Brazilian manufacturer Embraer, the world's third-largest commercial jet maker after Airbus and Boeing, garners accolades in aviation circles and inspires pride among Brazilians.
After morphing in a decade from a money-losing government venture to a world-class company traded on the New York Stock Exchange with sales about $4 billion a year, what can it do for an encore?
Chief executive Frederico Curado faces that challenge, taking the reins this year at the aviation juggernaut that runs U.S. operations from Fort Lauderdale.
"We're very humble to know that getting there is one thing, staying there is something else," Curado said in English during an interview at company headquarters, where workers roll out jets for American, Delta, China Air, Alitalia and other global airlines.
Embraer has been soaring since the mid-1990s by pioneering comfortable jets that can seat 30 to 120 passengers. The roomy aircraft have replaced less efficient turboprops and now outsell the competition from Canada's Bombardier, which offer less cabin space.
Airlines so far have bought more than 1,100 of Embraer's small and midsized jets, pushing its sales from $1.3 billion in 1998 to a record $3.8 billion last year.
"We hit a sweet spot" with no other jet designed specifically for that niche, Curado said.
But multibillion-dollar demand in the new-jet market will be mostly filled next decade, and replacement orders won't come as fast, aviation analysts said.
To keep growing, Embraer could invest to expand into bigger jets seating more than 120 passengers. But that would mean going head-to-head with giants Airbus and Boeing, who have forced even larger contenders out of business. Curado won't risk disaster.
"Not only are they powerful companies, but they represent powerful countries," said Curado of the aviation leaders backed by their European and U.S. governments.
Instead, Embraer is launching a line of business jets for executives - sleek craft that seat six to nine passengers and sell for about $3 million to $7 million each. The first "Phenom" should be delivered next year, with an interior designed with Germany's BMW and featuring a full bathroom not available in rival craft. Already, buyers have placed more than 500 orders.
"They're selling the Phenoms as fast as they can put out brochures," joked Michael Boyd of aviation consultancy Boyd Group of Evergreen, Colo., who has worked with Embraer.
Making executive jets means more than changing assembly lines. Instead of serving airlines that boast specialists for purchasing and networks for repairs, Embraer now must cater to the individual "who doesn't have spare parts in his garage," Curado said. That means developing a customer service team and maintenance centers worldwide.
Fort Lauderdale, where Embraer already employs 280 people, is set to gain. The company plans to invest more than $17 million and add at least 50 jobs at the U.S. headquarters by 2011. The expansion includes hangars to handle repairs and store parts for business jets, said Gary Spulak, who runs the U.S. operations.
Florida trade also will benefit. Already, shipments of engines and other supplies to Embraer and purchases of its jets are a major reason that Brazil ranks as Florida's largest trading partner.
But managing growth and round-the-clock production is tricky. Profits dipped last year when Embraer invested to boost output of its larger jets and also moved wing assembly from a Kawasaki factory in Japan to an in-house plant in Brazil, Spulak said.
New rivals also might challenge Embraer in its niche. Oil-rich Russia has unveiled a new model and wants to become big in aviation. Japan is looking to make a 70-to-90-seat jet. And China has a regional aircraft in the works, said Adam Pilarski of aviation consultants Avitas of Chantilly, Va.
"They're sitting at the top, and everyone takes shots," Pilarski said of Embraer.
The story of how Embraer reached such heights begins with World War II, when Brazil's air force recognized the role of air power and planes for victory. The military regime started a research institute in aeronautics, then formed a university specialized in aviation, and by 1969 recruited many of the top graduates to start manufacturing at state-owned Embraer.
The company got accolades for engineering and producing small propeller planes that flew with low noise levels, at higher altitudes and faster speeds. But the venture was a financial mess.
By the early 1990s, as demand for turboprops slipped and Brazil shifted to civilian rule, the government stopped pumping money into the company. A Brazilian investment group bought the business in 1994, with $300 million in losses and $400 million in debt.
Private owners turned the company around by adding new managers, cash and financial controls. Their breakthrough came by making designs for smaller jets cheaper, lighter and less expensive to operate as airlines sought new options for short routes, analysts said.
"It was an unusual combination of intelligence and luck. Usually, you hit one and not the other," said Richard Aboulafia, a vice president at consultancy Teal Group of Washington, D.C.
Today, a tour of Embraer's factory in Brazil reveals a world-class operation. Amid the sounds of metal sheets rumbling and hammers clanging, uniformed employees use protective gear: earplugs, eyeglasses and for those working in odd positions, kneepads and ergonomic chairs. The sprawling production area is squeaky clean. And each worker must count tools at the end of each shift to make sure there are no items left out of place, executives said at the plant.
Headaches remain. With the U.S. dollar weak and Brazilian currency strong, revenues in dollars from sales overseas don't stretch as far. To keep costs down, Curado said he's making "a huge effort" in productivity: revising production processes, equipment and perfecting "lean" manufacturing techniques.
"It's a day-to-day battle. This is not a war, and it's over," the 46-year-old engineer said.
Analysts are optimistic that Embraer can prevail with its business jet line and do an encore later, perhaps in partnership with Airbus and Boeing on large jets.
"Since 1960, they're the only new entrant to succeed in the jet market - in the world," said analyst Aboulafia. "I wouldn't bet against these guys."
INFORMATIONAL BOX:
Company: Empresa Brasileira de Aeronautica or Brazilian Aeronautics Co., known as Embraer.
Business: Airplane making and marketing, mostly for export. World's third-largest commercial jet maker.
Headquarters: São José dos Campos, Brazil.
Offices overseas: United States, Portugal, France, China, Singapore.
Financials: Profits of $390 million on sales of $3.8 billion last year. Backlog topping $17 billion in October.
History: Founded by Brazil's government in 1969. Sold in 1994 to private investors. Stock traded on the New York Stock Exchange since 2000.
Employees: Nearly 24,000 , including 280 in Fort Lauderdale.
Doreen Hemlock can be reached at [email protected] or 305-810-5009.
