As wealth and industries in developing countries grow the expendable cash exists for people to travel,
increasing the demand for travel and in turn airlines are demanding new aircraft.The aviation industry as a whole is
comprised of mainly 3 types of products, large commercial aircraft that carry over 150 passengers, executive
aircraft seating less that 4-20 and Regional Jets that carry on average about 30-125 passengers, designed for short
haul to medium haul flights. It is these regional jets that are becoming ever popular for airlines because they act as
a shuttle for large mainland aircraft and speed up ground time in airports. “Embraer and Bombardier share the
market for regional jets, just as Boeing and Airbus have split the big-plane business”(Mitchell , Russ 2005:1)The
regional jet industry could be described as a oligopoly, a market place in which few firms dominate and barriers to
entry are high. At this point in time Bombardier, a Montreal based company, and Embraer operating out of São
José dos Campos, Brazil, are in domination of the industry now. Developed manufacturing industries, and
increased wealth are tearing down barriers in Asia and have set the stage for new competition to arise. The
Japanese and Chinese are the most promising of all the new up and coming countries to enter into the regional jet
market threatening the future of bombardiers spot as industry leader.
Bombardier has been the leader in regional aircraft for years now but the next biggest threat is that of
Embraer. Many companies have tried to enter into the regional jet market but have failed, Embraer has no doubt
had its fair share of rough patches, almost crashing and burning in 1995 as a government run operation.
Privatization and the acquisition of Mauricio Botelho as CEO turned the company around and quickly grew into a
force to be reckoned with in the aerospace industry. The company experienced great growth under new
leadership and privatization and entered into markets worldwide including Europe and the United States. Recently
the company has had a change in corporate structure with a new CEO, Frederico Fleury Curado, with Botelho
moving on the board of directors (Embraer 2009). During this period in time Embraer was, and still is, a big
contributor to the Brazilian economy. Richard Aboulafia, an analyst at the Teal Group in Fairfax, states that "since
1960 only one new company and one new country have successfully entered the commercial aircraft market." That
company being Embraer, who is now nipping the heels of a Bombardier. Bombardier owns 65% of the market and
Embraer 35% (Mitchell, Russ, 2005), but Embraer shows signs of growth in the sales of certain models of aircraft.
They have had a good past few years with deliveries growing each year from 169 in 2007 and 204 deliveries in
2008, an increase by 17% (Embraer, 2008). Although Bombardier has delivered more orders they show a growth
rate in this same period in order of only 10%(Bombardier, 2008). Feeling the pinch Bombardier has made decided
to take a slightly different approach. They have began development of a new series of aircraft that blur the lines
between mainland jets, that Boeing and Airbus excel in, and regional jets. This new C series “which is set to enter
service in 2013 in the 100- to 149-seat market” will more than likely cut into the sales of Boeing and Airbus.
Embraer’s continued growth, even with the financial down turn and Canadian product innovations, Is something
that Bombardier should not take lightly.
At this point the industry is owned by Bombardier and Embraer but uncertainty for the two companies
still exist. The Asian aerospace industry is poised to make its launch into the regional jet business within the next
decade with launch dates set for 2012 and 2013. China and Japan who both have experience in the production of
parts for large commercial airplanes are planning to make an entrance into the regional jet manufacturing
industry. Japans Mitsubishi Regional Jets, MRJ, has been solicited in the past to help with production in parts for
Boeing and has developed the use of carbon fibber material to dramatically reduce the weight of aircrafts. “The
MRJ will be about 20 percent more efficient than competing aircraft from Embraer and Bombardier, and will use
advanced lightweight carbon fibber technology”.(Evan, 2008) Analysis from Merrill Lynch state that over the
lifetime of an aircraft, fuel will cost over 4 times an aircrafts sticker price. There is no doubt that this will affect the
decisions of airline when looking into what manufacturer of regional jets they wish to purchase from. With lower
fuel costs you can expect to see lower ticket prices for passengers a definite selling point for any airline. MRJ does
have experience when it comes to manufacturing wings and hulls for Boeing and “boast rock solid reputation for
quality”(business week,2007). Airplane manufacturers put a lot more emphasis on design that they do on
manufacturing. The Japanese should not be taken lightly, we have seen in the past what Japanese entrance into
automobile manufacturing has done to North American manufactures.
Similar to MRJ Chinas AVIC Commercial Aircraft Company has past experiencing the production of parts
for Boeing. China’s advantage lies domestically with a huge growth in the middle class population experiencing
growth in wealth. China has even created a new airline that is dedicated to flying only domestically made regional
jets, called Happy Airlines owned 60% by AVIC and 40% China Eastern Airlines by the country’s 3 largest
airline(Shu-Ching Jean Chen, 2008). It is this growth in wealth that is promoting travel, and the addition of small
airports in less developed western China. These factors are leading to a growth in demand for regional aircraft
domestically. China is expected to hit the market earlier than Japan but is down to the wire trying to get
certification on 105 seat ARJ21 and could face stiff penalties if it does not meet its late 2009 deadline. Product
specialist speculate that MRJ’s regional jet will be lighter and more fuel efficient but China’s edge lies within it’s
state controlled airlines that will face political pressure to buy from domestic aircraft suppliers. Boeing says that
over the next 20 years there will be demand for 3400 new planes in China alone, which is projected to be worth
over 340 billion dollars. If China stands a chance at outselling Japan it will be due to Chinese airlines having their
hands tied, and not due to the quality of product.
In conclusion Bombardier for the foreseeable future appears to be in control of the market. Over the next
20 years new companies with moderate experience in parts manufacturing, growing demand for travel and wealth
in developing countries could shape the outcome of the market place in the future. These growing companies are
not to be taken for granted as well as the existing competition from Embraer. The future will tell whether or not
the Asian companies’ previous experience in parts manufacturing for existing large scale commercial aircraft will
translate into success in manufacturing of regional jets. Or whether Embaer`s corporate restructuring, product
differentiation and momentum will continue its growth in such a way that it threatens Bombardiers position as
industry leader.
BSAD 101 – Introduction to Business
COMPANY PROFILE
Company Name:
Embraer Aerospace
Company Information:
Industry (s)
Regional aircraft
Number of Employees
16946
Product(s) Manufactured or Service(s)
Provided
The production of commercial, military,
and business jets.
Number of Years in Business
Embraer was founded in 1969 as a
government initiative, and was privatized
in December of 1994
Location (s)
Manufacturing takes place in Sal Paulo, Brazil. There is regional offices
in North America, Europe, China, and Singapore
Vision/ Mission/ Overview
Embraer is committed to generating value for its
shareholders by fully attending to the needs of its clients
operating in the global aeronautical market. Value
generation means that Company value is maximized and
the Company's perpetuity is guaranteed, while still
holding on to behavioral integrity as well as to social and
environmental awareness.
Management Information:
Name of CEO
Frederico Fleury Curado
CEO’s History
Frederico Fleury Curado has been with embraer since
1984. He has moved up the ranks from manufacturing,
procurement, information technology then into contracts
and sales. He has received his MBA an undergraduates
degree in Mechanical Aeronautical Engineering and a
post graduate in foreign trade.
Board of Directors
(List Names and Affiliations)
Maurício Novis Botelho(former CEO)President
Vitor Sarquis Hallack-Vice-President
Board members;
Boris Tabacof
Claudemir Marques de Almeida
Eduardo Salomão Neto
Hermann H. Wever
José Reinaldo Magalhães
Neimar Dieguez Barreiro
Paulo César de Souza Lucas
Samir Zraick
Wilson Carlos Duarte Delfino
Flávio Rímoli
Financial Information:
2004
2005
2006
2007
2008
(000’s)
(000’s)
(000’s)
(000’s)
(000’s)
Sales
33521
37895
37595
52452
63352
Expenses
297300
334300
337000
475600
594600
Net
Income(Loss)
380206
445719
390140
489305
38870
Total Assets
608399
693445
7315701
8065845
8643738
Total Liabilities
608399
693445
7315701
8065845
8643738
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http://www.businessweek.com/magazine/content/07_33/b4046043.htm
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