Don Sull's blog

In September 1995, Mauricio Botelho joined Embraer as the CEO. Botelho was a 53-year-old mechanical engineer, a seasoned executive who served on the board of the lead investor in the syndicate that acquired Embraer. When Botelho arrived, along with his long-time colleague Antonio Manso, they did not like what they saw. The assembly line was empty, the mainstay Bandeirante and Brasilia models were outdated, and development had been cancelled on the CBA 123. Botelho later recalled:

When I arrived, we had $330 million in annual losses, a backlog of less than $200 million and 6,100 unmotivated employees. And yet Embraer had a history of products that were to some extent pioneers in the market. First on my agenda was to understand how Embraer got into this position.

Botelho quickly concluded that Embraer had focused too heavily on improving technology, lost sight of its customers and, as a result, lacked a product to serve the customers’ emerging needs. Studies conducted prior to the privatization projected dramatic growth in the regional jet category in coming years, fueled by the rise of the point-to-point carriers which had proliferated after the airline industry’s deregulation. Embraer had a 50-seat regional jet under development. The Embraer Regional Jet (ERJ-145) was the right size for this market, but was still in the development stage and not ready for production.

Botelho, however, knew a golden opportunity when he saw one. Botelho declared the rapid development of the ERJ-145 Embraer’s main effort, and dubbed it Embraer’s “redemption program”. To focus on this opportunity, Botelho and Manso pulled the plug on virtually every other development project within the company. Botelho later remarked:

All of our focus, all of our patience, all the strength that we had in the company, we dedicated towards the certification of this new program, the ERJ-145, which allowed us to deliver the first four units in 1996, years ahead of schedule.

The ERJ-145 competed directly with Canadian manufacturer Bombardier’s offering, which had a three year head start in the market: Bombardier had delivered 100 jets before Embraer shipped its first regional jet. However, Botelho focused all of the company’s resources on the main effort to make the ERJ-145 succeed. To strengthen relationships with Embraer’s key 75 customers, the company opened offices in Australia, Beijing and Singapore, as well as a new distribution center in Dallas to serve U.S. clients.

Moreover, Embraer’s top management team took steps to ensure that every employee from the boardroom to the shop floor understood that the new regional jet was the key to the company’s redemption, and that selling the aircraft depended on satisfying customers. Botelho explained:

I knew that the ERJ-145 was a good plane… but aircraft are very similar. You may have one better than the other in certain specific conditions, but technologically speaking, we are talking about products that are very similar to one another… And what I said is that if we have about 75 customers, we must know their names, their nicknames, their family, how they operate their business, what is mandatory for them, what is relevant, to get together and really know the customer in depth and understand his requirements and react accordingly.

Despite intense competition, sales took off aided by a large initial order from Continental Express in 1996. Embraer delivered 100 planes within two years of launching the product, and by 1997 Embraer’s regional jet accounted for 60% of revenues, and pushed the company back into profitability. A year later, the company had accumulated $710m in cash from the profits on the ERJ-145. The main effort to make Embraer’s first regional jet succeed had brought the company’s redemption for the future.