Embraer and the defense market: the roller-coaster continues

Sorry for the lack of new entries during my extended Labor Day holiday. Since I’m still a little bit in the vacation mood, let’s talk about Brazil’s defense industry for a change — specifically, Embraer.

Several years ago, Embraer’s highly-respected executive team felt the time was right to make a major play at the world defense market, seeking to grow defense revenues from the single-digits to 20% of corporate revenue. It all seemed to make so much sense at the time. International arms sales were galloping forward in the wake of September 11, 2001, and Brazil’s air force was not least among the buyers.

The Forca Aerea Brasilia, or “the FAB” for short, was laying plans to 1) modernize its F-5BRs, 2) acquire a new batch of air superiority fighters, 3) upgrade its A-1 AMX attack jets and 4) buy a whole bunch of Embraer Super Tucanos, amongst other major purchases. Embraer figured to be the lucky beneficiary of each one of those big projects.

Several years later, Embraer’s bullishness on defense was quenched by the force of reality. Its share of revenues from the defense market remains in the single-digits, and only items #1 and #4 have seen any major activitiy. The FAB’s budget for item #3 was turned on only last week, despite the fact that the FAB awarded Embraer a contract to start working on the project about four years ago! Item #2 has been turned on and off more times than I can immediately think to count, and currently remains stuck in limbo.

On top of all that, the company’s ambitions to enter the US defense market fell apart in 2006 when the army terminated Lockheed Martin’s contract for Aerial Common Sensor, which would have used Embraer’s ERJ-145 as the platform.

I sometimes hear US defense companies whine about the uncertainty of the Pentagon’s acquisition system. It makes me wonder how the US defense industry would survive in almost any other country, where budgets are often the secret play-things of feckless generals and politicians and there is no ‘Big Defense’ lobby to push things through in a pinch.

Embraer may soon enough be back in the US market. The US Air Force is due to release a request for proposals on behalf of the Iraqi Air Force for a fleet of turboprop-powered “light combat aircraft”. (The USAF previously called this a “counterinsurgency aircraft” fleet.) The Embraer Super Tucano is one of the prime contenders, and would open the door for the company to open a US assembly line in Jacksonville, Florida.

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