A sure thing: Brazil's Embraer conquers big markets with smaller airplanes.

Once a state-owned company, Embraer had to taxi quite a bit before taking off to become one of the major airplane manufacturers in the world. Sitting in the captain's seat is Mauricio Botelho, Embraer's president. Now one of Brazil's main exporters, foreign sales topped US$2 billion last year. Botelho bet on medium-sized planes that hold 108 passengers, like Embraer's $30 million Model 190.

Botelho spoke with Carlos Adese, Brazil Editor for LATIN TRADE, on the battle for new markets.

The Model 190 was just introduced, and you already have orders worth more than $3 billion. Have small planes, in a post-Sept. 11 world, made a big difference for Embraer?

There was an artificial restriction in the market that required planes for less than 50 passengers or for more than 120 passengers. In this middle ground there were planes made by now-inactive companies, for example the Fokker 70 and the Fokker 100, with 1970s technology, that were expensive to fly and had very high maintenance costs. Also, the business model of the time was for many of the companies to be state owned. At the beginning of 2001, we began to experience an economic recession, which reduced volumes. On Sept. 11 the bottom fell out, and the losses were enormous. There was a lot more focus on costs. On the one hand, we have the so called low cost airlines, trying to penetrate small markets. A great example is JetBlue, a company that has embraced smaller markets with a smaller plane, the Embraer 190. We competed for this contract against the Airbus A-319 and A-318 and we won. We showed that we were competitive and winners. On the other hand, the major airlines are trying to fight this low-cost movement.

U.S. airlines now fly with close to 1,000 Embraer aircraft. Will the United States soon be Embraer's main market?

Yes. For us and for all airplane manufacturers. The United States is the biggest aircraft market in the world. We have close to 450 turbo-prop planes and 550 regional, 50-seat jets. Now our 70-seat planes are coming into the market through U.S. Airways, which is flying five of our planes on a total order of 85.

In 2003 Embraer produced fewer planes due to the worldwide slowdown in the airline industry. What is your outlook for 2004 and 2005?

We were growing until 2001. The crisis did affect us; that year we delivered 161 airplanes of the 200 that we had expected to deliver. We had to lower our expectations.... This year we expect to deliver 160, and in 2005 we'll deliver 170 planes. We find ourselves again on a path to growth. In just the first four months of the year we hired 1,300 people.

How is your partnership going in China?

We introduced our industry there by launching a first plane and by signing a contract to deliver in May. It's going well, although perhaps a bit slower than we expected in the beginning because the Chinese market has structural problems. So things are going to happen more slowly. But the relationship with our partner has been stupendous.

India is another big market. What are you doing to meet the goal of controlling 30% of the market there in the next two decades?

India is also a developing market. It is highly regulated. There's no operating freedom and, although the market is positioned to grow, structural issues demand time for things to adjust.

Many have criticized the Brazilian government for buying an Airbus for the presidential airplane rather than one from Embraer, which employs more than 12,000 Brazilians. Wouldn't it be better to see the president flying in an Embraer plane?

The issue is that the government had specifically ordered a plane that can hold 45 passengers and fly direct for 10,000 kilometers. The Model 190 from Embraer doesn't have this capacity, and we could not meet the government's specifications.

Military sales in the past were 40% of Embraer's revenues. Do you have a strategy to rebuild in the military market the success you see now in the civilian market?

It's very difficult to reach that same percentage. Our objective is to have close to 20% of our revenues from the defense sector. This year we nearly achieved this because the civilian sector diminished substantially. In the past, too, we had that much market share because civilian sector sales were so low. Today, under current conditions, we expect to grow in some niches where we are competitive, for example with light attack planes and training planes, and with intelligence and reconnaissance aircraft. We are supplying the Brazilian, Greek and Mexican air forces.

You have been called the "great savior" of Embraer. What do see in the coming 20 years?

We see that in 20 years the business will be strong and established in the commercial, corporate and defense markets. We believe that the area of services will represent an important part of our profits, and we see a healthy, profitable and solid business capable of meeting the needs of a demanding market.