Embraer:

Contents [hide] 1 Basic Information of Embraer: The Global Leader in Regional Jets 2 Case Summary of Embraer: The Global Leader in Regional Jets 3 Case Analysis of Embraer: The Global Leader in Regional Jets 4 External Link of Embraer: The Global Leader in Regional Jets 5 Relevent File Cabinet of Embraer: The Global Leader in Regional Jets 6 Article Purchase Link of Embraer: The Global Leader in Regional Jets

Basic Information of Embraer: The Global Leader in Regional Jets

Author: Pankaj Ghemawat, Gustavo A. Herrero, Luiz Felipe Monteiro
Publisher: HBR
Case Number: 9-701-006
Publication Date: Jul 10, 2000
Course Category: Strategy

Case Summary of Embraer: The Global Leader in Regional Jets

2006 snapshot (not in the case):
- Embraer is the 4th largest commercial aircraft manufacturer in the world behind Boeing, Airbus and Bombardier, with revenues US 3.8 billion in 2006.
- Revenues streams in 2006: 72% commercial aircraft, 15% business jets, 7% services (training, material management, spare parts, repair and overhaul) and 6 % defense products.
- Embraer has opened a US$50-million plant in Harbin in 2004, the capital of Northeast China's Heilongjiang Province and has recently announced an important sale of 100 aircrafts to a Chinese operator for its 100 seat platform (Embraer 190). For several analysts this sale is considered strategically important.
- In 2006 Embraer had a workforce of almost 20,000employees and had announced that will be hiring 4,000 employees in 2007 to support the production of its new business jet products.

Embraer’s History
Embraer was created in 1969 as a state owned company in Sao Jose dos Campos (55 miles from Sao Paulo – largest city of Brazil). At the time aeronautics was a priority for the country given its limited transportation infrastructure.
The creation of supporting institutes and education centers was fundamental to the establishment of an aeronautical company in Brazil.
- ITA – Aeronautical Technology Institute – a renowned aeronautical engineering school (initially run by MIT professors brought by the Brazilian Government).
- CTA – Aeronautical Technical Center
- IPD – Research and development Institute
In addition, as a state owned company Embraer has received from the government some special benefits such as:
- Tax incentives - For several years Embraer did not pay taxes and duties on imported material and other corporations had an incentive to invest in Embraer (tax deductible).
- Government agencies would only buy aircrafts and services from Embraer – this made Embraer an “excellent” partner for any company aspiring to sell aeronautical products or services in the Brazilian market (Aeromachi from Italy was one the first companies to partner with Embraer – Xavante project).

Product Evolution
- 1973 - Bandeirante (turboprop) was the 1st important product to launch Embraer’s name internationally – 500 units sold.
- 1985 – Launched the Brasilia (pressurized turboprop) which was considered a success despite some arguments regarding the profit margins of the product – 350 units sold.
- 1985- 1990 – Embraer developed the CBA 123, an advanced turboprop that was considered far too pricey.
- The CBA 123 was never commercialized. The failure of the CBA 123 combined with a global recession and Brazil’s serious macroeconomic problems (37,000% inflation) led to a significant reduction in the company workforce (from 13000 to 6000).
- 1994 – The company was privatized, bought by a financial services group (Bozano Simonsen) and 2 of Brazil’s major institution investors (pension funds).

Turnaround
- New CEO – Mauricio Botelho
- Cut workforce by 1,800, targeting employees with higher salaries. In 1997 Embraer had 3,200 employees and an average salary of US$ 500, compared to U$ 2,100 before the privatization. From there Embraer began to hire again, emphasizing young workers.
- Institutionalized an incentive system where it distributed the equivalent of 25% paid in dividends equally among its employees.
- Stimulate outsourcing – several employees that used to work for Embraer were hired as a third party contractor.