As Latin Americaâ€™s biggest aerospace company,Embraer looks to grow beyond aircraft with its newdefense and security business unit
Brazilian manufacturer â€™s creation in January of a defense and security division has as much to do with sporting events as it has with aircraft.
Brazil will host the soccer World Cup in 2014 and Summer Olympics in 2016, with hundreds of thousands of visitors expected for both events plus the annual Carnival. Public safety and security will be a government priority, and Embraer wants to use this boost to build up its defense business.
â€śWe have created a new company to consolidate our position in the market,â€ť says Eduardo Bonini, chief operating officer of Embraer Defense and Security. â€śWe want to meet government demands for C4ISR [command, control, communications, computers, intelligence, surveillance and reconnaissance] for public safety and critical infrastructure protection. We want to help find financial solutions, such as public-private partnerships, to mitigate budget constraints.â€ť
Embraer does not have all the skills needed to move into the broader security market, so intends to form partnerships with smaller Brazilian companies and foreign suppliers. â€śCompanies with the capabilities exist in Brazil, but are not strong enough to support the government. Embraer can help,â€ť he says.
The defense companyâ€™s strategy has become clearer with its first acquisitionâ€”the 28.5 million real ($17.1 million) purchase of 64.7% of the radar division of OrbiSat da Amazonia. This will create a radar company controlled by Embraer. OrbiSat produces radars used by the Brazilian army for border surveillance and is mapping the Amazon for the army using foliage-generation radar.
Partnerships are expected to be forged in unmanned aircraft, and Embraer plans to bring its financial and technical firepower to other technologies needed for the World Cup and Olympic Games, including video surveillance and signals intelligence.
The proportion of Embraerâ€™s $5 billion-plus in 2010 revenues that came from defense has not been released yet, but was steady at around $500 million a year in 2008 and 2009. Defense accounts for more than $3 billion of the companyâ€™s $15.6 billion backlog, and the revenue goal for 2011 is around $850 million.
The defense and security business aims to reach $1.5-1.8 billion in annual revenues within five years, a goal Bonini describes as â€śconservative.â€ť The plan is built on sales of light attack/trainers and surveillance platforms, upgrades, development of thetanker/transport and a potential role in Brazilâ€™s FX-2 fighter procurement. The start of KC-390 deliveries will bring a significant increase in revenues toward the end of the five years.
Creation of a defense company harks back to Embraerâ€™s origins as a spinoff of theâ€™s General Command for Aerospace Technology (CTA). Embraer was formed in 1969 to develop and produce the CTA-designed Bandeirante light transport for the air force. This was followed by the EMB-120 Brasilia regional turboprop.
The company was privatized in 1994 and embarked on an expansion of its commercial aviation business with the ERJ145 regional jet family. This was followed in 2002 by the larger/190 family and in 2005 by the creation of its executive jet division. Throughout this heady expansion, defense remained a small but steady business.
The initial military products were the EMB-110 Bandeirante light transport and EMB-312 Tucano turboprop trainer, which are still in service with the Brazilian air force as the C/P-95 and T-27, respectively. They were followed by the EMB-314 Super Tucano light attack/advanced trainer, and the AMX attack aircraft developed jointly with Italy. These are operated by Brazil as the A/AT-29 and A-1, respectively.
The company diversified into intelligence, surveillance and reconnaissance (ISR) when it developed airborne early warning and airborne ground-surveillance versions of the EMB-145, the E-99 and R-99, for Brazilâ€™s Sivam Amazon surveillance system.was system integrator for Sivam, and Embraerâ€™s role was to provide the platforms, including the Super Tucanos used to intercept illegal operations.
Greece purchased four EMB-145 airborne early warning and control (AEW&C) aircraft, but these NATO-compatible aircraft were integrated by. Embraer also is building three improved AEW&C platforms for Indiaâ€™s Defense Research and Development Organization, which will integrate an indigenously developed mission system into the aircraft, the first of which is to be delivered to India by August.
The companyâ€™s first opportunity to act as system integrator came with the sale of one AEW&C and two maritime-patrol EMB-145s to Mexico for counter-drug operations. This included a command-and-control center in Mexico City, bringing together data from aircraft, tactical radars, civilian air traffic control and interceptors, says Fernando Ikeda, vice president for defense market intelligence.
Mexicoâ€™s program included a satellite-communications data link. Embraer also developed the Link-BR2 protocol for the Brazilian air force. This is used to connect the Sivam surveillance platforms with the Super Tucano interceptors.
Embraer is proposing special-mission versions of the larger 170/190, but has yet to find a customer other than the Brazilian air force for two E-190PRs delivered in 2010 as presidential transports. Designated VC-2s, these aircraft have additional fuel tanks to extend range and a new interior with seating for dignitaries and entourages.
Near-term revenue growth is predicated on further Super Tucano sales. Embraer has delivered 152 of 180 aircraft on order. Customers include Brazil (99), Chile (12), Colombia (25), the Dominican Republic (8), Ecuador (18) and nine for an undisclosed African customer. An order for eight from its first Asian customer, Indonesia, will continue production into 2012.
Embraer projects a global market for 300 counter-insurgency (COIN) aircraft over 10 years. All Latin American operators except Chile use their Super Tucanos primarily in combat rolesâ€”Colombian aircraft are flown almost exclusively at night, on anti-drug missionsâ€”and there is potential for sales to Central America for counter-narcotics use, says Acir Padilha, vice president for military marketing.
But the big prize is the U.S. Air Forceâ€™s Light Air Support (LAS) program, for which the Super Tucano is competing against theAT-6. With a potential for 55 aircraft worth up to $950 million, the LAS contract initially will cover 20 aircraft for the Afghan air force plus 15 for the U.S. Air Force to use in â€śbuilding partner capability.â€ť
The Brazilian manufacturer has teamed with., which will act as U.S. prime for the bid and provide turnkey training and logistic support. Embraer is proposing assembling the Super Tucanos in Jacksonville, Fla., with training provided at Clovis, N.M. Embraer would supply the ground-based training devices.
LAS is part of a push by Embraer to increase its North American presence. In February, the company opened a final assembly plant for the Phenom 100 light business jet in Melbourne, Fla., but its long-held goal is to establish itself in the U.S. defense market.
Embraer had hoped to assemble EMB-145s in Jacksonville under the U.S. Armyâ€™s Aerial Common Sensor (ACS) program, but this was canceled in 2006 whenâ€™s multi-intelligence mission system outgrew the platform. The Super Tucano final assembly line would be located in an existing hangar at Jacksonvilleâ€™s international airport, and not at the Cecil Field location planned for ACS, but is covered by the same state and local incentives agreement, says Padilha.
A competitive evaluation of the AT-6 and Super Tucano was conducted at Kirtland AFB, N.M., in January, each aircraft flying three sorties to demonstrate austere field, attack/reconnaissance and advanced training capabilities. The companies are anticipating a contract award by July, with the first aircraft to be delivered to Afghanistan in 2013. The U.S. Air Force, meanwhile, has requested funds for 15 aircraft in fiscal 2012 and plans to finalize its acquisition strategy in July.
Embraer is confident because its aircraft was designed for the light attack mission. â€śThe Super Tucano was built for COIN, to operate in an austere environment, with a comfortable cockpit for long flight duration and an open avionics architecture to integrate new systems and weapons,â€ť says Padilha. Design features include mounting two 0.50-caliber machine guns in the wing to free up all five underwing stations for other stores and weapons.
Other near-term defense growth will come from upgrade projects. Embraer has delivered 39 of an initial batch of 46 modernized F-5Ms to the Brazilian air force, and in December received a contract for a second batch of 11 ex-Jordanian aircraft. The update comprises a glass cockpit, multi-mode radar, electronic warfare self-protection, onboard oxygen generation system (Obogs) and Rafael Derby beyond-visual-range air-to-air missile. â€śWe are discussing integration of the [Denel] A-Darter,â€ť says Padilha.
A program to modernize 43 Brazilian air force AMXs to A-1M standard is under way, with the first of three prototypes to fly in early 2012. The update will instal a new glass cockpit, radar, Obogs and Rafael Litening targeting pod. In January, Embraer was awarded a contract for structural overhaul of the A-1Ms. The company has also begun work on modernizing 12 A-4s operated by the Brazilian navy as the AF-1. The upgrade will install new radar, avionics, electric, wiring and Obogs.
For the longer term, defense growth plans are pinned on the KC-390 tanker/transport. The Brazilian air force awarded the company a 3 billion realdevelopment contract in 2009 and the first of two prototypes is scheduled to fly in mid-2014, with deliveries to begin in 2016.
Argentina, Chile, Colombia, the Czech Republic and Portugal have signed government-to-government agreements to become strategic partners in the KC-390 program. Each government will fund its local industry to take responsibility for developing and producing a part of the aircraft, with Embraer responsible for system integration, final assembly, flight test and certification.
Embraer projects a market for 695 airlifters, but asked risk-sharing suppliers of engines and systems to base bids on a â€śvery conservativeâ€ť 120 aircraft, 60 of which are covered by letters of intent from the six strategic partners.
While critical to Embraerâ€™s defense growth, the company emphasizes the KC-390 is the Brazilian air forceâ€™s program. â€śWe have worked with the air force for 40 years,â€ť says Ikeda, citing the success of programs such as Sivam and the Super Tucano. The air force has final say on major supplier selections, hoped for this month so the joint definition phase can begin in May.