By Juan Forero
Washington Post Foreign Service
Friday, November 19, 2010; 10:14 PM
IN SAO JOSE DOS CAMPOS, BRAZIL Grainy old photographs lining the walls of Brazil's biggest aircraft plant here show men in tight suits and high collars posing proudly next to their flimsy flying machines.
The pictures evoke the era, more than a century ago, when Brazil was in the forefront of efforts to develop an airplane. Yet in the decades that followed, the country did little to follow up on its early aviation successes.
Just in the past 16 years, with the quiet resurgence of Empresa Brasileira de Aeronautica, the aircraft manufacturer known as Embraer, it has lived up to that potential. Since going private in 1994, the once-bloated and unprofitable state-run company has joined the ranks of elite aircraft designers in a transformation symbolizing Brazil's emergence as an economic power.
Now the world's third-largest manufacturer of commercial aircraft, Embraer is a $5.4 billion company with plants here outside Sao Paulo and more opening soon in Portugal and Melbourne, Fla. Its aircraft - including fighter planes, business jets and the sleek E-195 jetliners - are ubiquitous.
Embraer make up 37 percent of the U.S. regional airline fleet. In 2008, Sarah Palin leased an E-190 for her vice presidential campaign.
"If you fly into Chicago, if you fly into Miami, if you fly into Dallas, those major hubs, into Houston, Cleveland, you have a very high chance . . . of flying in an Embraer aircraft," the company's chief executive, Frederico Fleury Curado, said in a recent interview.
Judging from Embraer's order book, the future also appears bright: As of September, the company had a backlog of 1,806 planes on order, representing revenue of more than $15 billion.
Still, the company has not escaped the challenges facing the worldwide aviation industry: Airlines are trying to recover from the global economic crisis and cope with high fuel costs just as emerging countries are entering the high-risk, capital-intensive world of aircraft manufacturing.History of drive
It is not the first time Brazilian aviation has been on the cusp of change.
In 1906, Alberto Santos-Dumont, scion of a Brazilian coffee-growing family and a dreamer who had already built dirigibles, flew the airplane he had designed before a large crowd in France. The flight is considered the first by a fixed-wing aircraft in Europe.
Years after his death, Brazil's military used his fame to generate nationalist sentiment and support for their drive to launch an aircraft industry. In 1969, the military dictatorship then ruling Brazil founded Embraer, building aircraft for the air force and later a 19-seat passenger turbo-prop that was technologically advanced but proved a commercial failure.
Success for Embraer came in the mid-1990s with the ERJ-145, a 50-seat jet that was bought by Continental Express and other airlines. It gave Embraer a foothold in the then-promising regional market for small and medium-size jets.
These days, though, that niche market is in a slump, with few prospects for short-term growth. At the same time, China, Russia and Japan are developing mid-size aircraft.
"Some businessmen say, 'Well, competition is welcome.' I don't know if they are being sincere or not," Curado said, chuckling. "Competition is not that welcome."
Those upstart airline industries face problems that favor Embraer, said Richard Aboulafia, a vice president at the Washington-based Teal Group, an aviation consultancy. But he said their push nevertheless puts Embraer on the defensive.
"With a market like that, with all this competition, you're basically running to stay in place," Aboulafia said.
Embraer could produce larger planes to compete directly with Boeing and Airbus, but Aboulafia said he thinks that the company's flagship product will remain its line of E-jets, carrying 70 to 120 passengers. "They are going to probably upgrade them, maybe get them new engines, perhaps stretch them a bit and make sure they are still the dominant player in this market," he said.
The E series has been highly successful since the first model was delivered in 2004. The narrow, tube-like jetliners, which do not have a middle row of seats and are known for reduced noise and turbulence, are flown by such established carriers as Delta, British Airways, Air France and Air Canada.
"It's an excellent plane," said Miguel Dau, chief operating officer at Brazil's new Azul airline.
"My impression about the E-jet is wonderful: the concept of the aircraft, how easy it is to handle," said Dau, who flew fighters in Brazil's air force and Boeings for Varig airline. "The systems are very intelligent, very smart."
Still, the E-class planes' success has not been enough to lift the company short term in the face of tough times and declining airplane orders. "There was a huge wave of cancellations coming from the customers," Curado said. "And, obviously, you have to try to negotiate. It's not just collecting penalties and letting go."In the face of challenge
Embraer's net profits fell from nearly $500 million in 2007 to $248 million last year. The workforce was cut by nearly 7,000 workers in those two years, leaving the company with 16,853 employees at the end of 2009.
The new challenges have Embraer working on creating market share in the manufacture of military aircraft and business jets.
The company is building the KC-390 military transport, a colossal aircraft that would compete with the popular American C-130. "We are not aiming to get 90 percent of the market share here," Curado said. "We will be happy if we took 20 percent."
More promising is the luxury jet market, which Embraer aggressively entered in the past couple of years to control 14 percent of the market share. The Phenom 100 and 300 business jets are designed to compete with planes built by more established companies such as Lear and Cessna.
Those two models, sold for $3.7 million to $8.1 million, are considered good value by aviation analysts. Embraer has more than 600 of them on order.
"I wouldn't second-guess them," Aboulafia, the Washington analyst, said of the firm. "They made a considerable effort to diversify both in defense and business jets. And certainly, with the second, it looks like they are going to be rewarded handsomely."