Can a rich heritage coupled with the rapid modern growth of Embraer and a fierce ambition make Brazil a leader in the world of aerospace
In the 1930s the Brazilian government embarked on one of the first strategic assaults on global capitalism, when it set about cornering the world market for oranges. It took North American techniques and varieties and transplanted them into fertile soil and a less expensive labour market. The result is that Brazil has been the largest producer of citrus fruit since the 1960s.
There is now another target in the minds of the present government – to become a world leader in aerospace manufacturing and production. As well as being one of the Organisation for Economic Co-operation and Development's high-technology sectors, aerospace holds an emotional place in the mindset of Brazil.
Pioneering flight
Many argue that Brazilian-born Alberto Santos Dumont's powered flight in his 14-bis in 1906 was the first true powered flight, since it was officially recorded by the Aéro Club de France rather than relying on eyewitness accounts, as was the case for the Wright brothers' Kitty Hawk flight in 1903.
Part of the path towards the goal of becoming an aerospace power has already been paved by the transformation of former state-owned national aerospace company Embraer into the world's fourth largest airframe manufacturer since its privatisation in 1994. But the country also has a network of maintenance providers, component suppliers and service companies that are growing in capability and expanding their revenues in tandem with Embraer's success.
Brazil is the only country in the region with a substantial aerospace industry and the Aerospace Industries Association of Brazil (AIAB) says it is the only high-technology economic sector in which the country has a global image, largely thanks to Embraer. Yet look beyond Embraer and the situation appears to be encouraging.
The AIAB's 36 members are expected to have generated around $3.5 billion in sales last year, with the majority exported. Exports of all transport equipment, including the country's booming automotive industry, accounted for 16.4% of exports in 2002, making it the single largest segment.
The only indigenous company engaged in full-scale aircraft production other than Embraer is Aeromot Aeronaves, which produces the AMT-200/300 Ximano motor glider family and is working on certification of the AMT-600 Guri ab initio trainer. Aeromot has plans to grant a licence to Guizhou Aviation Industry of China (GAIC) to form a joint venture for production of the four-seat piston single (Flight International, 2-8 December 2003). This kind of international co-operation is seen by the AIAB as key to future success, and two of the country's other large aerospace firms are hoping to exploit the comparatively low costs and high skill level to bring in foreign projects.
Eurocopter forerunner Aerospatiale was an early champion of Brazil's capabilities, initiating the Helibras joint venture with the Brazilian government in 1978 as part of an offset deal for the Brazilian armed forces' purchase for medium twin helicopters. The line in Itajuba, just over the border from São Paulo state in Minais Gerais, now licence-assembles Eurocopter AS350/355 and AS365s partly from kits Eurocopter sends from its Mariganne plant in France and partly from components sourced locally, pushing the indigenous content, including labour, to around 43% of the aircraft value. Helibras has captured over half of the Brazilian market and the helicopters have become known so well locally that the Portuguese word for squirrel, esquilo, has become a generic term for all medium helicopters, says Jean Noël Hardy, Helibras chief executive. Hardy adds that the value to the Brazilian economy is that the weapons systems integration, overhaul, certification and other rigorous processes are carried out in Itajuba, boosting local skills.
Helibras also liaises with local subcontractors and has proposed strengthening Eurocopter's use of parts and subassemblies from the region. "Brazil is one of the few countries with a true aeronautical history and we have a network of suppliers with lots of technical competence and capacity," says Hardy.
Supplier network
Twelve of AIAB's members work in structures, with systems integration specialists also present in the country. Hardy says the existence of such a network of suppliers for increasingly complex parts is due to the enlargement of Embraer's activities as it uses local companies in addition to globally sourced parts. Many of Embraer's foreign risk-sharing partners for its 170/190 regional jet family have established local facilities, with wing supplier Kawasaki Heavy Industries setting up a final assembly line at Embraer's Gavião Peixoto plant and fuselage barrel manufacturer Sonaca creating a local subsidiary Sobraex. These companies follow support pioneers such as Turbomeca, which has had a complete overhaul facility in Xerem, near Rio de Janeiro, for over two decades.
The evidence of Brazil's growing aeronautical stature can be seen in the southern city of Porto Alegre, where Varig Engineering & Maintenance (VEM), has just rolled out its first Boeing 767-200ER passenger-to-freighter (PTF) conversion under licence from Israel Aircraft Industries (IAI) and plans to follow this with other IAI projects, including 737 cargo conversions.
IAI's deputy director of widebody aircraft conversion and special programmes, Ram Maravi, says VEM was selected from a list of competing aerospace firms around the world to establish a joint venture for PTF work because it offered the right mix of "skilled workers, technical support, machinery and strong management". Maravi says: "We really made a tour around the world to find a site for these conversions."
VEM chief executive Evandro Braga de Oliveira says the creation of the PTF line is the realisation of a dream for him, as he started work overseeing the McDonnell Douglas DC-10 cargo-conversion programme for Brazilian flag carrier Varig in the 1980s. "As a structural engineer, I realised watching the programme in Waco, Texas, that we had the expertise to do such work in Brazil," he says.
MD-11 deal
Oliveira's dream might have come true a little sooner, as the company had received tentative approval from Boeing to perform MD-11 PTFs just before the 11 September attacks and resultant market downturn.
VEM built its expertise as a maintenance, repair and overhaul (MRO) provider, initially in-house for Varig and increasingly, since being spun off in 2001, to third parties. The company specialises in the fleet types of Varig, with its Rio de Janeiro site home to visiting 757s, 767s and MD-11s undergoing D checks. Oliveira says flexibility, combined with prices around 25% lower than in the USA and 50% cheaper than those charged by European MRO centres, makes the site attractive. Oliveira also says that the presence of Embraer on the world stage has helped the image of aerospace in Brazil, opening doors to foreign airlines previously hesitant about contracting work to the country.
VEM has a plan to reverse its dependence on Varig, currently responsible for 70% of its work, to a little over one third. Luis Alberto Correa, vice-president of sales and marketing at VEM, says last year the company turned away $20 million worth of work due to physical constraints. Part of this was due to VEM teams learning the 767 conversion process, which Correa says was worth the pain for the "harvest of sweeter fruits in the future. It is a challenge and a source of pride to have such sophisticated work carried out in Latin America for the first time."
To fulfil its aims of adding a second conversion line in addition to taking additional third party MRO activity, VEM will expand hangar space in both Rio de Janeiro and Porto Alegre and hire more staff. Oliveira says there is a plentiful supply of aerospace engineers in the country, with many attracted by the success of Embraer. "When I was a student there were only 10 students a year and only one university. Now there are 10 schools with aeronautical engineering degrees, each with around 50-60 students a year," he says. Embraer made the profession more attractive and the companies compete for staff, he adds.
Hardy says Helibras also draws from the same pool of engineers as Embraer, but stresses that both companies benefit from the competition. "Embraer can't hire everyone, but it's a mutual partnership as we draw from the same pool of technicians," says Oliveira.
But expansion comes at a price and VEM has come up against one of the developing world's hurdles and one that is particularly pertinent in Brazil.
Investment hunt
The company needs a line of credit be able to build the new hangars that will allow it to take on extra work, but the interest rates charged by commercial banks are much higher than they would be in the West, due to higher perceived risk of default. Another option is to borrow money from the Brazilian development fund, a government-run financing scheme. This offers loans in US dollars at prime lending rates, plus a small commission. This depends on the approval of the government and any decision is likely to be wrapped into the wider issue of Varig privatisation, which is temporarily on hold. Instead VEM is looking at outside investors, including European MRO providers, to provide the necessary boost.
But if access to credit facilities is a challenge, the country holds plenty of attractions. Those hundreds of graduate aerospace engineers are much cheaper than in Europe or the USA, but their education followed similar syllabuses. Due to the fall of the Brazilian real against the US dollar, average wage levels in the country have fallen from $3.60/h to $2.69/h, according to the Economist Intelligence Unit.
Economical labour
Aeronautical engineers command higher salaries than average, but Embraer recently conducted a study into possible materials to be used in future products such as very light business jets and found that in Brazil it was cheaper to use labour-intensive aluminium than invest in composite materials.
Yet there will still be a presence of composite very light jets in Brazil's skies despite Embraer's decision, as the Eviation Jets Vantage is set to start its certification process this year with Brazilian airworthiness authority CTA. Eviation, which acquired the rights to the eight- to 10-seat Vantage twinjet from now-defunct VisionAire in October 2003, says it reviewed various certification authorities before settling on Brazil in November last year. The single-engined prototype arrived at the end of last year in Brazil and now work is starting at its facilities in São Carlos, outside São Paulo, on re-engineering the proof-of-concept airframe to accommodate two Williams FJ44-1A turbofan engines.
After that, the aircraft will complete 360h of flight tests with the CTA. The US Federal Aviation Administration signed a bilateral with the CTA in 2003, putting its certificates on a par with the world's leading authorities, such as Transport Canada and the European Aviation Safety Agency, says Edilson Manacero, certification programme manager at CTA. Like the rest of Brazilian aerospace, CTA has grown along with Embraer and it was as a result of US airline orders for Embraer's regional jets that the FAA advised the CTA on its restructuring.
"In 1999, the FAA asked us to change the organisational structure because we had sufficient capacity to certificate the [ERJ-135] programme," says Manacero. CTA expanded from 20 certification engineers to around 100 today, he adds.
This willingness to adapt to global standards reflects the government's seriousness about growing the aerospace sector. Just like 70 years ago, when Brazil took foreign ideas and technologies and exploited local competences, it is trying the same trick again.
Just as it conquered the orange market, Brazil is hoping to grow an even sweeter fruit; a world-leading aerospace manufacturing industry.
JUSTIN WASTNAGE/PORTO ALEGRE & SÃO PAULO
Source: Flight International
