that Embraers planes were
inferior to Bombardier planes, and that the former was able to survive in the industry only because
of government support and lower manufacturing costs.
According to Embraer it needed the subsidies and government support because it did not have
access to developed capital markets as Bombardier did. It also said that the CEOs of innovative
airline companies had understood the value of Embraers planes and were willing to buy them
because of the efficiencies they offered.
The Dispute Goes to the WTO

In the late 1990s, Bombardier filed a complaint against Embraer at the World Trade Organization
(WTO), alleging that the latter was using the Brazilian governments export subsidies to gain a price
advantage in the international market. Embraer received direct loans from BNDES49 at subsidized
interest rates under the banks PROEX Scheme (Programa de Financiamento as Exportacoes) which
was set up to promote exports. (Under PROEX, Brazilian companies engaged in export were eligible
for interest subsidies.) In addition to this, the purchasers of Embraer aircraft were also eligible for
interest subsidies if they took loans from the BNDES to finance the purchase.
Geri Smith, Embraer Helps to Educate Brazil, BusinessWeek, July 31, 2006.
49
Banco Nacional de Desenvolvimento Econmico e Social, Brazils state-owned development bank
provided medium and long term financing to industries.
47
48
11
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According to Bombardier, these subsidies allowed Embraer to undercut competitors prices in the
international aviation market. In early 2000, the WTOs Dispute Settlement Body ruled that Embraer
stop the BNDES subsidies. In late 2000, Bombardier made the allegation that the export subsidies
under the PROEX program were continuing despite the WTOs ruling earlier that year, and appealed to
the government of Canada to impose trade sanctions on Brazilian imports into the country.
Subsequently, Canada was permitted by the WTO to impose trade sanctions to the tune of $1.4 billion
against Brazilian imports over a period of five years, as the WTOs Dispute Settlement Body found that
Brazils export subsidies program did contravene the 1994 WTO Subsidies Agreement. Brazil
appealed against this decision at the WTOs Appellate Body, but the ruling was upheld.50
In 2001, Brazil filed a complaint against Bombardier saying that Canadas Technology Partnership
Program and its export credit program provided subsidized government loans to Air Wisconsin,
allowing Bombardier to win a 75-plane $1.68 billion contract from the airline. The WTO ruled
against Canada in this dispute, permitting Brazil to impose $248 million in counter-trade measures
against the former, which then agreed to make modifications to its export programs.
Analysts said that Bombardiers decision to take the matter to the WTO showed its determination
to defend its turf in the face of the increasing popularity of Embraers aircraft. Doug Abbey, the
executive director of the Regional Air Service Initiative, an industry advocacy group based in
Washington said, Embraer is the risk-taking company that Bombardier used to be.51
Embraer for its part said that its rivals were attempting to obstruct a technologically advanced
product for fear that it would be more popular than their own products. The problem is that there
is no level playing field, said Embraer spokesman Henrique Rzezinski.52
BUSINESS JETS AND MICROJETS THE EMERGING TREND

In the early 2000s, analysts were predicting a growing market for microjets small aircraft with a
takeoff weight between 5000 and 10,000 lbs, seating less than 20 passengers. These aircraft were
usually bought by companies for their higher level executives, or by operators of air taxi services,
although some were bought for personal use as well. Business jets, on the other hand, were not
necessarily small, although they too were used for similar purposes.
In the early 2000s, Embraer announced the launch of several models of microjets and business
aircraft, including the Legacy 600, the Lineage 1000, and the Phenom 100 and Phenom 300.
The Legacy 600 aircraft, a business jet launched in 2000, was based on the ERJ-145 platform. It
was a 16-seat aircraft and had a range of 3,250 nautical miles. The Legacy 600 was pitted against
Bombardiers Canadair Challenger in the mid-to-upper end of the market. Embraer also launched
another version of the Legacy 600 called the Legacy Shuttle, which was designed as a regular
commercial passenger plane with the same range and size as the Legacy 600.
The Phenom 100 and Phenom 300 projects were announced in New York in May 2005. The
Phenom 100 was to be designed as a very light jet, while the Phenom 300 was categorized as a
light jet. Both would have the capacity to carry eight or nine passengers.
The Phenom family of aircraft would also be designed with the double bubble fuselage, giving
passengers more room in the cabin. The interiors of the cabin would be designed by BMW
DesignWorks USA, and according to Embraer, would have a sleek, modern look. The Phenoms
were to be priced between $2.75 million and $6.65 million.53 The Phenom 100 aircraft was
expected to enter service in mid-2008, and the Phenom 300 in mid-2009.
50
51
52
53
Canada however, never imposed the sanctions against Brazil, but started subsidizing aircraft purchase
loans to match those offered by Brazil.
Tim Padgett, Dogfight, Time, April 28, 2003.
Americas Jet Trade Row escalates, bbc.co.uk, April 17, 2001.
Brian Gorman, Embraer Thinks Small, www.fool.com, May 6, 2005.
12
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In May 2006, Embraer announced that it had received orders for 50 Phenom 100 aircraft, with an
option on another 50, from Geneva-based airline JetBird. (The options could later be converted
into additional orders for the Phenom 300 as well.) The order was valued at around $140 million.
The first planes were to be delivered to JetBird in 2009.
Embraers management said the market potential for business jets was good in the early 2000s.
The market for light and very light jets was also thought to be expanding in both the US and
Europe at this time. According to the companys estimates in 2005, demand for microjets would
increase by 3,000 units by 2015.54
However, the competition in this segment was likely to be intense. In the early 2000s, microjets
were being developed by several other companies. Some of the companies manufacturing
microjets as of 2006 were Eclipse Aviation55, Cessna Aircraft56, Adam Aircraft57 and Honda
Motors58.
THE OUTLOOK FOR EMBRAER

Embraer was one the largest and most successful companies in Brazil. In the years 1999, 2000 and
2001, it was Brazils largest exporter. According to the companys website, between 1995 and
2005, Embraer had accounted for eight billion dollars of Brazils trade balance. Analysts
acknowledged that Embraer contributed significantly to Brazils economic development and had
had a positive impact on the countrys international image. The international press often refers to
Brazil with the perception that we burn our forests, we kill our children, we do not pay back our
debts, we steal their patents. I dont deny some of those things happen, but they are not the
fundamental Brazil. We feel we represent another side of Brazil that is not very well perceived,
said Botelho.59
However, although Embraers performance since its privatization has been remarkable, some
doubts have been expressed as to whether the going will continue to be smooth. One of the biggest
obstacles to Embraers growth in the aviation market came from the scope clauses that were a
part of the pilot contracts of most large, unionized airlines around the world (particularly in the
US). Scope clauses prevented airlines from operating regional carriers, as pilots were paid higher
salaries for flying bigger planes. If regional planes became more common, then pilots would either
be paid lower salaries, or the airlines would have to employ new pilots willing to fly regional
planes, thus reducing the flying hours for the pilots of the larger aircraft.
In the early 2000s, most of the airlines were negotiating with their pilots to remove some of
the restrictiveness of the scope clauses, but not much progress had been made. The only
airlines that were not burdened by scope clauses were non-union airlines, chiefly low cost
airlines like JetBlue.
54
55
56
57
58
59
Brian Gorman, Embraer Thinks Small, www.fool.com, May 6, 2005.

Eclipse Aviation, a US based company, was launching a six seater jet called Eclipse 500. The aircraft was
expected to be fully certified by late 2006.
Cessna was based in Kansas, USA, and was one of the oldest aircraft manufacturers in the industry. The
Cessna Citation Mustang was a six seat microjet which was certified in mid 2006. Commercial deliveries
of the aircraft were expected to start in 2007.
Adam Aircraft was a Colorado, USA based aircraft manufacturer. The companys eight seat AdamJet
A700 was launched in the early 2000s, with the prototype flying in 2003. The first commercial delivery
was made in early 2006.
Honda Motors was a Japanese car manufacturer. In early 2006, the company announced that it would
start taking orders for a very light jet called the HondaJet by the end of the year. In 2005, Honda had
unveiled a prototype of the HondaJet, but predicted that it might not get the necessary certification to start
commercial delivery until 2008-2009.
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Another potentially troublesome development for Embraer was the resurgence in the popularity of
turboprops in the wake of the fuel price rise in 2003-2004. In 2004 the deliveries and order
backlogs for turboprops rose after declining for several years (Refer Exhibit V). In 2005, the
orders for the turboprops manufactured by Bombardier and ATR 60 rose 240 percent to 151 aircraft,
while the new orders for small regional jets (30 to 80 seats)61 numbered 25.
The biggest beneficiary of the revival of turboprops was ATR, which recorded a total of 90 net
orders62 in 2005 for its ATR 42 and ATR 72 turboprops. Bombardiers Dash 8 Q family of
aircraft also saw an increase in net orders in 2005. On the other hand, most of the small regional
jets of both Bombardier and Embraer recorded zero or negative net orders in 2005, the exception
being the CRJ-440 (Refer Exhibit VI for more details on the order and delivery positions for
regional aircraft). Bombardier suspended the production of the CRJ-200 in January 2006.
(Production was restarted in April 2006, when the CRJ-200s fuselage was used as the platform for
Bombardiers Challenger 850 business jet). Embraer also announced that it would cut the
production of its small regional jets significantly.
The increasing interest in turboprops was expected to have a greater impact on Embraer than on
Bombardier, as the latter manufactured both turboprops and jets. Embraer, on the other hand, had
stopped manufacturing turboprops after its privatization. Orders for Embraers ERJ-145 family
declined drastically in 2004-2005, and the company recorded positive net orders only for its E-Jets
in 2005.
But the E-Jets had their own share of problems. The E-170 took almost two years to be certified,
because of the complications involved in integrating its avionics with its other systems. JetBlue,
the largest customer for the E-Jets, also announced that it faced some technical problems with the
E-190s that Embraer had started delivering to the airline in mid 2005. In February 2006, JetBlue
reported its first quarterly loss after its 2002 IPO.63
Analysts said that at least some of JetBlues financial problems could be attributed to the lower
than expected utilization rates of the E-190 aircraft. The problems with the E-Jets prompted some
analysts to comment that, in its hurry to occupy the large regional jet niche, Embraer had failed to
conduct adequate quality checks on the planes. However, as of mid 2006, most of the problems
with the E-Jets had been rectified, and the airlines using them were reportedly satisfied with their
performance.
Competition in the regional jet market was expected to increase with the entry of manufacturers
from Russia, the Commonwealth of Independent States (CIS), and China. In 2005, the Antonov
An-148 70-seat regional jet, manufactured by Ukranian aircraft manufacturer Antonov ASTC,
received its first firm orders from Ilyushin Finance Co., a Russian aircraft leasing company.
KrasAir, the fourth largest domestic airline in Russia, also signed a $270 million lease agreement
for ten An-148 aircraft with an option on five units.
The Sukhoi SuperJet 100 (formerly known as the Russian Regional Jet and produced by Russian
aerospace firm Sukhoi Corporation), and the ARJ21 (Chinas first indigenously designed
passenger jet, manufactured by the Chinese government owned consortium AVIC I Commercial
Aircraft Company), were also gaining momentum and were expected to enter the market in 2008
and 2009 respectively.
60
61
62
63
Italian-French consortium Aerei da Trasporto Regionale or Avions de Transport Rgional (ATR),

manufactured short haul turboprops. ATR had two main models as of mid 2006 the ATR 42 and ATR
72, with passenger seating capacities of up to 60 and 74 respectively.
Includes CRJ440, CRJ100/200, ERJ135, ERJ140 and ERJ145.
Increment of total orders over the previous year.
Gregory Polek, Final E-Jet Cleared for August Service Entry, Aviation International News, August 2006.
14
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In August 2006, Embraer signed a deal with the HNA Group of China. The deal, valued at $2.7
billion, was for 50 ERJ-145 aircraft and 50 E-190 aircraft. Embraer had a regional jet production
facility in China known as the Harbin Embraer Aircraft Industry Company Ltd. (set up in 2002 as
a joint venture with Harbin Aircraft Manufacturing Corp. (Harbin), Chinas fourth largest aircraft
manufacturer), which it would use to manufacture half of the 100 jets.64
Analysts were of the opinion that having a production facility in China helped Embraer gain easy
access to the Chinese market, which was growing at a rate of 8 to 10 percent annually in the early
2000s65, and also avoid the six percent value added tax that China imposed on imported planes. 66 It
would also provide a good base for Embraer to manufacture aircraft for other airlines in the rapidly
growing Asian region. They said Bombardier would have to cut prices drastically if it had to beat
Embraer in China. (Bombardier had earlier turned down an offer of a joint venture with Harbin,
because it believed that demand for 50-seat planes in China was weak.)
Some industry observers were of the opinion that, having ventured into mid-sized regional aircraft
with some success, Embraer might well consider developing large passenger jets (like those made
by Boeing and Airbus) in the future. However, most analysts felt that Embraer still had a long way
to go before it could be considered to be in the same class as Boeing and Airbus. For one thing,
designing and manufacturing large passenger jets required huge investments, which Embraer
would find difficult to obtain as the capital markets in Brazil were not well developed.
Embraer could not look to its existing investors for infusion of fresh capital as the two pension
funds Previ and Sistel had already invested the maximum they could under Brazilian law. 67 The
company could also not raise funds through the equity market by issuing new shares without
additional capital injections from existing shareholders.68 Foreign investment would be subject to
the approval of the Brazilian government, and it was unlikely that the government would allow
foreign investors to acquire a majority stake in the company, as Embraer also manufactured
military planes for the Brazilian Air Force.69
As the companys production was strongly skewed towards exports, Embraer was vulnerable to
changes in the global economy. In 2005, only 7.9 percent of the companys revenues came from
Brazil. After the WTOs ruling against Brazils export subsidies, there was a possibility that
Embraer might no longer be able to compete in the international market on the basis of low prices.
In 2006, Embraer announced that two Brazilian airlines Varig and TAM had expressed an
interest in buying Embraer planes. At the time of the announcement, Varigs fleet consisted of 19
Boeing jets and four McDonnell-Douglas aircraft. TAMs fleet consisted of 66 Airbus jets and 22
Fokker aircraft.
A large part of Embraers revenue (more than 70 percent) also came from commercial aviation.
This too could be considered a weakness as commercial aviation was very sensitive to changes in
the international economic scenario. Another problem was that commercial airlines generally made
64
65
66
67
68
69
As of mid 2006, Embraer had Embraer had five plants in Brazil in three different locations in that state,
as well as subsidiaries, offices, technical assistance and supply parts distribution centers in China,
Singapore, the United States, France and Portugal.
Aerospace Industry Market Brief 2005 China Summary, www.buyusainfo.net (accessed on October
10, 2006)
Since 2001, China has imposed an import-stage value added tax of 6 percent on aircraft weighing more
than 25 tons, and a 17 percent import-stage VAT on aircraft weighing less than 25 tons to protect the
domestic regional jet suppliers. Aerospace Industry Market Brief 2005 China Summary,
www.buyusainfo.net
According to Brazilian law, the funds could invest a maximum of five percent of their net worth or 20
percent of the companys capital. Previ and Sistel had already touched these levels. www.embraer.com
www.embraer.com.br/institucional/download/2_Embraer-AI-Meeting-Corporate-Overview-2006.pdf
Robert Plummer, Embraer shows Brazils Aviation Flair, bbc.co.uk, December 6, 2005.
15
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large one-time purchases only when they upgraded their fleets. Consequently, there was the
possibility of large fluctuations in sales from year to year. However, in 2005-2006, Embraer had
announced that it would systematically increase its focus on defense aircraft and government
contracts, to expand the contribution of defense from 11 percent to 20 percent of sales (Refer
Exhibit VII for the breakup of Embraers revenue by region and segment).
In 2005, Embraer signed a Memorandum of Understanding with the Defense Research and
Development Organization (DRDO) of India to support the development of the Indian Air Forces
new Airborne Early Warning & Control (AEW&C) system. The new asset would be based on the
EMB 145 Intelligence, Surveillance and Reconnaissance (ISR) platform, which was one of the
best selling ISR platforms in the world. Analysts said that this represented a return to its roots for
Embraer, which had originally started out with military contracts.
In early 2006, Embraer announced that the company would be restructured to improve its access to
capital markets and to enhance the quality of corporate governance and standards of transparency
at the company. The proposal was approved by a majority of the companys shareholders on
March 31, 2006. Under the restructuring, Embraer was merged with Rio Han, a company
specifically created for the purpose. Embraer ceased to exist after the merger, and all its
shareholders (preferred as well as common) received common shares from Rio Han (which was
renamed (EMBRAER Empresa Brasileira de Aeronutica S.A.) to replace their old shares. The
government also received a golden share (Refer Exhibit VIII for more information on
Embraers restructuring).
Botelho also announced that he would step down as the CEO of the company in April 2007, and
would be succeeded by Fred Curado, the Executive Vice President of the regional aircraft business
at Embraer. Botelho however, would remain as chairman until April 2009.
According to analysts, Embraer was a showpiece of the benefits of privatization. They said that the
companys experience demonstrated that firms from developing countries could compete and grow
even in technology-intensive and highly competitive international markets.
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Exhibit I
The Aviation Industry and Profiles of Major Aircraft Manufacturers

The aviation sector includes all the industries, activities and regulatory bodies that are
involved with the production and operation of aircraft and all their components. It includes
civil aviation, military aviation, air transport services (passenger and cargo) and air traffic
control. Some of the major aircraft manufacturers in the world are The Boeing Company,
Airbus SAS, Bombardier Aerospace and Embraer, and smaller players like the Italian-French
consortium Aerei da Trasporto Regionale or Avions de Transport Rgional (ATR), which
manufacture short-haul turboprops.
Traditionally, the US has been a dominant force in the aviation industry, with many of the
major civil and military aircraft manufacturers (Boeing, Lockheed Martin and McDonnell
Douglas) being based there. But with the setting up of Airbus in 1970, Europe also emerged
as a major force.
In the early 2000s, the fastest growing market for aviation was in Asia, with China recording the
highest growth. In late 2005, Airbus forecast that Chinas air travel sector would grow by eight
percent a year for the next two decades while Rolls-Royce, which supplies aircraft engines,
estimated that growth would be nine percent. Boeing estimated a 7.3 percent growth.70
The demand in the civil aviation sector has also been positively influenced by the increasing
number of low cost airlines in the USA, Europe and Southeast Asia in the early 2000s. The
low cost airline boom primarily increased the demand for medium-range, mid-sized single
aisle aircraft.
A brief profile of some of the major aircraft manufacturers:
The Boeing Company: Boeing, founded in 1916 and headquartered in Chicago in the US, is
one of the major aviation and aerospace companies in the world. In 2005, the company was
the worlds largest civil aircraft manufacturer in terms of value (with 49 percent of orders and
45 percent of deliveries), overtaking competitor Airbus for the first time since 2000 (although
in terms of number of orders, Airbus was still the leader with 1,111 orders to Boeings 1,029
in 2005)71. Boeing was also the second largest defense contractor behind Lockheed Martin.
As of 2005, Boeing was the largest exporter in the US, serving customers in 145 countries across
the world. Boeings major commercial jets were the Boeing-737, the Boeing-747, Boeing-767,
and Boeing-777. The Boeing-787 Dreamliner was due to enter service in 2008. As of mid 2006,
Boeing employed more than 155,000 people in 67 countries. In the financial year ended
December 2005, Boeing had a net income of $2.5 billion on revenues of $54.8 billion.
Airbus SAS: Airbus initially started out as a consortium of European aviation firms that
came together to compete with American companies like Boeing and McDonnell Douglas.
What was first known as Airbus Industrie, was set up in 1970 following an agreement
between Sud-Aviation (France) and Deutsche Airbus, a German aerospace consortium. The
group was joined by CASA of Spain in 1971. Airbus Industrie was based in Toulouse in
France. In 2000, DaimlerChrysler Aerospace (the successor to Deutsche Airbus),
Arospatiale (the successor to Sud-Aviation) and CASA merged to form European
Aeronautic Defence and Space Company EADS NV (EADS). In 2001, BAE Systems
(formerly British Aerospace) and EADS formed Airbus Socit par actions simplifie
(Simplified Joint Stock Company) or Airbus SAS, in a 20:80 joint venture.
Contd
70
71
Chinas Aviation Boom Drives World Market, www.spacemart.com, September 21, 2005. (accessed on
October 3, 2006).
From company annual reports. Boeing was expected to overtake Airbus in orders in 2006, after it
recorded 487 orders for the first six months of 2006, as against Airbuss 117 orders.
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Contd
Some of Airbuss major commercial aircraft include the single-aisle A318, A319, A320,
A321 and the wide-body A300, A310, A330, A340 models with capacities ranging from
about 110 to 400 passengers. The Airbus A380, the largest aircraft in the world, with a
capacity to seat 555 passengers, was expected to enter service in the second half of 2007, two
years behind its original schedule. In financial year 2005, Airbus had revenues of 22.3
billion (approximately $28.3 billion). The company employed 55,000 people in mid 2006.
Bombardier Aerospace: Bombardier Aerospace was a division of the Bombardier Inc.
which also had interests in railways. Bombardier Aerospace was formed in 1986, after
Bombardier took over the government-owned Canadair aircraft manufacturing company after
it had recorded the largest corporate loss in Canadian business history. Over the years,
Bombardier Aerospace acquired several other ailing aircraft manufacturers including the
Kansas, USA-based Learjet Company, which built the popular Learjet business aircraft.
In the early 2000s, Bombardier Aerospace manufactured regional commercial jets, business
aircraft, defense related services and fire fighting aircraft. Some of the companys aircraft
included the Canadian Regional Jet (CRJ) family of aircraft, the Challenger family of
extended range jets, the Global series of aircraft, the Dash-8 Q regional turboprops and the
Learjet business jets. In fiscal year end January 2006, Bombardier Aerospace contributed
$8.08 billion of Bombardier Inc.s $14.7 billion revenue.
The following table shows the aircraft deliveries by the major manufacturers in 2004 and 2005:
Deliveries
Total Units
as of
December
2005
Units
2005
Units
2004
Seats
2005*
Seats
2004*
A318
28
10
963
1,070
A319
793
142
87
17,112
10,664
A320
1,469
121
101
18,150
15,150
A321
341
17
35
3,145
6,475
A300/A310
801
12
A330
385
56
47
17,542
12,815
A340
313
24
28
9,420
9,612
A350
A380
4,130
378
320
66,332
55,786
ATR**
689
15
13
930
786
717-200
150
13
12
1,378
1,272
737-600
59
330
550
737-700
709
94
109
11,844
13,734
AIRBUS
Contd
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Contd
737-800
928
104
79
16,848
12,798
737-900/900ER
52
1,062
1,062
BBJ/BBJ2
86
757
1,049
11
400
2,415
767
935
10
1,452
2,421
777
539
40
36
13,596
14,152
747-400
642
13
15
832
4,192
747-8
787
BOEING
5,149
290
285
47,742
52,596
BOMBARDIER**
2,042
158
195
9,803
11,292
967
141
148
7,914
7,607
1,410
43
32
2,640
1,886
TOTAL-JETS
11,567
939
929
130,081
126,181
TOTAL
12,977
982
961
132,721
128,067
EMBRAER**
TOTAL-PROPS
*Estimate; excludes freighter/corporate variants.

Includes delivery of 21 Legacy/Military Derivatives in 2005 and 14 in 2004.
** The breakup of the deliveries of ATR, Bombardier and Embraer is provided in Exhibit IV.
Source: Commercial Aircraft (>30-Pax) Orders and Deliveries - December 31, 2005; Aircraft Currently
In Production/Development. www.speednews.com, (accessed on September 29, 2006).
The following table shows the indicative prices of some aircraft (in millions of US dollars):
Manufacturer/
Model
2001
2002
2003
2004
2005
106.9
109.3
111.8
114.4
117.0
A310-300
84.4
86.3
88.3
90.3
92.3
A318
40.9
41.8
42.8
43.8
44.8
A319
47.0
48.1
49.2
50.3
51.5
A320
52.2
53.4
54.6
55.8
57.1
A330
131.9
134.9
138.0
141.2
144.4
A340
126.3
129.2
132.1
135.2
138.2
A340-600
161.1
164.8
168.5
172.4
176.3
A380
257.7
263.6
269.6
275.8
282.1
AIRBUS
A300B4-600
Contd
19
307-102-1
Contd
BOEING
737-600
45.2
46.2
47.3
48.4
49.5
737-900
67.0
68.5
70.1
71.7
73.3
747-400
197.4
201.9
206.5
211.2
216.0
767-200ER
108.1
110.6
113.1
115.7
118.3
767-400ER
134.0
137.0
140.2
143.4
146.6
777-200
164.5
168.2
172.1
176.0
180.0
777-300ER
218.9
223.9
229.0
234.2
239.5
787-3
118.7
121.5
124.2
127.1
130.0
CL-600
26.6
27.2
27.8
28.5
29.1
CL-600 BD700
42.3
43.3
44.3
45.3
46.3
CRJ900
29.7
30.3
31.0
31.7
32.5
ERJ-135
19.4
19.9
20.3
20.8
21.3
ERJ-140
21.5
22.0
22.5
23.0
23.5
ERJ-145
23.5
24.1
24.6
25.2
25.7
BOMBARDIER
EMBRAER
Note: Average prices based on the high and low list prices published by the manufacturers. Prices vary
with the configuration, engines, avionics, special features, options included in the final airplane and the
quantity ordered. Typical discounts on these list prices are from 5 to 15%.
Source: From Aircraft Prices and Values, AirGuideOnline.com.
http://www.airguideonline.com/aircr_prices.htm (Accessed on October 4, 2006).
This information in this exhibit was compiled from several sources, including http://biz.yahoo.com,
www.hoovers.com, www.boeing.com, www.airbus.com, www.bombardier.com and www.wikipedia.com.
20
307-102-1
Exhibit II
Embraers Products
Category
Product
Commercial Aviation Market
Embraer-170
Embraer-175
Embraer-190
Embraer-195
ERJ-135
ERJ-140
ERJ-145
ERJ-145 XR
Defense and Government

Market
Super Tucano
AMX
EMB 145 AEW&C
EMB 145 RS/AGS
P-99
Executive Aviation Market
Legacy 600
Legacy Shuttle
Phenom 100
Phenom 300
Agricultural Aviation Market
EMB 202 Ipanema
Note: The Phenom 100 and the Phenom 300 were scheduled to enter service in mid 2008
and mid 2009 respectively.
Source: Annual Report 2005, www.embraer.com.
Bombardiers Products
Category
Product
Narrow-Body
Learjet 40/40 XR
Business Jets
Learjet 45/45 XR
Learjet 60/60 XR
Wide-Body
Challenger 300
Business Jets
Challenger 604
Challenger 605
Challenger 800 Series1
Bombardier Global 5000
Global Express/Global
Express XRS
21
307-102-1
Category
Product
Regional
CRJ200
Jets
CRJ700
CRJ705
CRJ900
Turboprops
Q200
Q300
Q400
Source: Annual Report 2005, www.bombardier.com.
Exhibit III
Embraer: Key Performance Indicators

Revenue and Net Income (In millions of US $)
4500
4000
3500
3000
2500
2000
1500
1000
500
0
1997
1998
1999
2000
2001
REVENUE
2002
2003
2004
2005
NET INCOME
Adapted from Building a Globally Competitive Company, www.embraer.com, July 2006.

Contd
22
307-102-1
Contd
Employees
20000
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Jun06
Revenue per employee (in thousands of US$)

350
300
250
200
150
100
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
23
307-102-1
Exhibit IV
Brazil and its Economy

The Federated Republic of Brazil is the largest country in South America and the fifth largest
in the world, in both area and population. The country is considered to be a regional leader
and economic power in South America. Brazil was formerly a colony of Portugal, and
Portuguese is the official language. Brazils capital is Brasilia, located in the central western
region of the country, and the largest city is Sao Paulo (the capital of the state of Sao Paulo)
located in the southeast (the most developed region in the country).
Brazil has vast natural resources and agricultural lands, and a substantial pool of labor. In
2005 the countrys Gross Domestic Product (GDP) at Purchasing Power Parity (PPP) was an
estimated $1.568 trillion. Brazil has a well developed service sector, which contributed more
than 50 percent of the GDP in 2005. In the same year, agriculture contributed approximately
10 percent of the GDP and 40 percent came from industry. According to the estimates of the
International Monetary Fund and the World Bank, Brazil ranks ninth in the world in terms of
GDP (PPP). The per capita income of Brazil in 2005 was estimated to be $8,584 (which put it
in the sixty-eight position in the world rankings), and the GDP growth rate over the previous
year was 2.3 percent.
Brazils main industries are automobiles, steel, aircraft, petrochemicals, consumer durables
and computers. The country has considerable mineral resources, making mining an important
occupation. The major export products of Brazil are aircraft, iron ore, coffee, steel, vehicles,
soybean, orange juice, footwear, textiles, and electrical equipment. As of 2005, the US was
Brazils biggest export destination, with more than 20 percent of the countrys exports
directed there. Brazil also imported machinery, transport equipment, oil and chemicals from
the US and other countries.
Before the early 1990s, Brazil had a government dominated economy. But in the early 1990s,
the government introduced the Plano Real72, which was a set of measures taken to correct
and improve Brazils economy. The government embarked on a massive privatization drive
in 1993-1994, after which several companies were divested. The Brazilian legislature also
passed several amendments which facilitated the greater participation of private and foreign
investors in the countrys economy.
In 1999, the Brazilian Central Bank delinked the countrys currency Real from the US dollar,
which resulted in a major devaluation of the Real. The Real continued depreciating until late
2002, after which it recovered steadily. In Brazil, the symbol R$ is used before the number
and the decimal separator is a comma (,).
As on October 4, 2005, 1US Dollar was equal to 2.17 Brazilian Real.
Refer to Chart I for the trends in the exchange rate between the Real and the US dollar. Chart II
gives the exchange rates of the Canadian Dollar against the US dollar. As on October 4, 2006,
1US Dollar was equal to 1.12 Canadian Dollars.
Contd
72
Portuguese for Real Plan.

24
307-102-1
Contd
Chart I: Brazilian Real to One US Dollar
Source: Currency Converter, http://finance.yahoo.com.
Chart II: Canadian Dollar to One US Dollar
Source: Currency Converter, http://finance.yahoo.com.

The information in this exhibit was compiled from several sources including www.wikipedia.com, 2006
CIA World Fact Book, (accessed on October 4, 2006 from www.theodora.com) and www.britannica.com.
25
307-102-1
Exhibit V
Deliveries and Order Backlog: Regional Jets Versus Turboprops

REGIONAL AIRCRAFT DELIVERIES
400
342
350
319
309
302
317
300
251
250
200
150
117
92
100
59
50
29
33
43
2003
2004
2005
0
2000
2001
2002
Jets
Turboprops
REGIONAL AIRCRAFT BACKLOG
1400
1286
1228
1200
1000
885
823
800
641
600
470
400
200
134
169
91
54
49
61
2001
2002
2003
2004
0
2000
Jets
2005
Turboprops
Source: Max Kingsley-Jones Turboprops Bounce Back, Flight International, February 03, 2006.
26
307-102-1
Exhibit VI
Orders and Deliveries of Regional Aircraft
Deliveries
Total
Units
Orders
Units
Units
Seats
Seats
2005
2004
2005*
2004*
Gross
Units
Gross
Units
2005
2004
Total
Orders
Dec. 31,
05
Total
Orders
Dec. 31,
04
Net
Change
Total
Undelivered Orders
ATR 42
382
210
210
17
398
381
+17
16
ATR 72
307
10
720
576
73
11
380
307
+73
73
ATR
689
15
13
930
786
90
12
778
688
+90
89
86
12
33
528
1,452
11
86
75
+11
CRJ100/200
931
35
75
1,750
3,750
104
950
1,019
-69
19
CRJ700
240
64
52
4,555
3,640
52
16
304
261
+43
64
CRJ900
39
14
15
1,260
1,350
14
20
59
45
+14
20
Challenger 800
25
29
24
+5
Q100
299
299
299
Q200
96
98
96
+2
Q300
220
450
400
10
19
241
231
+10
21
Q400
106
18
10
1,260
700
49
12
163
114
+49
57
2,042
158
195
9,803
11,292
150
173
2,229
2,164
+65
187
108
74
37
123
123
15
CRJ440
BOMBARDIER
ERJ135
27
307-102-1
Deliveries
Total
Units
Orders
Units
Units
Seats
Seats
2005
2004
2005*
2004*
Gross
Units
Gross
Units
2005
2004
Total
Orders
Dec. 31,
05
Total
Orders
Dec. 31,
04
Net
Change
Total
Undelivered Orders
ERJ140
74
94
94
20
ERJ145
667
46
87
2,300
4,350
29
677
684
-7
10
EMBRAER 170
92
46
46
3,220
3,220
42
35
198
158
+40
106
EMBRAER 175
14
14
1,120
15
22
15
+7
EMBRAER 190
12
12
1,200
36
45
191
155
+36
179
EMBRAER 195
14
29
15
+14
29
967
141
148
7,914
7,607
102
126
1,334
1,244
+90
367
EMBRAER
*
Estimate; excludes freighter/corporate variants
Includes delivery of 21 Legacy/Military Derivatives in 2005 and 14 in 2004.
Source: Commercial Aircraft (>30-Pax) Orders and Deliveries - December 31, 2005 Aircraft Currently In Production/Development. www.speednews.com, (accessed
on September 29, 2006).
28
307-102-1
Exhibit VII
Embraer: Revenue by Region and Segment

Revenue by Region (%)
Americas
67.5
Europe
14.6
Brazil
7.9
Others
10.0
Revenue by Segment (%)

Commercial Aviation
70.6
Defense Aviation
11.0
Executive Aviation
7.3
Customer Support and

Others
11.0
Adapted from Building a Globally Competitive Company, www.embraer.com.
29
307-102-1
Exhibit VIII
Embraers Restructuring
A. Embraers Shareholding Pattern as of December 30, 2005
December 30, 2005
Shareholders
Common
shares (%)
Preferred
shares (%)
Interest
(%)
Caixa de Previdncia dos Funcionrios do

Banco do Brasil Previ
23.35
12.32
16.03
Fundao Sistel de Seguridade Social
20.00
0.03
6.74
Cia Bozano
20.00
3.92
9.32
1.86
1.23
BNDES Participaes S.A. BNDESPAR
1.44
9.02
6.47
Dassault Aviation (1)
5.67
0.41
2.17
Thomson CSF/Thales (1)
5.67
0.41
2.17
EADS (1)
5.67
0.41
2.17
(1)
3.00
0.22
1.15
Federal Government
0.75
0.10
0.33
Other
14.45
71.30
52.22
Total
100%
100%
100%
Bozano Holdings, Ltd.
Safran
Note: Total common shares were 242,544,448; Total preferred shares were 479,287,609; Total shares
were 721,832,057.
(1)
European shareholders
Source: NM Project: Descriptive Memorandum

www.embraer.com, (Accessed on October 04, 2006).
of
the
Transaction,
January
13,
2006
B. Embraers Shareholding Pattern after the Restructuring

Shareholder
Shareholding %
Brazilian Government
0.3
BNDESPAR
6.3
Sistel (Pension Fund)
7.4
Previ (Pension Fund)
16.4
Bonazo Group
11.1
Shares listed on Bovespa
17.9
Shares listed on NYSE
40.6
Total
100%
Note: Total shares were 738,611,820

Source: Company Overview: Building a Globally Competitive Company, July 2006, Embraer Investor
Relations Kit, www.embraer.com, (Accessed on October 04, 2006).
Contd
30
307-102-1
Contd
C. Embraers Capital Structure after the Conclusion of the First Stage of Restructuring
Bozano, Previ and Sistel1
(Controlling Group)
ON and PN Shareholders2
Federal Government
Rio Han1
(Control Shares subject to
Shareholders' Agreement)
Golden Share
Embraer
1
2
Control Shares.
All other preferred and common shares, including Bozano, Sistel and Previ shares not bound to the
Shareholders Agreement, European Shareholders and shares bound to Embraers ADR program.
Source: NM Project: Descriptive Memorandum

of
the
Transaction,
January
13,
2006
D. New Embraers Structure after the Merger
Bozano, Previ and Sistel1

(Controlling Group)
Former Shareholders2 of
common and preferred shares
New Embraer
Federal Government
Golden Share
New Embraers shares received by the Control Group in exchange for replace the Control Shares.
New Embraers shares received by the other holders of Embraers common and preferred shares not
bound to the Shareholders Agreement and bound to Embraer ADR program.
Source: NM Project: Descriptive Memorandum of the Transaction, January 13, 2006 www.embraer.com,
(Accessed on October 04, 2006).
31
307-102-1
References and Suggested Readings:

1. A Very Big Deal, The Economist, December 4, 1997.
2. Lawrence L. Herman, Brazil versus Canada A Primer in WTO Dispute Settlement,
Legal Alert, July 2000, www.casselsbrock.com (accessed on September 22, 2006).
3. Lorenz Winter, Embraer Successfully Expands its Regional Jet Family, Flug Revue,
www.flug-revue.rotor.com, September 2000 (accessed on September 28, 2006).
4. Small is Beautiful, The Economist, March 15, 2001.
5. Americas Jet Trade Row Escalates, bbc.co.uk, April 17, 2001.
6. WTO Issues Final Report in Aircraft Dispute, http://w01.international.gc.ca, January
28, 2002 (accessed on September 28, 2006).
7. Edvaldo Pereira Lima, Flying High: Embraers Mauricio Botelho has taken a Flagging,
State-owned Company and turned it into the Fourth-largest Aircraft Maker in the
World Profile, The Chief Executive, January-February, 2003.
8. Tim Padgett, Dogfight, Time, April 28, 2003.
9. Jeff Fischer, JetBlue Changes Planes, www.fool.com, June 10, 2003.
10. Fred Reed, Embraer Takes off With Sale to Jetblue, The Washington Times, June 25, 2003.
11. Jonathan P. Doh, The Bombardier-Embraer Dispute and its Implications for the
Western Hemisphere, Policy Papers on the Americas Volume XIV, Study 12, December
2003, http://www.ciaonet.org/wps/doj06/doj06.pdf, (accessed on September 22, 2006).
12. Jonathan Wheatley, Diane Brady and Wendy Zellner, Brazil's Embraer Hits the
Stratosphere, BusinessWeek, April 19, 2004.
13. Brian Gorman, Embraers Bigger Plans, www.fool.com, July 20, 2004.
14. Tim Hepher and Jean-Michel Belot, Airbus Claims Top Spot over Boeing in 2004,
news.yahoo.com, January 12, 2005 (accessed on September 26, 2006).
15. Sean Silcoff, Embraer Jettisons its Jungle Jet Roots, Financial Post, March 26, 2005.
16. Rick Aristotle Munarriz, When the Sky Really Is the Limit, www.fool.com, April 18, 2005.
17. Brian Gorman, Embraer Thinks Small, www.fool.com, May 6, 2005.
18. Rich Smith, Embraer Hits Turbulence, www.fool.com, May 19, 2005.
19. Stephen D. Simpson, Somethings in the Embraer, www.fool.com, August 15, 2005.
20. Stephen D. Simpson, Flying the Profitable Skies, www.fool.com, November 4, 2005.
21. Rich Smith, Foolish Forecast: Embraer on the Radar, www.fool.com, November 11, 2005.
22. Russ Mitchell, The Little Aircraft Company That Could, Fortune, November 14, 2005.
23. Stephen D. Simpson, Headwinds at Embraer, www.fool.com, November 14, 2005.
24. Joe Sharkey, Air Taxi Anyone? The New York Times, November 15, 2005.
25. Embraer Reveals the Phenom 100 and the Phenom 300 at
www.defesanet.com.br, November 10, 2005 (accessed on September 18, 2006).
Nbaa,
26. Robert Plummer, Embraer shows Brazils Aviation Flair, bbc.co.uk, December 6, 2005
27. Stuart. F. Brown, The Light Jet Age, Fortune, December 26, 2005.
32
307-102-1
28. Commercial Aircraft Orders and Deliveries

www.speednews.com, (accessed on September 29, 2006).
December
31,
2005,
29. NM Project: Descriptive Memorandum of the Transaction, January 13, 2006

30. Max Kingsley-Jones Turboprops Bounce Back, Flight International, February 03, 2006.
31. Embraer Bullish on Asia-Pac jet market, The Business Times, February 20, 2006.
32. Gregory Polek and Elizabeth Johnson, Reorganization proposed for Embraer, Aviation
International News, February 2006.
33. David J. Lynch, Comeback kid Embraer has Hot Jet, Fiery CEO to match, USA
Today, March 7, 2006.
34. Stephen D. Simpson, Uplifted on Embraer, www.fool.com, April 3, 2006.
35. 6th U.S. Analyst and Investor Meeting, www.embraer.com, April 12, 2006 (accessed on
September 28, 2006).
36. Embraer wins $400m Saudi Jet Deal, bbc.co.uk, March 28, 2006.
37. Embraer Receives First Fleet Order in Europe for 50 Phenom 100, PRNewswire,
www.airportbusiness.com, May 3, 2006.
38. Christopher Plameri, Snarl in the Sky, BusinessWeek, June 5, 2006.
39. Chad Trautvetter, Embraer Thinks Big with the Lineage 1000, Aviation International
News, June 2006.
40. Falling Demand for Airbus Planes, bbc.co.uk, July 11, 2006.
41. Tim Beyers, Will Embraer Fly? www.fool.com, July 19, 2006.
42. Taking the Taxi to Higher Heights, New York Times, July 26, 2006.
43. Del Quentin Wilber, Little Jets Poised To Alter Business Travel, The Washington Post,
July 28, 2006.
44. Geri Smith, Embraer: An Ugly Duckling Finds Its Wings, BusinessWeek, July 31, 2006.
45. Geri Smith, Embraer Helps to Educate Brazil, BusinessWeek, July 31, 2006.
46. Company Overview: Building a Globally Competitive Company, July 2006, Embraer
Investor Relations Kit, www.embraer.com, (Accessed on October 04, 2006).
47. Embraers Board of Directors appoints Mauricio Botelhos successor, PRNewswire,
www.reuters.com, August 4, 2006.
48. Time Beyers, Embraer Takes Off, www.fool.com, August 14, 2006.
49. Embraer Announces First Latin American Charter Customer for the Phenom 100
and Phenom 300 Business Jets, PRNewswire, August 18, 2006.
50. Embraer Wins Bumper Chinese Order, bbc.co.uk, August 31, 2006.
51. Sandra Arnoult, Interview: Embraers President and CEO Mauricio Botelho, Air
Transport World, August 2006.
52. Gregory Polek, Final E-Jet Cleared for August Service Entry, Aviation International
News, August 2006.
53. 2006 CIA World Fact Book, (accessed on October 4, 2006 from www.theodora.com.
33
307-102-1
54. Aircraft Prices and Values, AirGuideOnline.com,

aircr_prices.htm (accessed on October 4, 2006).
www.airguideonline.com/
55. High Flyers: Brazil, Volume One, Science and Technology, tcdc.undp.org (accessed on
56. Embraers New Capital Structure, Investor Relations, www.embraer.com (accessed on
57.
Brazilian Companies Stake their Ground at the NYSE, www.brazilinfocenter.org,

(accessed on September 27, 2006).
58.
Aerospace Industry Market Brief 2005 China Summary, www.buyusainfo.net

(accessed on October 10, 2006).
59. Embraer Annual Report 2000, www.embraer.com.

60. Embraer Annual Report 2005, www.embraer.com.
61. Bombardier Annual Report 2005, www.bombardier.com.
62. Airbus Annual Report 2005, www.airbus.com.
63. http://biz.yahoo.com.
64. www.hoovers.com.
65. www.boeing.com.
66. www.airbus.com.
67. www.bombardier.com.
68. www.britannica.com.
69. www.wikipedia.com.
34

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ICMR Center for Management Research

Embraer: The Brazilian Aircraft Manufacturers Turnaround and

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Embraer: The Brazilian Aircraft Manufacturers

EMBRAER LAUNCHES NEW BUSINESS JET

PRIVATIZATION AND TURNAROUND

Creating a Customer-centric Organization

FOCUS ON REGIONAL JETS

THE E-JET ERA

Seating Capacities: Embraer and Bombardier Aircraft

Compiled from various sources.

THE EMBRAER - BOMBARDIER FACE-OFF

The Dispute Goes to the WTO

BUSINESS JETS AND MICROJETS THE EMERGING TREND

THE OUTLOOK FOR EMBRAER

Brian Gorman, Embraer Thinks Small, www.fool.com, May 6, 2005.

Italian-French consortium Aerei da Trasporto Regionale or Avions de Transport Rgional (ATR),

The Aviation Industry and Profiles of Major Aircraft Manufacturers

*Estimate; excludes freighter/corporate variants.

Commercial Aviation Market

Defense and Government

Executive Aviation Market

Agricultural Aviation Market

EMB 202 Ipanema

Source: Annual Report 2005, www.bombardier.com.

Embraer: Key Performance Indicators

Adapted from Building a Globally Competitive Company, www.embraer.com, July 2006.

Adapted from Building a Globally Competitive Company, www.embraer.com, July 2006.

Revenue per employee (in thousands of US$)

Adapted from Building a Globally Competitive Company, www.embraer.com, July 2006.

Brazil and its Economy

Portuguese for Real Plan.

Chart I: Brazilian Real to One US Dollar

Source: Currency Converter, http://finance.yahoo.com.

Chart II: Canadian Dollar to One US Dollar

Source: Currency Converter, http://finance.yahoo.com.

Deliveries and Order Backlog: Regional Jets Versus Turboprops

REGIONAL AIRCRAFT BACKLOG

Estimate; excludes freighter/corporate variants

Includes delivery of 21 Legacy/Military Derivatives in 2005 and 14 in 2004.

Embraer: Revenue by Region and Segment

Revenue by Segment (%)

Customer Support and

Adapted from Building a Globally Competitive Company, www.embraer.com.

Caixa de Previdncia dos Funcionrios do

Fundao Sistel de Seguridade Social

BNDES Participaes S.A. BNDESPAR

Dassault Aviation (1)

Thomson CSF/Thales (1)

Bozano Holdings, Ltd.

Source: NM Project: Descriptive Memorandum

B. Embraers Shareholding Pattern after the Restructuring

Sistel (Pension Fund)

Previ (Pension Fund)

Shares listed on Bovespa

Shares listed on NYSE