Brazilian aerospace industry aims for the global supply chain

The development of large-scale projects by the Brazilian aerospace industry, such as tactical cargo plane KC-390, the new generation of Embraer commercial jets and the FX-2 fighters brought a new workload to the defense and aircraft production complex of the country.

Together, the three programs total $11 billion in investments. The production contract for 28 units of the KC-390, signed last month with the Brazilian Air Force (FAB), represents alone an additional R$7.2 billion spending in Embraer.

José Wilmar Mello
The top challenge of the industry, however, is still improving competitiveness to supply not only Embraer but also take advantage of global opportunities to evolve technology, diversify production and reach foreign markets, says José Wilmar Mello, a director at TyssenKrupp Autômata and coordinator of the Aerospace and Defense Industry Work Group (Gtaero).

“The aerospace supply chain is global and to participate in it companies need to be competitive with world-class rivals,” says José Antônio Filippo, chief financial and investor relations officer at Embraer.

The executive says the Supplier Development Program (PDF) coordinated by Embraer, as well as FIP Aeroespacial, a fund created to invest in the industry, are the newest initiatives supported by the company to strengthen the technological supply base. “With that we are encouraging companies to grow while expanding the innovation relationship in Brazil,” he says.

Francisco Soares, vice president of engineering and manufacturing at Embraer, says the company is continuously seeking ways to increase the participation of local suppliers and insert the domestic supply chain in its projects. For the new development programs, slated to begin production in the next few years, the executive says that Embraer is expanding production vertically by bringing in parts and structuring components previously made abroad for manufacturing at its Brazilian plants.

Leonardo Pereira, head of the Funds Department at the Brazilian Development Bank (BNDES), says the FIP was one of the initiatives created by Embraer to stimulate suppliers to invest in technologies useful to its business plan. “These are hard-to-access technologies, in areas of systems security, data transmission, optics, GPS monitoring, avionics and systems integration,” he says.

Mr. Pereira says that 50 to 100 companies are already being evaluated with potential to add value and receive FIP investments, which will have an initial capital of R$131.3 million. Embraer, as the fund's anchor company, will contribute R$40 million while the rest will be invested by BNDES, the Funding Authority for Studies and Projects (Finep), the São Paulo Development Agency (Desenvolve SP) and Portbank, the fund's manager. “Our goal is to invest in seven to nine companies in a four-year period,” he says.

Apex, the Brazilian Export and Investment Promotion Agency, is also preparing to sign a new cooperation agreement with the Innovation and Competitiveness Center of the East Cone of São Paulo (Cecompi), valued at R$3.8 million, to help promote Brazilian suppliers abroad. Marcelo Sáfadi, executive manager of Cecompi, says that of 70 suppliers only 15 export products and 18 services.

Cesar Augusto da Silva, president of Akaer, focused on aircraft structural engineering, says that investing in the Brazilian industry's vocation for conceiving and developing good projects, especially in structures, is the best way to bolster the country's supply chain. “That market is growing over 4% annually and generated $43.6 billion in 2011,” he says.

The Brazilian aerospace and defense industry exported the equivalent of $6 billion in 2012, but over 85% came from Embraer. The aerospace industry in Mexico, which does not host an aircraft manufacturer but has several tier 1 suppliers, exported $7.5 billion last year.

“Having a stimulus policy is crucial to help companies prepare to better supply Embraer in cost terms,” Mr. Silva says. Some ongoing programs, like the KC-390, he says, do not include these companies when it comes to technology development, but there are other opportunities in structuring projects, such as Sisfron and Sisgaaz, programs to monitor Brazil's western borders and territorial waters, respectively, and the Geostationary Satellite, that should not be wasted.

“Lowering taxes and offering financing is useless if we don't have programs,” says the Akaer president. One example, he says, are Brazilian aerospace companies firing their teams because of the lack of contracts. Some are even threatening to shut down, says Leonel Perondi, directof of the National Institute of Space Research (Inpe).

Valor has learned that R$130 million allocated for the budget of the Strategic Program of Space Systems, coordinated by the Air Space Control Department (Decea), have been redirected to pay the contracts for the Defense and Strategic Communications Geostationary Satellite, managed by Embraer subsidiary Visiona.

• Tweetar