Brazil and Embraer

1
Brazil and Embraer
International Business April 20, 2004 Presented
by Brandon Moritz Adam Burrus Joe
Menendez Josh Mahlandt
2
General Information

• -Largest country in South America
• -Comparable in size to the U.S.
• -Tropical Climate
• -Population 182,032,604
• -Official Language is Portuguese
• also speak Spanish, English, and French

3
Government

• -Federative Republic
• -President Luiz Da Silva
• Elected January 1, 2003
• -Three Branches
• -Executive President and V.P. serve 4 yr.
  terms
• -Legislative Federal Senate and Chamber
  of Deputies
• -Judicial Supreme Federal Tribunal

4
Economy Overview

• -Free Enterprise with some state intervention
• -Large agricultural, mining, manufacturing, and
  service sectors
• -Outweighs that of all other S. American
  countries
• -Plagued with high inflation rates in past 20
  yrs.
• Now steadily decreasing
• -Unemployment remains a major problem

5
The Brazilian Real

• -Official Currency of Brazil
• -Formerly pegged to U.S. dollar
• -Now floats independently with respect to U.S.
  dollar.
• -Exchange Rate 2.92 reals per U.S. dollar

Brazilian Reals to 1 U.S. Dollar
6
Gross Domestic Product (GDP)

• -Purchasing Power Parity 1.376 trillion
• Ranks 11th worldwide
• -PPP per capita 7,600
• -GDP Composition
• Agriculture 8
• Industry 36
• Services 56

GDP Growth 1995-2003
7
Brazilian Trade

• -Trade Surplus!
• -Exports
• -59.4 billion
• -iron ore, soybeans, coffee, footwear, autos
• -Major Partners U.S. 24 Argentina 9
• -Imports
• -46.2 billion
• -machinery, chemical products, oil
• -Major Partners U.S. 23 Argentina 13

8
Comparative Advantages

• -Huge territorial extent with plenty of natural
  resources
• -Large population with a dynamic fast growing
  consumer market
• -Economic integration with Mercosul
• -Developed industrial center with diversified
  exports
• -Stability of democratic political institutions

9
Brazilian Industrial Sectors

• -Petroleum and Petrochemicals
• -Ethanol
• -Power Generation
• -Aircraft and Aerospace

10
Embraer

• -Fourth largest aircraft manufacturer in the
  world.
• -Close to overtaking third largest
  manufacturer, Bombardier.
• -Started in 1969 by Brazilian government.
• -Privatized in 1994.
• -Based in Sao Paulo, Brazil.
• -Started trading on NYSE on July 21, 2000.

11
Company Profile

• -Embraer manufactures commercial, military and
  corporate airplanes.
• -Provide aircraft that are economical to acquire
  and operate
• -Gained success by focusing on regional jets with
  37-50 passenger capacity.
• -Known for aggressive management and marketing
  and for having competitive prices and services.
• -Gained market share by undercutting competitors
  prices in regional jet market.

12
Regional Aircraft Products

• -Regional aircraft operations primarily involve
  the development, production, and marketing of
  commercial jet aircraft and providing related
  support services.
• -Largest customers include Continental Express
  and American Eagle.
• -Competitors include Bombardier, Boeing, and
  Airbus.
• -Products
• -ERJ 135/140/145
• -EMBRAER 170/175/190/195
• -EMB 120 Brasília

13
Defense Aircraft

• -Operations involve research, development,
  production, modification and support of military
  defense aircraft, products and related systems.
• -Primary customer is the Brazilian Air Force
  although aircraft has been sold to the United
  Kingdom, France, and Mexico.
• -Competitors include Raytheon, Lockheed-Martin,
  and British Aerospace.
• -Products
• -EMB 312 Tucano and Super Tucano
• -AM-X
• -P 99

14
Corporate Jet Segment-The Legacy

• -Line of corporate jets based on ERJ 135 regional
  jet model.
• -Designed to provide customers with a
  cost-effective alternative to commercial regional
  airline travel.
• -Marketed to businesses in two models
• -Executive version
• -highly customized interior based on the
  customer's specific requirements
• -Corporate shuttle version
• -partially customized and is generally intended
  to have business class-type seating and in-flight
  office design features.

15
Other Related Businesses

• -After-sales customer support services and the
  manufacture and marketing of spare parts for
  products.
• -Activities include the sale of spare parts,
  maintenance and repair, and training.
• -Provide structural parts and mechanical and
  hydraulic systems to Sikorsky Corporation for its
  production of helicopters.
• -Limited manufacture of executive aircraft and
  crop dusters.

16
Keys to Success

• -Low costs
• -Brazils low labor costs.
• -Easy access to natural resources such as iron
  ore to make steel.
• -Brazils weak currency has made Embraers
  products more competitive on the international
  market.
• -High quality
• -Repair and accident records rival those of
  competitors.
• -Strong customer service and training.
• -Easy customer access to parts.
• -Low maintenance costs.

17
Keys to Success(cont.)

• -Strong management
• -CEO Mauricio Botelho known in Brazil as a
  long-term strategic planner.
• -Partially owned by a Brazilian financial group,
  Bozano, and a group of European aerospace
  companies.
• -Government subsidies
• -Favorable taxes and tariffs.
• -Controversial because it has drawn
• complaints from the companys rivals.
• -Canadian government has complained to the WTO
  on behalf of Bombardier.

18
Embraers Future

• -Effects of the War on Terror
• -Experienced a significant decline in stock
  prices after 9/11.
• - The company could end up benefiting in the
  long-run.
• -Since most airlines are looking to cut costs,
  Embraers low-cost products are more attractive.
• -Embraer focuses on regional jets for domestic
  airlines, which have not been targeted by
  terrorists thus far.
• -Decline in air travel has led more companies
  to explore to opportunities of corporate jets,
  which is a key market for Embraer.
• -An increase in the demand for military
  aircraft in smaller countries could increase
  Embraers military sales.

19
Embraers Future(cont.)

• -Short-run success will depend on the number of
  Embraers exports and the continued weakening of
  the Real.
• -Long-run success will depend on how well the
  companys new line of 70 and 100 seat aircraft
  performs.
• -Competing directly with Boeing and Airbus in
  the large commercial aircraft market is a huge
  risk for Embraer.
• -Embraers success also depends on the airline
  industry as a whole.
• -An increase in terrorist attacks and a decline
  in air travel could have a negative effect on
  sales.