Embraer lost $310m in 1994, so its privatized owners bet everything on regional jets

Embraer had built its business on military aircraft and turboprops sold largely on state credit. By the early 1990s that ground was gone: the end of the Iran-Iraq War and the winding-down of the Angola conflict closed its main export markets, a joint turboprop project with Argentina failed, and Brazil cut the export financing it relied on. In 1994 Embraer lost US$310 million on US$177 million in sales and had fallen to 38th among Brazilian exporters. The government sold 45% of the company for US$89 million that December, keeping a veto share and absorbing US$700 million of debt.

The new owners cut management layers from ten to four, cut headcount by roughly 1,700 in 1995, and reorganized production around projects, not departments. Maurício Botelho, an engineer from the controlling investor group, became CEO in September 1995 and pushed the company past its habit of over-engineering toward products it could price to sell. The bet was the ERJ-145, a 50-seat jet run about 15% cheaper than Bombardier's CRJ-200 while reusing roughly 30% of the parts of Embraer's Brasília turboprop, funded partly through risk-sharing with suppliers and Brazil's Proex export-credit program.

Privatized owners cut layers, then bet on a regional jet priced 15% below Bombardier's by reusing 30% of an existing turboprop's parts, winning the shift to jets.

Regional airlines were already upgrading fleets from turboprops to jets; Embraer aimed the ERJ-145 at that shift rather than trying to win back the military and state-backed markets that had vanished.

Reusing a third of the Brasília's components let Embraer reach a lower unit cost than Bombardier without a wholly new production line, turning an existing asset into the edge that decided the contest.

Cutting management layers before the product bet let the company ship the ERJ-145 fast enough to beat Bombardier's pace to volume — the 300th aircraft delivered in three years eight months.

Risk-sharing with suppliers kept the jet's development cost off Embraer's own balance sheet, which mattered for a company that had just lost its state financing.

A state supplier that loses its protected buyer must find a product the private market pays for on cost, not relationships — an old platform's parts can fund the pivot instead of a clean-sheet design.

Embraer returned to profit in 1998 after eleven straight loss-making years. Revenue rose from US$177 million in 1994 to US$390 million in 1996, US$1.36 billion in 1998 and US$2.93 billion in 2001; exports grew from 40% of sales in 1994 to 98% by 2001, and the company became Brazil's largest exporter, recording a US$984 million trade surplus in the first eleven months of 2001 alone. By 2001 Embraer led the world regional-aircraft market by units sold and had grown from roughly 3,800 employees in 1996 to more than 10,000.