Flying high: Embraer's Mauricio Botelho has taken a flagging, state-owned company and turned it into the fourth-largest aircraft maker in the world. (Profile).

At age 26, Mauricio Botelho left his hometown of Rio de Janeiro to take a job in the Amazon jungle. A promising mechanical engineer, he signed on to help build a sawmill on Marajo Island in northern Brazil. Given the remote location, the challenges were many, yet the project thrived.

"There was nothing around," recalls Botelho. "We had to attend to the employees, their families and the surrounding communities. So we built a school. Children rowed their canoes on the river long distances to come to class. Seeing that was deeply touching. I learned that if you give people an opportunity, they take it and blossom."

Three and a half decades later, Botelho, now 60, employs some of that same vision and faith in people as president and CEO of Embraer, a $2.9 billion Brazilian aircraft manufacturer--the fourth largest in the world. Since taking over in 1995, he has guided the company to extraordinary growth, owing to a focus on regional jets instead of slower, shorter-range turbo-props. He also has shown a deft hand in labor talks and in his decision to establish in-house engineering and MBA programs to create a pipeline of able technicians and managers.

Despite its share of post-September 11 struggles common to the airline industry, by most measures Embra continues to thrive. The company, the largest private sector exporter in Brazil for three years in a row, had an order backlog of $9.5 billion as of the fall. In December, it signed a deal to open a factory in China--its first outside Brazil--to meet demand for its popular 50-seat jet, the ERJ 145, among other models. Embraer already has subsidiaries in the United States, the United Kingdom, France, Australia, Singapore and China to provide postsale assistance and technical support.

Embraer may not enjoy the name recognition of its nearest rival, Bombardier, to say nothing of the larger Boeing and Airbus, both of which make jumbo jets. But within the airline industry, observers are taking note of Botelho's success. "I'm really impressed with his personality and drive," says Bob Booth, chairman of Aviation Management Services, a consulting firm in Miami. "His record speaks for itself. The regional jet is the future in the industry, as proven by the order backlog and the fact that small is beautiful in this business. The potential for 50-, 70-, 90-seat jets is unlimited. And Mauricio Botelho has all the right approaches."

Empresa Brasileira de Aeronautica, or Embraer, was created in 1969 as part of a broad government strategy to establish a modern aeronautical industry in Brazil. (As it happened, a Brazilian, Alberto Santos Dumont, launched the world's first officially witnessed flight, on the outskirts of Paris in 1906. The Wright brothers' historic flights in Kitty Hawk, N.C., three years earlier were not seen by authorities.)

Run as a state industry, Embraer operated on domestic and foreign investment. The first plane it produced was a modest, nonpressurized turbo-propeller. Few people, both in Brazil and abroad, thought the enterprise would succeed. It wasn't until 1978, when President Jimmy Carter deregulated the U.S. airline industry, giving rise to many new carriers, that Embraer and the entire regional-plane industry began to prosper.

But by the mid-1990s, business had long since cooled. The company had proved itself technologically capable, but was essentially a bust. The Brazilian government sold it to local private investors in December 1994. Nine months later, the new owners hired Botelho, by this time a seasoned executive with experience in construction and telecommunications.

The company that Botelho took over was in sorry shape. The year before he arrived, it ran up losses of $330 million on revenues of $250 million. Bad business moves had pushed it into a corner. Millions of dollars had been invested on the development of a twin turbo-prop plane, but not a single craft was sold. The company's backlog for new orders on all of its products barely exceeded $200 million.

Botelho moved fast. Two months after taking the helm, he unveiled a strategic plan to the company's board. His top priority: enhancing productivity Despite heavy layoffs before privatization--the work force had been cut to 6,200 from a peak of 13,000 in 1989-Botelho opted for still more. Against some associates' advice, he began to negotiate a new round of layoffs with the union, which by then verged on open conflict with management.

To his credit, Botelho took a straightforward, hand-extended approach. He met with union leaders and told them he had something sensible to share-his business plan-provided they agreed to keep it confidential, which they did. Then he explained his strategy, including plans to eliminate 600 jobs, cut wages by 10 percent and slash overtime hours in half. He vowed he was committed to building up the work force once performance improved.

The union spent two weeks analyzing the plan, with the help of an independent consultant chosen by both sides. The consultant gave his blessing, but still the union had demands. It insisted that Botelho take a 10 percent pay cut just like every other employee, and he did. Then the union asked for more time to poll its entire membership. He granted that, too. Finally, the workers approved the package -- layoffs and wage cut included.

"That event was a turning point," recalls Botelho. "Management proved it was seriously committed to obtaining results. The workers, in turn, embraced the cause of the company's recovery.

And Botelho delivered on his promise. The company started turning a profit in 1998. Net earnings in 2001 reached $468 million, a 70 percent increase over 2000. Revenue per employee climbed to $254,000, up from $101,000 in 1996, Botelho's first full year of leadership. As for the size of its work force, Embraer employed 3,849 people at the end of 1996. Five years later, that number had grown to more than 11,000.

Banking on regional jets

The recovery never would have happened without Botelho's decision to pursue the growing market for regional jets. Before 1995, Embraer's most ambitious project had been a pressurized, 30-passenger twin turbo-prop. But Botelho and others at the company believed people would rather fly jets in the years to come instead of noisier, bumpier turboprops, and that regional flights would soon become extremely popular. In Botelho's first year, Embraer debuted its first jet, the ERJ 145. Within months, it became the company's best seller, as Embraer shifted its entire focus to regional jets.

"As we reached a 45 percent market share in the 30- to 5O-passenger segment, we saw there was a gap in the segment for jetliners up to 120 seats," explains Botelho. "Therefore we decided to develop a family of jets for 70, 78, 98 and 108 passengers.

Several years later, Botelho came up with another breakthrough. With aeronautical engineers in short supply in Brazil, he established an intensive, 18-month aeronautical engineering program whose graduates immediately go to work for Embraer. The inaugural class of 164 students graduated in August 2002. Meanwhile, the company's in-house MBA program, begun in 2001 with a class of 30, is also training Embraer's future leaders. Although Brazil has no shortage of graduate business programs, none offered the specific focus on foreign trade that Embraer demanded.

Botelho also spearheaded another major change at Embraer, a shift from a purely technical orientation to a customer focus. His first move was to create what he called five new profit centers: three geographically based, one for light aircraft and one for government sales. He placed an "entrepreneur" in charge of each, with responsibility for improving customer relationships.

Furthering that goal, Embraer holds periodic meetings of its airline advisory board, attended by prospective customers, risk-sharing partners and suppliers. And at its headquarters in Sao Jose dos Campos, an industrial town outside Sao Paulo, the company has a virtual reality design and sales center. The state-of-the-art facility offers customers (as well as Embraer's engineering and maintenance teams) computerized, three dimensional images showcasing aircraft design.

As Embraer has grown, it has found itself in a long battle over trade subsidies with Montreal-based Bombardier. Both Brazil and Canada have accused each other of illegally protecting their aircraft industries, in a back-and-forth confrontation spanning six years. In the latest round, in December, the World Trade Organization awarded Brazil the right to impose a nearly $250 million countermeasure against Canada for refusing to withdraw export subsidies it granted Bombardier. But Brazil appears unlikely to impose such sanctions. In an earlier WTO ruling, Canada won the right to apply even larger countermeasures against Brazil, which it has yet to move on. Negotiators for the two nations met five times last year and are expected to strike a deal in 2003.

The protracted trade battle is merely the latest affirmation of Embraer's increasing global might. It is also another reminder of how far Mauricio Botelho has come from his career's early days in the Amazon jungle.