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Transfer of Technology - A Case Study of the Brazilian Aircraft Manufacturer, Embraer


Transfer of Technology for Successful Integration into the  
Global Economy 
A case study of Embraer in Brazil 

José E. Cassiolato, Roberto Bernardes and Helena Lastres 

United Nations 
New York and Geneva 2002 

Transfer of Technology 
This paper is part of the series of case studies on Transfer of Technology for Successful 
Integration into the Global Economy carried out by the Investment Policy and Capacity Building 
Branch, DITE, under the UNCTAD/UNDP Global Programme on Globalization, Liberalization 
and Sustainable Human Development: Best Practices in Transfer of Technology. The work has 
been carried out under the direction of Assad Omer, assisted by Maria Susana Arano. Overall 
guidance was provided by Khalil Hamdani.  
The views expressed by the authors do not necessarily represent those of UNCTAD or 

Transfer of Technology 
Preface………………………………………………………………………… v 
Introduction.........................................................................................………. vii 
Chapter I.  The Importance of Embraer and the Aircraft Innovation System in  1 
the Brazilian Economy………………………………………….. 
Chapter II. The Development of the Brazilian Aircraft Industry up to 
Privatization: State Support and Technological Strategy……….. 

Chapter III. The 90s: Crisis, Privatization and Recovery…………….....……  15 
Chapter IV. Understanding Embraer’s Recent Success………………………  21 
1.  Competition in the Aircraft Market during the 1990s………….. 
2.  Embraer’s Production and Innovative Strategy…………………  23 
3.  The Strategy in Action: The ERJ-145 and ERJ-170/190………..  28 
Chapter V. Creating Local System of Innovation for Aircraft Production in 
São Jose dos Campos…………………………………………….  39 
1.  Scientific and Technological Infrastructure……………………..  39 
2.  Locally Subcontracted SMEs…………………………………....  40 
3. Support Institutions……………………………………………...  45 
4.  Recent Changes: Attracting Foreign Suppliers …………………  48 
Concluding Remarks ..............................................................................……..  51 
Bibliography………………………………………………………………….. 57 
Table 17: Partners of the ERJ/170/190 Programme Intending to Invest 
or to Settle in Brazil.……………………………………………………  59 
1.   Share of Exports of "Very Dynamic" Goods in Total Exports– Selected  
Countries, 1998 ………………………………………………………… 

2.   Total Exports of High-tech Products –Selected Groups of Countries 
1985/1995 (US$ Million and percentage)……………………………… 

3.   Main Brazilian Exporters 1999 and 2000 ……………………………… 

4.   Brazil – Total exports, Exports of Manufactured Goods and Exports of  
Aeroplanes, 1995-1999 (US$ Million) ………………………………… 

5.   Indicators of Embraer's Financial Performance (Thousand 
Real)………………………………………………………………………  18 
6.   Embraer's Share in the World Market for Jet Aircraft – 1999…….…….. 
7.   General Indicators of Embraer and Bombardier Groups…………………  19 
8.   Comparisons of the Most Competitive Models of Embraer and  
Bombardier planes …………………………………………………….…  20 
9.   Importance of the Aeronautical Sector in the Brazilian Economy………..  21 

Transfer of Technology 
10. Embraer’s Aircraft Production (in units) 1980-1999……………………..  23 
11. Embraer’s Production Indicators………………………………………….  27 
12. Embraer’s Technology Expenditures 1990 – 1999 (Million US$) ……….  28 
13. First level suppliers of the ERJ - 145/140/135 programme……………….  41 
14. First level suppliers of the ERJ - 170/190 programme……………………  43 
15. Local firms that are subcontracted by Embraer and its risk partners……...  45 
16. Firms Participating in the HTA Venture ………………………...………..  47 
1.  The Main Events in the Evolution of the Aircraft Production System of   
São José dos Campos 1947 – 1999……………………………………….  11 
2.   Critical Factors of Competitiveness in the Civil Aircraft Industry……….  22 
3.   Time Schedule of the Development Stages of the ERJ-170/190………….  35 
I.    Embraer’s Aircraft ……………………………………………………… 
II.   Embraer's Main facilities. ………………………………………………. 
III.  The ERJ-145 programme………………………………………………...  30 
IV.  The ERJ-170/190 programme……………………………………………  33 
V.   A successful story in PóloVale…………………………………………...  46 
VI.  Potential Local Production………………………………………………..  50 
VII. Cooperative of Engineering Services…………………………………….  52 
1.  Division of Labour between Embraer and its Risk Partners for the ERJ-    
145/140/135………………………………………………………………  31 
2   Division of Labour between Embraer and its Risk Partners for the ERJ-    
3.   Embraer – Total Employment – 1970-2000………………………………  37 
4.   Embraer–Sales, Exports, Imports and Trade Balance –  
1975-1999  Million real…………………………………………………..  49 

Transfer of Technology 
The main objective of the studies carried out under the UNCTAD/UNDP Global 
Programme on Globalization, Liberalization and Sustainable Human Development: Best 
Practices in Transfer of Technology is to identify factors that could enable firms in developing 
countries to upgrade technologies or develop new technologies with a view to enhancing their 
productivity. The case studies focus on successful cases of technology transfer and integration 
into the world economy. They are thus expected to provide lessons, in terms of best practices, to 
other developing countries in the context of technological capacity building. 
The project consists of three case studies1 of sectors where the selected developing 
countries have demonstrated their ability to create new productive capacities and successfully 
participate in the world market. Each of the sectors represents an example of created comparative 
advantage; that is, where a country's factor endowments were modified through investment in 
physical capital, human resources and the building up of capacities to develop and use new 
technologies. Central to an understanding of the catch-up process and the building of 
technological capacity across countries is the identification of firm-level factors as well as 
government policies and institutions that enable firms to thrive, grow and compete in the world 
market. Therefore the case studies aim to identify conditions under which sectoral development, 
integration into the global economy, and sustainable human developments are all linked together. 

1 The three case studies are: A Case Study of the Pharmaceutical Industry in India; A Case Study of the South African 
Automotive Industry
; and A Case Study of Embraer in Brazil. These three studies will also be part of a forthcoming 
AND  SUSTAINABLE HUMAN DEVELOPMENT, which will include overview on the studies and on the 
international dimension of the national policies adopted in these cases. 

Transfer of Technology 

It is widely recognized that the capacity to generate and use knowledge is the most 
important element for sustainable competitiveness and growth of firms and countries. In fact, as 
emphasized by the evolutionary approach to innovation, knowledge creation and diffusion are 
fundamental sources of sustainable economic dynamism. Learning, the key source of change, is 
seen as the most important mechanism for knowledge accumulation, innovation and growth. 
Firms are obviously at the centre of these processes. However, it is increasingly observed that 
interactions among them and their interactions with a number of other organizations (dealing with 
such aspects as education, training, research and development (R&D), financing and policy 
support) play an important role in the process of knowledge creation and diffusion.  
To deal with such complexity the notion of systems of innovation was developed. 
Furthermore, the concept of national systems of innovation (NSI), which stresses the importance 
of knowledge and innovation in explaining the economic performance of firms and countries, has 
become accepted as a useful way to understand the interactions occurring in the process of 
generation and diffusion of technologies and the institutional diversity which is part and parcel of 
this process (Freeman, 1987; Lastres, 1994).  
However, there have been limited attempts to use the idea of NSI in analyses of 
developing countries. These have generally taken for granted both the hypotheses and analytical 
categories elaborated for industrialized countries, with little effort made to qualify the concept 
and adapt it to the development environment. In fact, until recently, development theory, when 
considering the possibilities open to developing countries to establish production and participate 
efficiently in the world market, has focused on comparative wage rates, natural endowments and 
other related advantages as necessary preconditions. It is true that a number of authors have 
emphasized the role of technological change in the growth of developed countries. However, 
development economists have not typically thought of industrialization in terms of technical 
change, despite the emergence of a large and important body of literature on technical change and 
The basic aim of this paper is to analyse the recent success of Embraer, the Brazilian 
aircraft manufacturer, as an example of how innovation systems have been used in a country that 
are still in its development stage. The paper argues that mastering technical change has always 
been essential for development, even more important in the present era of world capitalism, 
known as the Knowledge Era. The analysis of the Brazilian aircraft innovation system is part of 
an ongoing research project on National and Local Systems of Innovation in the MERCOSUR 
countries, carried out by several institutions and scholars in the region. The project aims at 
gathering and analysing information on local productive clusters with a view to contributing to 
discussions about national systems of innovation in developing countries (characterized by even 
higher levels of diversity and institutional instability than those of the developed economies).  

Transfer of Technology 
The paper is organized in the following way. Chapter I discusses the importance of 
Embraer and the Brazilian aircraft innovation system in the Brazilian economy. Chapter II 
analyses the development of the Brazilian aircraft industry and related innovation system from 
their origin in the mid-1940s till the early 1990s when structural changes in Brazil led to 
Embraer’s privatization. This analysis shows that strong and continuous support by the federal 
Government and the state and a particular technological strategy were essential for the 
consolidation of the innovation system and the recent success of the company. Chapter III 
concentrates on a discussion of Embraer’s strategy after privatization and chapter IV describes 
Embraer’s recent success based on its understanding of competition in the aircraft market during 
the 1990s; its productive and innovative strategy is also discussed. Chapter V presents the aircraft 
innovation system of São José dos Campos, as it is today, pointing out its fragility and strong 
points. Finally the concluding remarks present policy prospects. 


Transfer of Technology 
Since the early 1990s, structural reform, through liberalization, deregulation and 
privatization, has significantly affected innovative behaviour at the microeconomic level in 
Brazil, with important consequences for its national systems of innovation (NSI). The following 
are some of these consequences, as suggested in an earlier paper (Cassiolato and Lastres 2000): 
•  The substitution of imported capital goods for domestically-produced machinery and 
•   A significant decline in public expenditure on science and technology (S&T) as a result of 
structural reform, and particularly privatization;  
•  Although private agents were expected to play a more important role in technological 
activities empirical data show that this has not been the case; 
•  The discontinuation of local engineering activities by subsidiaries of transnational 
corporations (TNCs); 
•  Most of the local innovative firms have been acquired by TNC subsidiaries that, as part of 
their strategies, are downgrading the technological activities carried out locally; 
•  Independent and public R&D institutes are changing the mix of activities they conduct: they 
are reducing the number of research projects they undertake and increasing the share of 
consultancy and technical assistance activities, which provide them with the resources they 
One of the most significant results of these changes has been that the Brazilian economy 
has specialized in sectors and areas of relatively low dynamism. As table 1 shows, in 1998 the 
share of exports of "very dynamic" goods (those in which international trade grew at least 10 per 
cent in value between 1982-1984 and 1996-1998) in total exports, was 18 per cent in Brazil. 
Although this pattern is similar to that of other Latin American economies such as Argentina and 
Chile, it significantly contrasts with the experience of other countries that have benefited from 
globalization such as the United States (42 per cent of dynamic goods’ exports), Japan (55 per 
cent), Germany (46 per cent), Malaysia (57 per cent) and the Republic of Korea (48 per cent). 
In fact, given the specialization pattern of Brazil’s economy, its participation in trade flows 
in new technologies is negligible. Brazil’s share of world exports of technology-intensive 
products (aerospace, informatics, electronics and telecommunications), as defined by OECD, 
1996 fell from 0.6 per cent in 1985, to 0.26 per cent in 1991 and 0.19 per cent in 1995. This 
pattern is similar to that of the other members of the Southern Common Market (MERCOSUR), 
such as Argentina that witnessed its share decline from 0.08 per cent in 1985 to 0.04 per cent in 
1995 (see table 2).  

Transfer of Technology 
Table 1. Share of exports of "very dynamic" goods* in total exports, 
selected countries, 1998 
Country % 

Japan 55 
 United States 
Korea, Rep. of 
Germany 46 
India  19 
France 41 
Spain 40 
Italy 38 

*"Very dynamic" are goods for which the world trade grew by at least 10 per cent in value between 
1982-1984 and 1996-1998. 
Source: IEDI2 (2000), quoted in Folha de São Paulo, 25 April 2000. 
Table 2. Total exports of high-tech products, selected groups of countries,  
1985-1995 (US$ million and percentage)  
1991   1995   
$ million 

$ million 

$ million 

European Union 
139 795
136 761
193 871
61 846
92 054
121 194
Latin America (excl. 
1 959
1 074
1 314
- Brazil 
1 697
- Argentina 
Asian tigers**  
64 583
69 777
149 588
Australia 423

New Zealand 
South Africa 
276 237
317 999
510 710
* NAFTA: North American Free Trade Area, comprising Canada, Mexico and the United States. 
** Japan, the Republic of Korea, Taiwan Province of China and Singapore.  
Source: European Union (1997) 
This downgrading of Brazil’s specialization happened during a period when structural 
reforms were adopted with a view to modernizing the economy and increasing its 
competitiveness so as to accelerate the country’s integration into the globalizing, knowledge-
based economy. A strong effort to attract new foreign direct investment (FDI) was an essential 
component of this strategy, which Brazil aggressively pursued during the 1990s. However, the 
new FDI of the 1990s was directed mainly at mergers and acquisitions of existing firms rather 
than at greenfield investment. A recent study which attempted to identify the strategies of TNC 
subsidiaries that are planning new investments found that they are basically import-intensive and 
2 Instituto de Estudos para o Desenvolvimiento Industrial (IEDI), São Paulo, Brazil. 

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aim at producing for the internal MERCOSUR market; they are not export-oriented (Laplane, 
Suzigan and Sarti, 1998). 
These two features of FDI in Brazil – relative concentration in acquisitions of local firms 
and market seeking, import-intensive forms – have had a critical impact on local innovation 
systems in the high-tech sectors. Several experiences in Brazil illustrate this. For example, in 
1996 and 1997 a number of TNCs acquired several large domestic auto-parts producers that were 
specialized in technology-intensive goods, such as Metal Leve, Freios Varga and Cofap. 
Subsequently, the R&D activities of the local firms were downgraded, and notably their more 
advanced R&D was relocated to the parent firms’ R&D centres in their home countries.  
Even in many of the country’s high-tech firms, R&D activities were scaled down when 
TNCs bought into them, as happened when Alcatel purchased Elebra – one of the most important 
producers of switching systems – in 1992. In 1999, Zetax and Batik, two domestic firms 
producing and developing a technologically advanced switching system called Trópico, became 
part of Lucent Technologies. Interviews indicated that Lucent was not interested in local R&D, 
preferring to rely on technologies developed in the parent company. A similar process has been 
observed in other telecommunications TNCs active in Brazil. Since they are increasingly exposed 
to international competition, they are scaling down local R&D as a cost-reducing strategy. In 
particular, R&D activities geared to the development of new products is discontinued, with a shift 
to the more simple adaptation of imported processes and products. In most cases, this has meant 
that highly qualified engineers engaged in R&D are transferred to other, less-specialized, 
functions such as production, quality assurance, sales or marketing. A related process observed in 
the hi-tech telecommunications and information technology clusters in Campinas and São Carlos 
is that the newly-established affiliates are not linking into locally-based supplier networks. 
Instead they operate in isolation from the domestic innovation system, preferring to deal with 
their parent companies and other affiliates rather than with local firms. This too has a negative 
impact on local R&D capacity.
As a result, the country is losing the competitive edge it had developed in some product 
markets. This has reinforced a process of increasing import intensity that began with trade 
liberalization in the early 1990s. For example, the import penetration coefficient for parts and 
components in the car industry increased from 8 per cent in 1993 to 20–25 per cent in 1996; 
import penetration in information technology and telecommunications products soared from 29 
per cent in 1993 to around 70 per cent in 1996 (Laplane, Suzigan, and Sarti, 1998). If local 
production of high-tech intermediate inputs in production continues to decline, the share of 
imports is bound to increase further. The impact on technology would then be reinforced by an 
adverse impact on the trade balance. 
Given the above-mentioned emerging pattern of international system of production, the 
case of the Brazilian aircraft manufacturer, Embraer, stands out as an admirable exception. As 
shown in table 2 above, Brazil’s total exports of hi-tech products in 1995 amounted to less than a 
US$ 1 billion (US$ 1 = Real$1). According to official statistics (table 4), Embraer was 
responsible that year for US$ 182 million (i.e. 0.7 per cent) of all manufactured goods exported 
by Brazil. Four years later, the company became the largest Brazilian exporter, with US$ 1.7 
3For details, see Cassiolato, Lastres, and Szapiro, 2002; and Szapiro, 2002.  

Transfer of Technology 
billion worth of foreign sales in 1999 and US$ 2.7 billion in 2000 (table 3); this represented 6.48 
per cent of all Brazilian exports of manufactured goods in 1999 (table 4). In 1997, during the 
Aerospace Fair at Le Bourget, Paris, it signed contracts worth US$ 6.6 billion – a record in the 
world aeronautics industry. In a period of less than five years Embraer was able to reverse its 
near bankruptcy to become, in 1998, the world leader in the commuter/regional jet market. It is 
now the fourth largest Western aeronautics firm, just behind Boeing, the Airbus Consortium, and 
the Bombardier Group, the latter being its direct competitor. Having designed, developed, 
produced and commercialized two successful medium-sized aircraft, the ERJ-145 (50 seats) and 
ERJ-135 (35 seats), Embraer has become the only world player among Brazilian firms in the 
technology-intensive area. It is also the only important locally-owned firm in this area that has so 
far resisted acquisition attempts by foreign TNCs.  
Table 3. Main Brazilian exporters, 1999 and 2000 
Firms US$ 
2 000
1 999
Embraer S/A 
2 702.0
1 691.5
Cia Vale do Rio Doce 
1 596.1
1 542.1
Petrobras S/A 
1 456.5
Volkswagen do Brazil Ltda 
1 128.9
Bunge Alimentos S/A 
Cia Siderúrgica Tubarão 
Fiat Automóveis S/A 
Motorola Industrial Ltda 
Aracruz Celulose S/A 
General Motors do Brazil Ltda 
Total (10 largest) 
11 188.6
8 089.1
43 897.0
39 922.3
55 085.6
48 011.4
Source: Brazil – Secretaria de Comércio Exterior (SECEX), 2000. 

Transfer of Technology 
Table 4. Brazil: Total exports, exports of manufactured goods and exports of 
aeroplanes, 1995-1999 (US$ million) 
A. Total exports 
45 506
47 747
52 994
51 140 
48 011
B. Exports of manufactured goods  
25 565
26 413
29 194
29 387 
27 329
C. Exports of aeroplanes  
1 159 
1 772
D. C/B  
Source: Brazil – Secretaria de Comércio Exterior (SECEX), 2000. 

Embraer’s remarkable recent success is certainly the result of deep restructuring processes 
in production and business following its privatization in the 1990s. However, most importantly, it 
is also the result of long-term government-sponsored institutional and technological 
developments that date back to the 1950s. The next chapter discusses the origins and historical 
development of the Brazilian aircraft industry.

Transfer of Technology 
Brazilian aircraft production is concentrated in the São José dos Campos region of São 
Paulo state, which is where Embraer is located. São José dos Campos is 80 kilometres from the 
city of São Paulo. According to official statistics for 1996, this region was responsible for 6 per 
cent of the value added, 3 per cent of the total number of firms, and 4 per cent of the industrial 
workforce of São Paulo state. 
Chart 1 presents the most important events that have affected the evolution of the 
Brazilian aircraft industry (BAI). In fact, the origins of this industry can be traced back to the 
setting up of the Aeronautic Technology Centre (CTA) in 1945 as an institution of the Ministry 
of Aeronautics, which was created four years earlier. The Centre was initially made possible 
through a cooperation agreement with the Massachusetts Institute of Technology (MIT), United 
States. In 1947, CTA set up the first undergraduate school, Aeronautics Technological Institute 
(ITA), with the aim of training specialized engineers and it has been one of the best engineering 
schools in Brazil.  
At the beginning CTA and ITA were located in Rio de Janeiro, which was Brazil’s capital 
at that time. However in 1950 they were transferred to São José dos Campos. In the mid-1950s 
CTA began research activities with the setting up of the Institute of Research and Development 
((IPD, in Portuguese) for undertaking research in some basic areas related to aeronautics (aircraft 
projects, electronics, materials, engines and flights tests). One of the first technology projects, by 
IPD’s Department of Engines, aimed at improving jet-propulsion engines. In 1954 an ambitious 
project, the Convertplane, was also conceived, aimed at designing an aeroplane with a vertical 
take-off propeller and a horizontal flight trajectory, to be used as a conventional plane. This 
resulted in the prototype of BF-1 (Beija Flor), a two-seater helicopter. 
The main idea behind the setting up of a technology centre (CTA) and an institution (ITA) 
devoted to training high-quality engineers, modelled on MIT (ITA), was to establish, develop and 
acquire skills and capabilities in aircraft manufacture. In fact, since the creation of CTA, 
Brazilian policy had envisaged the setting up of a national aircraft industry as the ultimate goal 
for the sector. CTA was to occupy a central place in the strategy, as it would foster the 
development of the requisite human resources and technological capabilities. And the setting up 
of Embraer as a State-owned manufacturer of aircraft, under the Ministry of Aeronautics was a 
natural outcome of these earlier developments. State actions and policies, unprecedented in 
Brazil’s technological and industrial history, which used tax incentives and benefits, 
procurement, and continuous government support, enabled the recent successes of the country’s 
modern aircraft industry.  
Embraer was conceived as a State-owned company that would concentrate its efforts on 
the assembly of aeroplanes. The important point about Embraer’s initial plans was that the local 
manufacture of aeroplanes was to be undertaken through aircraft projects designed and conceived 
in Brazil by Brazilian engineers and technicians. The basic concept behind the plan was the 

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acquisition of "technological autonomy", meaning the capacity to understand the whole 
technological cycle of aircraft production by developing and manufacturing it. It is worth 
pointing out that this concept was similarly used in some other areas where the Government had 
played an important role in the 1950s and 1960s, such as oil production (with Petrobras) and even 
car manufacture (with FNM).4  
In 1969 Embraer was set up as a government-controlled enterprise (Sociedade de 
Economia Mista), with the Brazilian Government keeping at least 51 per cent of the voting 
capital. It commenced its manufacturing activities in January 1970 with a staff of 150 employees, 
all recruited from CTA (more specifically IPD). Blue-collar workers were recruited mainly from 
the automobile industry, which had been set up in Brazil in the late 1950s. The initial capital 
subscribed by the federal Government was about 5 million cruzeiros (around US$ 1 million). 
Given its size, Brazil used to be a large importer of small aeroplanes (up to 10 seats) from 
the United States. During its early stages, Embraer signed a manufacture cooperation agreement 
with the PIPER Aircraft Company of the United States to carry out production of an import 
substitution kind. In 1971, its first aircraft, the Ipanema, was launched; it was designed for 
civilian use, specifically the agricultural market. Also that year, Xavante – an aeroplane designed 
for the military market – was launched. The Xavante project was developed through a licensing 
agreement with an Italian firm, Aermacchi. In 1973, Embraer’s most successful aircraft, the 19-
seater Bandeirantes, was launched, intended for both the civil and military markets.  
From the late 1970s to the late 1980s Embraer successfully embarked on several ventures. 
In 1978, Xingu and Tucano aircraft directed at the Brazilian market were launched. In 1981 the 
Brasilia aircraft project was relaunched. This aircraft was intended to be an improvement on the 
successful Bandeirantes, while using the same basic technologies. 
In 1980 another project, the AMX, to manufacture a military aircraft, was set up as a joint 
venture with Italian firms: Aeritália (with a 46 per cent share) and Macchi Aeronautic (with 24 
per cent), and Embraer had a 30 per cent share. Embraer also entered into an agreement with 
Argentina in 1989 for the 12-X project, a prototype aimed at replacing the Bandeirantes, as part 
of the political agreement between the two countries, which culminated the creation of 
MERCOSUR. However, this project turned out to be Embraer’s biggest failure. 
It was also in 1989 that the development of what would become its biggest success 
started: the ERJ-145 was to be the first jet produced by Embraer. It was a project conceived under 
the so-called "communality" concept that in fact meant designing a jet aeroplane using similar 
basic concepts as the previous turboprop technology, with many components common to the 
Brasilia and CBA-123. 
Embraer has conquered the regional air transport market, both in Brazil and 
internationally, with its EMB-110 Bandeirante for 19 passengers, and, more recently, the EMB-
120 Brasilia for 30 passengers. Both turboprop aeroplanes acquired an international reputation 
4 The project of manufacturing a locally-developed car with FNM was subsequently abandoned when foreign-owned 
car assemblers were chosen to lead the Brazilian strategy in the area. In fact when Volkswagen of Germany acquired 
FNM in the early 1960s the project was scrapped.  

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becoming leaders in the United States market in their category. As a matter of fact, in the early 
1990s, the Brasilia had a 24 per cent share of the world market for aircraft of the same category 
(Dagnino, 1987). 
Embraer’s success in technology and innovative development was exceptional and 
unprecedented in Brazil’s industrial history. It should be pointed out that crucial to this success 
was the technology developed by the IPD. Although license and cooperation agreements with 
foreign firms were essential for the success of Embraer, the origins of the three projects (the 
EMB-110 Bandeirantes, the IPD-6909 Ipanema and the EMB-326 Xavante) can be traced to IPD 
in the late 1950s. In fact most products, technologies and human resources that became the 
backbone of Embraer originated in IPD. Embraer absorbed this technology in the simplest way: 
by hiring all IPD personnel when the company was created. The entire technical team, 
administrative personnel and of almost all of IPD’s Aircraft Department (and other smaller 
departments) were assigned to Embraer (Pasqualucci, 1986:41). It attracted qualified labour by 
offering favourable working conditions, and a good salary and career prospects. However, the 
acquisition by Embraer of what was important in IPD, insofar as technological know-how was 
concerned, led to a virtual "hollowing out" of that Institute. Practically two decades elapsed 
between the end of the project developed in the 1960s and the beginning of new research of any 
significant technological content in IPD, namely the development of an unmanned aircraft 
(Cabral and Braga, 1986). 
Embraer focused its efforts on those key technologies that define the aeroplane as a final 
product. It was a significant departure from the dreams of the 1930s and 1940s of building a 
totally national aeroplane, with motors, components, parts and avionics made in Brazil. The 
company strategically favoured a technology strategy towards capacity training in the areas of 
aerodynamics, fuselage and project integration. Efforts were directed towards training and 
developing capabilities in two basic areas: the aircraft project and the integration of components 
that could not be manufactured by Embraer itself. The reasons behind this important decision not 
to organize production vertically were basically scale, market size, reliability and technical 
The acquisition of technical competence for the fuselage of the aircraft was considered to 
be strategic for the competitive future of the company. According to interviews with senior 
officers of Embraer, competence in fuselage "was the only key area in which the know-how 
required could not be obtained satisfactorily outside the Brazilian borders". This was considered 
an essential condition for autonomy in product design and for the eventual success of the firm as 
a competent final assembler of aircraft. As experience would show, this approach proved to be 
essential to Embraer’s future, since this gave it independence and autonomy of decision-making. 
It enabled Embraer to master the basic technologies of the aeronautical industry, manage its own 
business, and create market opportunities. "It was more important for the commercial success of 
the company than the control of the most sophisticated and numerous technologies that the 
production of an aircraft requires and of the other thousands of items that comprise it" (Dagnino, 
Thus, the strategy outlined for the company, was based on the premise that the capacity to 
master technology through systems integration was more crucial than having a larger share of the 
value-added of the aircraft being produced in Brazil. It is worth pointing out here that most of the 

Transfer of Technology 
Brazilian industrialization through import substitution was based in the idea of increasing local 
production. According to Dagnino (1994), if the public authorities of the aeronautical sector had 
pursued the illusion of increasing local content, approximately 50 per cent of local value added 
could have been reached by the mid-1980s. However, to attain this goal and, at the same time to 
complete the mastering of technology, the Brazilian strategy would have had to be entirely 
different and it probably would have been impossible to achieve both the goals. Costs probably 
would have been prohibitive and the time span required to successfully enter the market would 
surely have been longer. In fact under such a strategy Brazil should have pursued the 
reproduction of the entire development cycle of aircraft found in developed countries. It is 
enough to highlight, for example, that there are no more than five countries manufacturing 
aeronautical motors with own technology. 
The fundamental notion behind Embraer’s strategy was to target key areas responsible for 
all basic technological development, supporting incremental technical change and building core 
competence. This distinctive perception about accumulation of productive and technological 
capabilities was vital to the success of its strategy. It led the company to identify "key 
technologies" necessary for a progressive technological upgrading, and included essential 
technologies for the future as, for instance, new materials. 
The most important aspect of this strategy is that it allows for the independent conception 
of projects. In a similar vein, by adopting the concept of "aircraft families", used both by Boeing 
and Airbus for their big commercial jet lines, Embraer acquired the benefits derived from the 
development of several versions of the same basic models, which entailed lower costs, faster 
development and a shortening of the production cycle. A "family" has the advantage of a 
common concept that brings lower infrastructure and maintenance costs, standardized pilot and 
technical personnel training and common crew upgrade possibilities; In short, lower costs and 
faster aircraft production. This allowed for a reduction in the time-to-market, to about two or 
three years, less than half the time that a new project usually takes. This concept was applied in 
the development of several aeroplanes, such as the Bandeirante, Xingu, Brasília, CBA-123 and 
ERJ-145, some of which became great commercial successes in the world commuter aviation 
market and brought recognition, prestige and fame to the company.  
These three approaches – the "family" concept that permitted the drawing of benefits from 
common resources; cumulative paths and coherence in the organizational and technological 
training of high complexity, allowing identification of the critical key technologies that foster 
improvement and appropriation; and the strategy of vigorous investment in training of human 
resources  – formed the backbone of Embraer’s pursuit of technological autonomy. 

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Chart 1. The main events in the evolution of the aircraft production system 
of São José dos Campos  
•  1947 – Construction of the Aeronautic Technical Centre (CTA) begins. The planning and 
construction is supervised by OCATC (Organizational Commission of the Aeronautics 
Technical Centre) of the Aeronautics Ministry, established on 29 January 1946 and disbanded 
on 26 November 1953.  
•  1950 – CTA and its engineering school, ITA (Aeronautic Technological Institute created in 
1947) are transferred from Rio de Janeiro to São José dos Campos. The students are 
scholarship holders sponsored by the Ministry of Aeronautics; besides free tuition they get 
free lodging, food and health care. It is a developmental milestone in university education in 
•  1954 – The Institute of Research and Development (IRD) is set up at CTA with the aim of 
developing research in basic areas for aeronautics (aircraft project, electronics, materials, 
engines and flights tests). 
•  1954 - Convertplane project set up.  
•  1969 – Embraer set up.  
•  1970 – Embraer starts manufacturing activities.  
•  1971 – The Ipanema and Xavante are launched. 
•  1973 - The Bandeirantes is launched. 
•  1974 – Cooperative agreement with the US PIPER Aircraft Company is signed. 
•  1978 –Xingu and Tucano aircrafts are launched. 
•  1980 – Development of the AMX programme begins. 
•  1981 – The Brasilia aircraft project is relaunched. 
•  1989 – Development of the12-X project (Brazil-Argentina’s Cooperative Agreement) begins. 
•  1989 – Studies for the development for ERJ-145, (first jet produced by Embraer) begin. 
•  1992 – Embraer is included in the national privatization programme. 
•  1994 – Embraer is privatized 
•  1996 – Two hundred ERJ-145 are sold at the Farnborough Air Fair in the United Kingdom.  
•  1997 – After a dramatic dispute with the Bombardier group, Embraer gets the largest contract 
in its history at Le Bourget Aeronautic Fair, in France. 
•  1997 - Development of a new regional jet, the ERJ-135 for 37 passengers, begins.  
•  1998 – Development of a new regional jet, the ERJ-140 for 40 passengers, begins. 
•  1999: 
 – Development of a new family of regional jets, the ERJ-170/190, begins.  
 – Twenty per cent of Embraer’s ordinary shares are acquired by a French consortium led 
by Aérospatiale Matra, Dassault Aviation, Thompson-CSF and Snecma. 
 – The new families of regional jets and military products are presented to the market. 
 – The Swiss company Crossair becomes the first Embraer client for the ERJ-170/190 
programme. At Le Bourget Fair, a contract worth US$ 4.9 billion, for 200 jets, is signed.  
Source: Embraer 

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The company outlined a strategy regarding not only the know-how, but also, especially, 
the "know-why", concerning training processes and technological innovation, since it was a State-
owned company. In that sense, as Dagnino (1987) pointed out, the solid and continuous 
government support offered to Embraer throughout its history differed from the experiences of 
other countries. This support was given through budgetary allocation of sufficient financial 
resources for the science and technology (S&T) infrastructure and procurement. According to 
Dagnino, the main axis in the technological strategy adopted by Embraer was not the import of 
"technological packages" ("black boxes"), to be subsequently "opened" and adapted to local 
conditions and eventually optimized by "reverse engineering". On the contrary, investment and 
efforts were directed towards developing competencies by providing solid training in applied and 
basic research and by continuous concern with training to enhance capabilities and skills in the 
development and design of specific technological solutions, through consulting services and 
technology agreements. This was the road chosen to increase the innovative potential of the firm. 
Typically, Embraer followed what is known in the literature as a "learning strategy". The learning 
was mainly of the "learning by doing" type, but sometimes it was also of the "learning by 
adapting" kind. The process of "learning by doing" characterized the first period of the company. 
Starting from training in aeronautical projects (especially in aerodynamics) it was possible not 
only to assimilate the remaining know-how – not specifically technological – but also to open up 
organizational learning paths. This endowed the company with a capability to formalize problems 
and solutions, which was crucial for the process of aircraft certification.  
It should be added that other ways of learning through recruiting ("learning by hiring") 
and subcontracting ("learning by interacting") were important. The former was obtained both by 
association with outside partners and by government policy, particularly from the Ministry of 
Aeronautics, through procurement. A good example was the decision by the Ministry of the 
Aeronautics to equip the Brazilian Air Force with MB-326 aeroplanes in the late 1970s. Instead 
of buying these aeroplanes in the international market, the Ministry sought to develop local 
production. As a result Embraer signed an agreement with the Italian Aermacchi for production 
of the Xavante military aeroplane. The development of the project required several Italian 
specialists to come to Brazil for helping local production and for the transfer of technology. 
Another example was the agreement Embraer set up with Piper, which used to sell aeroplanes in 
Brazil before the Ministry of Aeronautics established rules that imposed, in practice, a market 
Other important agreements signed by Embraer that had a significant impact on the 
development of its human resources capabilities were: 
a) Technical assistance and aircraft maintenance agreements with airline operators; and 
b) Manufacturing of complex components by order (with McDonnnell Douglas and 
Finally, Brazil’s Air Force bought the F-5s from Northrop Grumman of the United States, 
and the Ministry of Aeronautics included, as part of the sales package, a technological training 
programme for Embraer in the areas of metal welding, composite materials and in the use of 
digitally-controlled machines (Dagnino, 1994).  
Learning through user/supplier interaction was intense and global. Embraer became 
known in the world market as being a user of extremely qualified equipment and software. It was 

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not satisfied in simply knowing how to operate services or technology that it acquired, but, above 
all, the company aimed at modifying the technology to its requirements. In many cases, this led 
to improving, correcting defects, and even opening up new market opportunities for the product. 
Embraer also became an active and highly qualified technology user, with significant gains from 
"learning by using." It distinguished itself for its long-term strategy and for its training 
programmes and for its employees' professional education in general. The excellence of its 
human resources was always considered a critical factor to its successful growth. And in that 
sense, the importance and the strategic focus of the company on learning by training was crucial. 
In the early years of the company, during the process of the transfer of technology for production 
of the Xavante programme, about 70 employees were trained in Italy. Thus the company was able 
to proceed rapidly from assembly operations to the national production of this aeroplane. 
Especially relevant were the partnerships for the training of personnel, developed with the AMX 
programmes and later, in the 1990s with the ERJ-145 programme.  
To sum up, the federal Government supported and promoted a coherent, cumulative and 
continuous technological policy, which targeted Embraer, the S&T infrastructure in São José dos 
Campos and strong interaction among the several institutes of CTA and Embraer itself. In 
practice it allowed Embraer to obtain technological training and a quite uncommon competitive 
position in relation to other developing countries. However, it is interesting to note that although 
this phase of the aircraft industry in Brazil was characterized by a strategy of development, 
learning and consistent and successful technological training, where active forms of technological 
learning were identified, there were some pitfalls. Embraer experienced a crisis in the early 
1990s, but quickly recovered. The next chapter discusses this recent period. 


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The economic and political crisis in Brazil at the end of the 1980s and the first half of the 
1990s deeply affected Embraer and the entire Brazilian economy. This general crisis was 
aggravated by world crises in the aerospace and defence industries. However, the second half of 
1990s saw recovery, and a new investment and economic growth cycle was inaugurated.  
The roots of this crisis were to be found in the previous decade. Macroeconomic problems 
were associated with a significant decrease in government spending. A sharp reduction in the 
R&D budget and a progressive weakening of the scientific and technological infrastructure had a 
significant impact on the aircraft innovation system. Procurement also diminished, since the 
budget crisis meant fewer funds for government purchases in the aeronautic, space and defence 
During the crisis, federal industrial and technological policies virtually disappeared. 
Several financing mechanisms normally used to support aircraft sales were scrapped. Also, as an 
outcome of the democratization process, the military – that constituted a powerful pressure group 
for Embraer’s interests – lost its political clout. On the external front, the recession in the regional 
aviation market and the end of the Cold War strongly affected Embraer. At the microeconomic 
level, Embraer rapidly experienced financial troubles for the following reasons:  
•  It had started several new big projects without appropriate financial backing. The overall 
economic crisis also meant that even the few private financial institutions that were willing to 
give long-term credits were charging very high interest. Embraer, being a State-owned 
company, had to submit all its financial dealings to the national Congress. This was a long 
and uncertain process, and Congress seldom gave authorization for loans. Therefore, the 
Company was forced to seek short-term loans that charged much higher interest rates. As a 
result its financial problems spiralled;  
•  Projects were developed without detailed market research and a thorough examination of 
potential clients’ needs; 
•  Embraer’s management was excessively technology-driven, focusing more on technological 
capabilities and product development than on financial matters; and  
•  as a result, cost considerations were not given a high priority. 
The final result was a rapid loss of competitiveness in both internal and external markets. 
In the internal market the situation was aggravated by the fact that the Government not only 
stopped its financial backing of Embraer, but also opened the economy to international 
competition in a way that favoured imports. Also, macroeconomic instability led to high interest 
rates, as mentioned above, that made loans more expensive. 
Brazil’s economy in the first half of the 1990s was marked by structural reforms and 
macroeconomic stabilization plans based on the free-market concept, accompanied by the 
dismantling of policies for financing industrial, technological and export growth; for example, in 
1991, as part of a wider reform process, the federal Government ended the programme, Finex, 
which aimed at providing long-term finance for Brazilian exports. Furthermore, a decline in 

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government orders and a drastic reduction in employment and manufacturing resulted in a loss of 
the country’s competitive position both on the domestic and world markets. 
In the early 1990s, the recession in the world aircraft market affected EMB-120 Brasilia 
aircraft sales. Moreover, Embraer’s own problems contributed to the rise in financial costs, with a 
direct impact on the price of the aircraft. There were already clear signs of preference for jet 
aircraft. From the buyer’s point of view, lack of competitive credit lines for export was another 
negative factor affecting aeroplane sales. An example of the negative repercussion of the crisis 
experienced by the company on its international prospects was the loss of an important public 
tender in the United States, called JPATS (Joint Primary Aircraft system). This was a tender for 
the supply of 711 training aeroplanes to the United States Air Force and Navy worth US$ 7 
billion. Embraer spent years preparing itself for this tender with the Super Tucano turboprop, in 
consortium with Northrop of the United States. It lost to the Swiss Pilatus PC9, associated with 
United States Beechcraft that is part of the Raytheon group (which had won the bid for the 
Amazonian Surveillance System – Sivam - installation in Brazil). 
According to specialists, from the technical standpoint the Super Tucano and Pilatus are 
equal. The Embraer aeroplane had already been chosen in other tender competitions in the United 
Kingdom, France and Egypt against its Swiss competitor. Another competitor in the JPATS 
tender along with Embraer and the Raytheon/Beechcraft entry, Pilatus, was Cessna of the United 
States with its Citation jet. These latter two companies were preferred because they already 
supplied aeroplanes to the United States Navy and Air Force. The JPATS contract was destined 
to replace the Navy’s Beechcraft T-34 and the Air Force’s Cessna T-37. Some analysts have 
attributed Embraer’s crisis to its losing this contract. This loss also affected its credibility and left 
it in an even more vulnerable financial position. One important result was that the company cut 
its workforce by half. Approximately 13,000 highly specialized jobs related to the aerospace 
sector were eliminated; Embraer alone was responsible for the elimination of 8,000 jobs.  
In 1992, as part of the deep structural changes undertaken in Brazil, Embraer was 
included in the national privatization programme. It is important to point out that the costs of 
retrenchment of the workforce and administrative restructuring, in the most dramatic phase just 
before Embraer’s privatization, were borne by the Brazilian federal Government. After that, the 
company was ready to be offered to the private sector, and was eventually privatized on 7 
December 1994. It was acquired for US$ 265 million by a consortium of local enterprises and 
pension funds led by the Bozano Simonsen Group, one of the leading Brazilian conglomerates, 
which operates in the financial, mineral, real state, agricultural and manufacturing sectors. The 
consortium acquired 40 per cent of the voting capital. Among the main investors were: Bozano 
Simonsen Limited (13.65 per cent), Bozano Leasing (3.63 per cent), the pension fund, Sistel 
(10.42 per cent), Previ (10.40 per cent), and Cesp Foundation (1.9 per cent). Ten per cent of the 
shares were reserved for the company’s employees.. The privatization of the company implied 
further organizational restructuring. Downsizing of production processes was envisaged and 
some qualified personnel were made redundant. 
These changes in Embraer bore fruit when, at the Farnborough Fair in the United 
Kingdom in 1996, 200 ERJ-145 (its new jet aircraft) were sold to the United States carrier, 
Continental Express. The strategy to produce this new aircraft proved to be successful. In 1997, 
at Le Bourget Aeronautic Fair in France, Embraer, after a dramatic dispute with the Bombardier  

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group, landed the largest contract in its history. This contract was worth around US$ 1 billion for 
the sale of 67 ERJ-145 jets to American Eagle, the regional airline subsidiary of American 
Airlines. The new contract also included replacement parts and technical assistance, with firm 
sales reaching US$ 1.6 billion and options adding another US$ 4 billion over a seven-year period. 
The contract represented the consolidation of the recovery process and restored the company on 
the international market. In addition, it allowed for the financial recovery of Embraer and ensured 
production of aircraft during the subsequent three years. Also in 1997, Embraer started the 
development a new regional jet, the ERJ-135 for 37 passengers, and the ERJ-140 for 40 
In short, Embraer was able to rapidly overcome an adverse situation and avoid 
bankruptcy. It achieved important and successful sales with its two main medium-sized aircraft: 
ERJ-145 (50 seats) and ERJ-135, and became, in 1998, the world’s leader in jet sales. The 
contracts of US$ 6.6 billion, made during the Aerospace Fair, in Le Bourget, Paris, represented a 
record in the world’s airspace industry. At the time, Embraer was building 22 aircraft models, 
conducting strategic programmes for the national defence sector, commercializing more than 
5,200 aeroplanes in more than 40 countries, and it had approximately 8,000 employees in Brazil. 
In 1999, the foreign market accounted for 98 per cent of Embraer’s revenues, and revenues by 
segment were distributed as follows: commercial activities accounted for 85 per cent, defence 7 
per cent, and spare parts and services 8 per cent (see table 5). 
The new family of regional jets (ERJ-170, ERJ-190-100 and ERJ-200 for 70, 98 and 108 
passengers respectively) was introduced into the market in 1999, requiring about US$ 850 
million for their development. The importance of this new family of products was that it would 
compete on a different market of larger aircraft, which so far had been the domain of Boeing, 
McDonnell Douglas and Airbus. The new military products were also presented – the ERJ-145 
AEW&C and ERJ-145 RS and ALX. The Swiss company Crossair became the first Embraer 
client for the ERJ-170/190 programme. At Le Bourget Fair that year a contract worth US$ 4.9 
billion, for 200 jets, was signed. On 23 July 1999, as part of a strategy of accessing new 
technologies, products and markets, 20 per cent of Embraer’s shares were sold to a French 
consortium led by Aerospatiale Matra (5.67 per cent), Dassault Aviation (5.67 per cent), 
Thomson-CSF (5.67 per cent) and Snecma (2.99 per cent). Shareholder control remained with the 
Brazilian Bozano Simonsen Group (20 per cent) and the pension funds Previ (20 per cent) and 
Sistel (20 per cent), the Brazilian Government (3.2 per cent) and other companies (16.7 per cent). 
The main objective of this new strategic alliance was to double its customer base and open up 
new possibilities of international financing. This would include setting up in China, considered to 
be the fastest growing market in the world. Moreover, Embraer aimed at emerging markets, the 
acquisition of business expertise, commercial and logistic infrastructure as well as critical 
technologies in the civil and military area, increased installed capacity and a larger scale of 
production. Also in 1999, Embraer launched a new 44-passenger regional jet, the ERJ-140, a 
variant of the ERJ-145 family. At the same time, it consolidated its name in the world market as 
the leader in the commuter segment.  

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Table 5. Indicators of Embraer’s financial performance  
(Million real) 
Gross revenue  
833   1.581   3.379 
Foreign market. (%)  
Domestic market (%)  

Total assets  
1 092   1 435   1 227  1 125  1 067  1 107  1 221  1 424   2 618   3 717 
(265)   (241)   (258)  (116)  (310)  (253)  (123) 
General (%)  
86.2 73.6 82.2 71.2 45.8  
Backlog (US$ million)  
729  1 227  3 011   4 112   6 367 
Source: Embraer  
As shown in table 6, by 1999 Embraer had captured a 40.5 per cent share of the world 
market, slightly ahead of its main competitor Bombardier (38.5 per cent) and well ahead of 
Fairchild Dornier (19.9 per cent) and British Aeroespace (1.1 per cent). Embraer and Bombardier 
of Canada are the main competitors in these important segments of the jet aircraft sector. Tables 7 
and 8 below provide some general comparative information regarding both companies and their 
most competitive products as for years 1999 and 2000. A fierce competitive battle between these 
two firms began five years ago. The competitive position of Embraer has been based on radical 
changes in its strategy in the 1990s, resulting in its becoming leader in a network of firms 
participating in a chain of production. Chapter IV analyses these changes. 

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Table 6. Embraer’s share of sales in the world market for jet aircraft, 1999 

CRJ 100/200  
CRJ 700  
328 JET  
428 JET  

728 JET  

RJ 85  
RJ 100  
Source: Embraer  

Table 7. General indicators for the Embraer and Bombardier Groups 
Bombardier Aerospace Group 
Embraer Group 
Set up in December 1986 
Set up in August 1969 
Gross revenues (1999): US$ 4.412 billion 
Gross Revenues (1999): US$ 1.889 billion 
Profits (1999): US$ 467 million  
Profits (1999): US$ 230 million 
Headquarters: Dorval, Québec (Canada) 
Headquarters: São José dos Campos, São Paulo, 
Main Products, Feb 2000: Regional Jets 
Main Products, Feb 2000: Regional Jets 
Regional jets represent 80% of total revenues:   Regional jets represent 85% of total revenues: 
•  Series 100 (version of 50 seats) 
•  ERJ-135 (37 seats)  
•  Series 200 (50 seats) 
•  ERJ-140: (40 seats) 
•  Series 700 (70 seats): in development 
•  ERJ-145: (50 seats) 
•  ERJ-170: (70 seats)  
•  ERJ-190-200 (108 seats) 
Number of employees (1999): 34 000 
Number of employees (1999): 9 000 
Source: Embraer and Bombardier. 

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Table 8. Comparisons of the most competitive models  
of Embraer and Bombardier planes 
Embraer Bombardier 
Model ERJ-145 CRJ-200 
50 passengers 
50 passengers 
2 turbofans Rolls-Royce AE-
2 turbofans General Electric 
First flight 
Basic price 
US$ 18.5 million 
US$ 21 million 
Maximum speed 
833 km/h 
860 km/h 
Basic weight 
12 007 kg 
13 740 kg 
Operational cost (in 400nm5)  US$ 2 613.00 
US$ 2 832.00 
Cost by seat 
US$ 7.05 
US$ 7 065 
Source: Embraer and Bombardier 
5 Nan o meter: one billionth (109) of a meter. 

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Throughout the 1990s, Embraer and the aircraft production system became increasingly 
important for the Brazilian economic and industrial structure. It also became the largest Brazilian 
exporter during this period. Table 9 shows that sales of the aeronautical sector jumped from 0.2 
per cent of GDP in 1996 to 1.1 per cent in 2000. It is estimated that in 2002 the sector will 
account for sales of around US$ 4.2 billion, representing 1.2 per cent of Brazil’s industrial gross 
domestic product (GDP).  
Two interconnected reasons explain this extraordinary success. First, and most 
importantly, the sector has received continuous government commitment and support for more 
than 40 years. Second, important strategic decisions were taken after privatization which were 
possible thanks to the previous innovative strategies that Embraer pursued in its first 20 years. It 
is worth analysing some of the main factors behind this success. 
Table 9 - Importance of the aeronautical sector in the Brazilian economy 
Economic indicators  
Industrial GDP (US$ billion)  
Sales of the aeronautical sector (US$ billion)  
Share of the sector in industrial GDP (%)  
Exports (US$ billion)  
Source: Bernandes (2000).  
1. Competition in the aircraft market during the 1990s 
The international market for aircraft is divided in two main segments: civil and military. 
Both have very differentiated productive, economic, technological and logistic dynamics. The 
civil segment has several important competitiveness factors (chart 2). Some of them are internal 
to the firm, such as design, trademark, R&D, marketing and human resources, while others relate 
to product and markets. However the industrial structure and the incentive and regulatory regime 
play a very important role. In general the world market for aircraft may be classified into four 
different segments. The first refers to large-sized aircraft (more than 120 seats - both for cargo 
and passengers transport). This is the most profitable market, led by Boeing and by the Airbus 
European Consortium. This segment can be divided in four groups: 111 and 125 seats, 150 and 
175 seats; 210 and 250 seats; 300, 350 and 400 seats; and more than 400 seats. 
The second is related to medium-sized aircraft (10 to 120 seats). This "commuters" 
market, which is covered by regional air traffic companies concentrates on short/medium 
distances, connections to long distances. Embraer and Bombardier have become the only 
competitors in this market after some other key rivals went bankrupt in the 1990s. Small-sized 

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aircraft constitute the third segment. This is the market covering business, sports, agriculture and 
other related needs. It is a more segmented market characterized by a relatively large number of 
producing firms catering for different market niches. Finally there is the market for aircraft for 
corporate use. Here, the aircraft are not used for profitable and commercial purposes, but for 
transporting executives and clients of big businesses; it is a special area of the small-sized aircraft 
Chart 2. Critical factors of competitiveness in the civil aircraft industry 
Internal to the enterprise  •  Trademark 
•  Design 
•  Fostering R&D 
•  Focus on strategic competence 
•  Market intelligence:  
•  Logistics 
•  Productivity  
•  Marketing 
•  Human resource 
•  Technical support 
•  Financing structure 
•  Image 
•  Time-to-market 
•  Innovation 
•  Aversion factor to different types of engines 
•  Family concept 
•  Communal concept 
•  Seats acquisition cost 
•  Operational costs (seats/covered distance) 
•  Performance/delivery 
•  Concentrated structure/differentiated oligopoly 
•  Market niches  
•  Substitute turboprop aircraft for jet propulsion systems 
•  Technical segmentation needs 
•  Restricted and selective buyers 
•  Catering to clients’ specific requests   
•  Global 
Industrial configuration  
•  Strategic alliances 
•  Specialized economy 
•  Users’ interaction 
•  Strong scientific and technological system 
Incentives and regulatory  •  Support to technological risk and to R&D  
•  Government subsidy 
•  Customs and associated incentives 
•  Selective protection 
•  Government procurement  
•  Users’ credit and exportation financing  
Source: Bernardes (2000)  

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A high degree of internationalization of markets characterizes all these segments. This 
specificity of competition in aircrafts is related to two points. First, apart from the United States, 
there is no single country with a sufficiently large and dynamic internal market to support R&D 
costs to manufacture a large-sized aircraft. Secondly, the rigid safety requirements and 
performance parameters needed for certifying aircrafts (without which they are not allowed to 
fly) are internationally agreed, rendering any production geared only to the internal market 
An event that radically modified the aircraft market in the last 20 years was the growth of 
the "commuters’" market based on jet propulsion. Market forecasting for the United States 
suggests that over the next 10 years, medium-sized aircraft will replace large ones in this market 
(Boeing, 2001). Embraer’s new regional jet family (ERJ-145 and ERJ-135) targets precisely this 
type of market, which favours quieter and faster aeroplanes (as compared to older turboprop 
aircraft) larger autonomy to perform non-stop flights and more stability in the case of turbulence. 
2. Embraer’s production and innovative strategy 
Table 10, below, summarizes Embraer’s aircraft production from 1980 to 1999. It shows 
that during the 1990s the jet aircraft has gradually replaced the turboprop aircraft. In fact between 
1997 and 1999, the new family of regional jets (ERJ –145 and ERJ -135) accounted for more 
than 60 per cent (195 units) of the total of 310 aircraft produced. This type of aircraft has become 
the most important marketable good for Embraer. However, the company still maintains a wide 
range of products and related services as its core business (see box I).  
Table 10. Embraer’s aircraft production (in units) 
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 
73 67 32 10 23 2  4  7 10 2  8  1 2 0 0 1 1 0  0  0 
25 12 18 26 2  1  1  2  0  0  0  0 0 0 0 0 0 0  0  0 
- - - - - 6 20 


12 7 
- - - - - - - - - - - - - - - - 4 
- - - - - - - - - - - - - - - - - - - 16 
Light Aircrafts 
315 169 117 66 106 112 107 111 81 121 67  51 33 49 43 28 24 24  26  17 
5 15 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 
-  -  -  -  -  0  0  0  0  0  0  0 0 0 0 0 0 0  1  0 
0  0  0  26 57 49 35 45 54 10  5  0  1  5  8 18 15 -  6  - 
- - - - - - - - - 4 5 8 

10 3 
418 265 167 128 188 170 167 203 191 203 141 93  54  70  60  66  64  71 115 124 
Source: Embraer 
6 The United States market, for instance, represents around 60 per cent of Embraer’s sales. 

Transfer of Technology 
In order to make the ERJ project viable, and given the difficulty of keeping the support of 
the Brazilian Government during a period of deep structural changes, Embraer, after privatization 
in 1994, set up a production and strategic model, that would prove to be crucial to its future 
success. The company formulated a business plan based on achieving financial results through 
deep organizational and productive restructuring. Embraer started to build a new relationship 
with clients and suppliers. An action plan was designed in which the mission of the company and 
a new market strategy were envisaged and production and organizational restructuring was 
planned. High priority was given to examining the feasibility of the ERJ-145 project. 
Embraer’s current competitive edge is structured around some basic axes. The first axis 
consists of outlining a technological strategy aimed at product innovation, coupled with the 
identification and fulfilling of client/user requirements. In essence, it follows the old 
technological strategy with some important changes. The company’s essential competence lies in 
the excellence of design and integration of highly complex production systems. The company 
focuses its activities on adding value as systems’ integrator that dominates the different technical 
phases of the subsystems. It is not important to manufacture them, but to retain the capacity to 
combine and adapt them according to its project requirements. As an aircraft is made up of over 
28,000 parts and components, the capacity to design and specify the product, and to integrate 
components into several sub-systems in a harmonious way within the fuselage of the aircraft is 
both complex and difficult. Such a task forms the core of Embraer’s strategy. Coupled with 
marketing and technical services, it is the central element of the company’s core competencies. In 
this respect, Embraer holds the strategic assets that allow it to coordinate the network of the risk 
partnerships and the global productive chain, thereby strengthening its competitive position. 
The second crucial aspect is the so-called "off-load" strategy, which focuses on the 
globalization of production and the de-verticalization process. Embraer is "trying to dedicate 
itself progressively more to the noble project activities, such as development, systems 
engineering and integration, adopting strategies of seeking for partners to manufacture parts and 
subsystems, as well as assemblies of systems and kits. In this way, its investment in the milling 
and stamping sectors has been restricted to the partial upgrading of the existent equipment, 
according to the needs of the production and the absence of suppliers" (Mendonça, 1997). The 
basic idea behind this model was to spread the high risks associated with such a big project and 
the pattern of competition in the sector. The model is global in nature, whereby risks, incentives 
and benefits are shared. Embraer coordinates the whole network that acts in a well-defined, 
hierarchical structure at three different levels. 
At the first level are the risk partners, defined as those that assume financial risks in the 
projects. At this level there are very few large international firms that participate in the co-design 
process and add technological value. At the second level are suppliers of components, parts and 
services ordered by the company. These are almost entirely (98 per cent) located abroad. The 
relationship of Embraer with these firms is both technological and commercial. It could be 
characterized as "information networks" through which companies supply such items as 
equipment, avionics and components according to Embraer’s specifications. At this level, there is 
significant learning-by-interaction, but not such intense innovation as at the first level.  

Transfer of Technology 
Box I. Embraer’s aircraft 
The following is a list of Embraer’s present commercial aeroplanes: 
1. EMB120 – The 30-seater Brasilia: turboprop aeroplane: More than 400 units have been 
sold. Its main market is the United States. Sales leader in this category for many years, the 
plane is used by 26 enterprises in 14 countries, and has done more then 3 million-flight 
2. ERJ 135: A regional jet for 37 passengers, it is a compact version of ERJ-145. It has the 
same fuselage (3.5m shorter), wings and wrappings, cockpit (same pilot’s licence), turbo-
fan motors (Rolls-Royce Allyson), low fuel consumption and noise, common procedures of 
training and maintenance. In addition, it has a longer range than 2,340km, better 
performance in higher runways and high temperatures, and low costs of acquisition and 
operation. Its development entailed a US$100 million investment that must be amortized 
over a period of 10 years with the sale of 500 aircraft. 
3. ERJ140: A new regional jet for 44 passengers, following the "jet family" concept started 
by ERJ-145. It uses many common features thereby obtaining operational and maintenance 
benefits, including the same pilot’s certification. The development of this aircraft required 
an investment of about U$45 million. 
4. ERJ145: A jet plane with 50 seats, it is intended for the regional market, with 119 units 
sales confirmed. This product has given the company leadership in the world commuter 
market. The cost of production was US$350 million.  
5. ERJ170: A jet aeroplane with 70 seats. A new platform has been developed as the base 
for ERJ-190. It is expected to receive certification in the second half of 2002. The estimated 
sale price is US$22 million for the sale of 400 units.  
6. ERJ190-100/200:  A jet plane, it is a larger version of the ERJ-170, as a result of the 
addition of a fuselage section, with stronger engines, a larger wingspan and reinforced 
landing gear. Two versions are planned, with 98 (ERJ-190 / 100) and 108 (ERJ –200) seats. 
The process of certification is expected to begin in 2004.  
7. Light aeroplanes:  Neiva’s EMB201 Ipanema, EMB400 Urupema, BEM 710 Minuano, 
BEM 721 Sertanejo, and BEM Seneca. 
Apart from commercial aeroplanes, Embraer also manufactures several military 
1. Tucano is military training aeroplane and world market leader; it stands out because of 
the ease of flying it and low maintenance costs. More than 640 units have sold. 
2. Super Tucano/ ALX is military aeroplane derived from Tucano EMB-312. It represents 
the new generation of military turbprop aeroplanes developed from the experience acquired 
with Tucano (BEM-312) in terms of operation and training. This aircraft has a similar 
cockpit to a fighter, with advanced avionics provided by Elbit from Israel. The ALX fulfils 
a Brazilian Air Force requirement for a light attack aircraft, to be used in border vigilance. 
It will also be used for advanced training and operational missions in Amazon, 
supportingthe SIVAM Project.  
3. AMX is a military tactical aeroplane that was conceived and produced by the Aeritalia 

Transfer of Technology 
(Box I, concluded) 
consortium: Alenia and Embraer. Its most recent version is the AMX-T. 
4. The Radar Multimodal Boarded Project developed a  "doppler" radar to be part of the 
AMX aircraft. 
Besides these commercial and military aircraft and projects, Embraer is engaged in several 
other partner ships with major aircraft producers. It supplies flaps for MD11 – McDonnell 
Douglas (certified by the Douglas quality system), and produces the dorsal fin and the 
wingtip for Boeing 777 aeroplanes (certified by D1900 – Advanced Quality System for 
Suppliers of Boeing). It also has a partnership with Sikorsky for the production of S92 
Source: Embraer 
At the third level are the subcontractors – companies and individuals that receive raw 
materials and design from Embraer. Relationships at this level have two dimensions: project and 
engineering services; these are activities involving greater expertise and scientific content 
rendered by technology companies, and companies that provide milling services, chemical 
treatment, coating and other production services of lower technological complexity. This group 
of firms is directly subordinate to Embraer, and most are located in São José dos Campos. 
From the operational point of view, several techniques were introduced. In terms of work 
organization, Embraer introduced methods of functional work flexibility through innovations in 
operational management of the production processes. Particularly worth mentioning is the setting 
up of interdisciplinary groups for permanent productivity and quality improvement – kaizen – a 
well-known Japanese work philosophy based on the collective and continuous commitment of 
workers to improve quality and productivity. Another technique that radically changed the work 
and production processes was the adoption of the liaison engineering system, a system for linking 
together several corporate areas, supporting decision-making and eventual resolution of problems 
of a work team. A specific team is allocated full-time to this activity, and renders support in the 
assembly or production phase of a product. With the adoption of liaison engineering, a reduction 
of 50 per cent of the work cycle in the production phase of the EMB-120 and ERJ-145 aircraft 
was obtained (see table 11).  
In 1996, the company invested approximately US$ 8 million in improving production 
processes in order to increase productivity (see box II). In 1997, investments of some US$ 25 
million were made to upgrade equipment and machinery, layout and information systems as well 
as production control and programming. In the operating area, efficiency gains resulted in 
reduction of the manufacturing time of the Brasilia, from 14 months to 8 months, and later to 6 
months. The restructuring process also resulted in higher productivity, which went from US$ 
42,000 per employee in 1994 to US$ 98,000 in 1996, US$ 227,000 in 1998 and US$ 252,000 in 
1999. This figure is only 19 per cent below the world average for the sector, which is 
approximately US$ 300,000 per employee (table 11).  

Transfer of Technology 
Table 11. Embraer’s production indicators 
1993 1994 1995 1996 1997 1998 1999
EMB – 120 - Brasília  
Production rate (number of aircraft)  
5.9   4.5   3.6 
Productivity (sales over number of employees)  
98   166   227  252 
(US$ ’000)  
Trash/ rework index (%)  
2.4   1.2   1.0 
Number of lost days/work hours  
132  191   77  
Frequency rate (in millions of work hours)  
5.9   4.5   3.8 
Source: Embraer  
Box II. Embraer’s main facilities  
In 1999 the company’s facilities included 106 digitally-controlled machine tools and 
11 digitally-controlled milling centres. It also had 4,500 personal computers (486, 586 and 
Pentium) of which 250 were dedicated to CAD/CAE and workstations, and 150 Intergraph 
stations with 1 CAE server. In the technology department, the information technology (IT) 
density is 1/1, that is, one computer for each engineer. For the company as a whole, with a 
total of 8,000 employees, the density is 1 computer for every 2 employees.  
The Stamping Division (GFC) sought to increase the production rate of the ERJ-135 
and ERJ-145 aeroplanes in 1999 by implementing a new management system inspired by 
Japanese production techniques called "lean manufacture". The new system was employed 
in the milled coverings of the central fuselages II, III and IV of the aircraft, resulting in a 
reduction of 52 per cent in the assembly cycles and in a 100 per cent of improvement of the 
total aeroplane kit. 
Source: Embraer 
Another important institutional innovation in Embraer’s strategy was the setting up of a 
department to monitor critical technologies for the company. Before privatization such activity 
had been internalized as part of the firm’s strategy for training human resources and in the overall 
activities of its technical departments by constantly reviewing specialized literature and articles 
and magazines about the sector. The establishment of partnerships and permanent contacts with 
international suppliers was also important. The company had constantly been working to improve 
its technological processes, quality and use of new information technologies. This strategy was 

Transfer of Technology 
formalized by establishing a programme based on a more intensive evaluation of Embraer’s 
external environment through benchmarking by a programme called Brainware. The idea was to 
monitor the development of new technologies by the main, world-class aircraft manufacturers 
such as Boeing, McDonnell Douglas, and Sikorsky and by research centres. This resulted in the 
adoption of new automation technologies for plates and riveting, identification of parts by bar 
code, and automation of the cabling factory, among others. In 1999 the programme was 
terminated, since the technological upgrading objective had been successfully reached and the 
engineering area considered it fully incorporated into Embraer’s strategy and production routines. 
In its regional aircraft segment, vis-à-vis its direct competitor, the company is fully updated and 
tuned in to best world practices.  
Table 12 provides some information regarding the evolution of Embraer’s R&D 
expenditure during the 1990s. The crisis in the early 1990s led to a fall in R&D expenditure from 
US$ 128 million in 1990 to US$ 24 million in 1992 and US$ 35 million in 1993. With the 
recovery, R&D expenditure increased again to US$ 141 million in 1998, when the main 
technology efforts of the EMB-70 family peaked. It is also worth pointing out that expenditure in 
IT equipment also increased significantly in the second half of the 1990s, as part of the 
modernization strategy. According to Embraer, about 50 per cent of technology expenditure is 
directed to internal R&D, 30 per cent to industrial design, 15 per cent to new product 
commercialization, and 5 per cent to capital expenditure in plants, machinery, software and other 
equipment associated with new products or processes.  
Table 12. Embraer’s technology expenditures, 1990 – 1999  
(US$ million) 
1990   1991   1992  1993  1994  1995 
1996   1997   1998   1999  
R&D total  
R&D civil  
R&D military  
IT equipment  
Source: Embraer  
3. The strategy in action: the ERJ-145 and ERJ-170/190 
Together, the restructuring and the partnerships strategy were responsible for creating a 
new corporate logic and dynamic and a competitive business architecture. They generated both 
pressure points and synergies, particularly in the area of production, and had a deep impact as far 
as cost reduction was concerned. However, the ERJ-145 programme and the ERJ-170/190 
family, although having several similar concepts, represent two different approaches. The first 
may be characterized as having a greater focus on costs, with the risk partners being considered 

Transfer of Technology 
by Embraer more as suppliers of components than real partners. The ERJ-170/190 programme 
was developed in a different context, with value aggregation and technology, rather than cost, 
being considered as essential for the feasibility of the project. The two cases are summarized in 
boxes III and IV.  
The coordination and administration of the contracts and the supply chain in the business 
organization model for the ERJ-145 programme was an invaluable learning process for Embraer. 
As mentioned above, Embraer had a very positive experience with international corporations. 
The lessons learned from the AMX cooperation project, promoted in 1979 by the Brazilian and 
Italian Governments, were fundamental for the managerial development and harmonization of the 
dynamics of the business relationships of the ERJ-145 programme. In this sense it could be 
argued that this successful experience was also built upon earlier strategies developed when the 
whole aeronautical programme was government-controlled. 
To synchronize the progress of the several participants in the ERJ-145 programme, a 
steering group was established, which held periodic meetings with the representatives of each 
partner, potential customers and representatives of the pilots' associations. For Embraer, perhaps 
the single most important lesson from this project was in the management of contracts between 
companies, rather than the acquisition of new technologies. In fact the only technology it 
acquired for the ERJ-145 was a leading-edge de-icing system. Embraer developed all the other 
important technologies, either alone or jointly with the risk partners, from the older turboprop 
technologies of the Brasilia and Bandeirantes projects. Technologies developed and accumulated 
over the years by Embraer were fundamental for the new project, to the point that some 
commentators have argued that the new jet aircraft (the ERJ-145) was basically the same old 
Brasilia (a turboprop aircraft) with jet engines. An associated benefit of the project was a 
reduction in production costs through the subcontracting strategy. By radically vertically 
disintegrating the production process, Embraer created the conditions that made it possible to 
reduce the final price of the aircraft. This simple approach was probably responsible for the most 
important competitive weapons of the ERJ-145: its low price, and ease and low costs of 
maintenance. In short, even though the strategy that guided that partnership programme was 
clearly a focus on cost reduction and financial engineering, the success of the enterprise was 
possible because the ERJ-145 project was designed using updated technologies from the older 
turboprop projects.  

Transfer of Technology 
Box III. The ERJ-145 programme 
The ERJ-145 programme was designed in 1989, while the company was still State-owned. 
However, it only became financially feasible after it gained business flexibility and agility 
following privatization of the company and the creation of risk partnerships. It is important to point 
out that Embraer was able to attract partners on the world market who believed in, and invested in 
the ERJ-145 project because the company had design and technology capabilities that other 
competitors did not. Certainly, if the company had not enjoyed a strategic position on the market, as 
a generator of the technology, the possibilities for securing partnerships would not have been so 
promising. The ERJ-145 programme, with four companies (Gamesa of Spain, ENAer of Chile, 
SONACA of Belgium, and C&D Interiors of the United States) as risk partners, was based on the 
idea of spreading risk among partners and on the commitment of each participant to develop a sub-
system of the product. This programme reflects the strategy outlined above; that is, a new standard 
of corporate organization that was better integrated and flexible was developed and articulated in 
the form of core networks of development, learning and technological innovation. This works for 
the financing of projects as well as partially diluting the risk of market uncertainties. Besides 
learning the coordination of business networks, other important capabilities were acquired including 
the management of complex contracts, time- frames and flows of parts and components and the 
controlling of work cycles and product quality, all of which helped to radically changing Embraer’s 
corporate habits. Years ago this type of international project and aircraft production would have 
been unusual and not viewed favourably on the part of the Brazilian Government which was more 
concerned with security implications, especially in industrial secrecy. Today, due to escalating costs 
and the long R&D cycles inherent in the entire conception and production of a new aircraft, as well 
as the uncertainties and the long time-frame for a return on investment, these corporate and 
institutional arrangements have become the rule for those who wish to survive in this arena. In the 
technological field, the programme did not present a problem and Embraer had all the necessary 
conditions to manufacture the aircraft at its facilities.  
The main obstacle to viability was Embraer’s lack of credit. The firm was in debt and 
internally disorganized. The estimated cost for the development of the ERJ-145 programme was 
US$ 300 million. The risk partnerships established in 1992/93 with suppliers gave a new impetus to 
the programme. In 1995, with Embraer already privatized and under control of a new 
administration, the programme was taken up again and given high priority. The solution was the 
identification of international companies interested in investing in the programme and in assuming 
responsibility for the production of parts of the aeroplane with the acquisition of aeronautical 
technology from Embraer, and in return they would share in the profits from sales of the aircraft. Of 
the total anticipated investments, Embraer put up approximately US$ 140 million for the 
development of the aeroplane, assuming 60 per cent of the cost, while the risk partners and 
suppliers bore the remaining US$ 100 million in costs.  
In Brazil, Embraer's big partner was BNDES, which financed US$ 100 million. Between 
1995 and 1997, the total investment in the programme for technological development and 
productivity was US$ 287 million with another US$ 120 million in 1998. The Spanish company 
Gamesa was responsible for the production of the wings, engine nacelles, fairings  of the 
wing/fuselage junction and the doors of the main landing gear. Sonaca, headquartered in Belgium, 
committed itself to the production of the luggage, service and main doors located in the fuselage, a 
front and a rear section of the fuselage and the two motor pylons. The Chilean company ENAer 
produced the horizontal stabilizers and rudder controls. The interior of the passenger cabin and 
luggage compartment was developed and manufactured by C&D Interiors – one of the largest 

Transfer of Technology 
(Box III, concluded) 
companies of the world specializing in this area. The programme has 68 suppliers of components, 
besides employing 2,300 people in outsourced partners and 350 people directly at Embraer. Figure 
1 below provides a more detailed visual of the risk partnership programme. It is worth mentioning 
that the risk partners were selected based on their previous associations with Embraer. They had 
been important suppliers or associated firms during the old turboprop projects and decided to accept 
the risk of a project that had a yet unknown future. Embraer had to take this line because it did not 
have the financial muscle to proceed alone, and was sure that from the technical point of view the 
partnerships would be successful.  
Source: Embraer 
Figure 1 – Division of Labour between Embraer and its Risk Partners for the ERJ-
Source: Embraer 

Transfer of Technology 
The development programme for the ERJ-170/190 project was conceived using a different 
approach to that of the ERJ-145 programme. The development of the new family of regional jets 
required an investment of about US$ 850 million. To secure this magnitude of funding, it was 
necessary to seek a larger participation of companies and international financial institutions 
capable of financing the whole project. From the technological point of view, given the tight 
timetable Embraer had to select partner companies and abandon any idea of fostering local 
capabilities, at least for the most sophisticated technologies. The selected companies would also 
participate in the development of process engineering and tooling production of the aeroplane’s 
components. The strategy of seeking out multinational partners aimed at securing added 
technological value to meet three high level requirements: technical training, supply capability 
and integration of "technological packages", in addition to assuring a sound financial and 
investment structure.  
The innovation strategy also involved a process of institutional and organizational 
updating. It consisted, for instance, of the upgrading of the electronic mock-up. In the ERJ-145 
project, the principles of concurrent engineering were applied in order to eliminate the need for 
modifications originating from production and maintenance problems. Applying concurrent 
engineering with real time connection via CAD/CAM (Computer-Aided Design/Computer-Aided 
Manufacturing) during the entire development process involved several project teams, and 
manufacturing and technical assistance from Embraer and its main suppliers. The design of each 
component and part, totalling approximately 19,518 different items, was facilitated by the use of 
a new technology based on CAD already used in the development of the Brasilia.  
The electronic mock-up not only made it possible for the ERJ-145 to be totally designed 
by computer, but also practically eliminated one of the most traditional stages of an aircraft’s 
development. By generating three-dimensional images of each part and component of the ERJ-
145 in real time and integrating them in a single database, the electronic mock-up allowed a 
meticulous analysis of each part of the aircraft and its relation with the other components 
connected to it. The use of the electronic mock-up eliminated the traditional mock-up work (a 
full-scale study model manufactured in wood). This resulted in a 50 per cent reduction of 
personnel (from 75 to 38 engineers) and a saving of approximately 93,000 man-hours (or US$ 3 
Another fundamental improvement was the flight simulator of the EMB-170, in which a 
database containing the aerodynamic characteristics of ERJ-145 was introduced. Through this 
artifice the pilots "flew" the ERJ-145 before it even existed, collecting information and correcting 
flight imperfections. The simulation of the airflow around the aeroplane, made possible by CFD 
(Computerized Fluid Dynamics) technology, was fundamental in the development of a new 
"cleaner" wing, with a supercritical profile developed by Embraer. The complete development of 
the jet involved two million working hours or approximately four years. 

Transfer of Technology 
Box IV. The ERJ-170/190 programme 
The first major difference of this programme as compared to the ERJ 145 is the greater 
integration and sophistication of strategic partnerships. The project of the aircraft, for instance, was 
co-designed with the partner companies. Embraer has a 45% share in the design and is responsible 
for the integration of all systems, aircraft structure and final assembly technique. The group of risk 
partners integrating the programme of the new family of regional jets for 70, 98 and 108 passengers, 
designated the ERJ-170, ERJ-190-100 and ERJ 190-200, were selected based on the analysis of 85 
potential partners; of which 58 were pre-qualified and 16 were chosen. 
The risk partnership idea got more complex with the new programme. General Electric 
(GE), the largest participant is responsible for the supply of the turbines. The engines represent 
about 20% of the sales price of the aircraft, estimated to be around US$ 22 million in the case of 
ERJ-170 and US$ 27 million for the ERJ-190. GE also holds 99.6% of Celma, an Embraer supplier 
of motors, accessories and parts, located in Petrópolis in the state of Rio de Janeiro. According to 
the specifications, the new aircraft is faster than the ERJ-145, cruising at Mach 0.80, and meeting 
the challenge of low operating costs in relation to competitors. Other important partnership is with 
the US Honeywell (taken over by GE for US$ 48 billion in 2000), who supplies most avionics. 
Gamesa, which integrated the previous programme, develops and supplies the empennages and the 
rear fuselage. Hamilton Sundstrand is responsible for the fuselage rear cone, among others. Figure 2 
provides a visualization of the risk partnerships for the ERJ-170 family. There has been also an 
important progress related to the reduction of the number of suppliers, with the increase of the 
number of parts and components for each one. The aerospace division of Kawasaki Heavy 
Industries, from Japan, is also among one of the ten companies chosen as risk partner. Kawasaki 
will invest US$ 100 million in the development of the central part of the wing, control surfaces and 
pylons (motor support structures). And, finally, EDE, the Equipment Division of Embraer, 
established a joint venture with Liebherr (Germany) for the supply of the landing gear.  
Several elements are crucial to the understanding of this programme. The first is that a 
rigorous and strategic selection of the new partners, emphasizing capacities to develop new 
technologies and investment. The second point to be emphasized is the decision by Embraer, after 
20 years (since the Brasilia programme), to internalize the production of the aircraft wing. This task, 
in the ERJ-145 programme, was the responsibility of the Spanish company Gamesa and Embraer 
considered it to be too critical to the company to be left to other partners. Finally, there was a 
change in the system of innovation and development of the project engineering, towards a system of 
more integrated routines and co-ordination among the partners. From the operational point of view, 
the ERJ-170/190 programme was organized in three phases (which can be visualized in Chart 3). 
Phase 1 - "Initial Definitions" – involved the concept and detailing of the aircraft design. This was 
done before the choice of risk partners. A business plan was prepared focusing on market 
requirements and product detailing. Cost planning, analysis of the life cycle; investment, analysis of 
the risk and return on the investment were part of this phase. In addition there was a specific market 
identification study with a methodology prepared by Embraer.  
The second phase - "Joint Definitions" - was characterized by the division of the aircraft in 
several sections and the division of the work among the companies; it was followed by the joint 
definition of the aircraft parameters among the partners and Embraer. The innovation made during 
this phase was the internationalization of R&D routines that were developed through the use of a 
co-operative engineering, i.e. the setting up of a network of R&D between plants and laboratories 
of the several international partners centralized and co-ordinated by Embraer in Brazil. This 
institutional arrangement involved the establishment of decentralized multi-disciplinary teams, in a  

Transfer of Technology 
(Box IV, concluded) 
type of matrix structure. Innovation teams organized it across the entire company, for the joint 
development of aeroplane components with the partners. These procedures allowed the integrated 
development of the product, since all decisions taken were made by specialists from company 
partners and who therefore, had the decision-making authority. About 600 full-time engineers were 
assigned to the programme, with 300 specialists from Embraer and 300 specialists of the other 
international partners, from Japan, Spain and the U.S., among others, who worked intensely and 
"in-house" at the Embraer headquarters in Brazil. The engineering work and project was performed 
in the Embraer advanced data-processing centre that provided a fully integrated project atmosphere. 
The co-design strategy permitted savings 18 months in the development of the aircraft (36 instead 
of 54 months), with substantial gains in quality. With the implementation of web systems and EDI - 
Electronic Data Interchange, it was possible to call on-line the network of partner firms in the 
electronic mock-up and the ERJ170/190 database that were centralized in the Embraer IT structure. 
The general design modifications made by the partners and suppliers were sent electronically to 
Embraer, where they were checked and validated for later updating of the mock-up and database. 
The final phase - "Detailed Design and Certification" – is where the final definition of the aircraft is 
made. The engineers and technicians of the partner companies return to their home countries to 
finish the detailing phase and require the certification of the aircraft in different markets.  
Source: Embraer 
Figure 2 Division of Labour between Embraer and its Risk Partners for the ERJ-170/190 
C & D (USA) 

 ( RA

Source: UNCTAD based on Embraer. 

Transfer of Technology 
Another important improvement was in the transition of the electronic mock-up to digital 
mock-up and in the project software, migrating from the Intergraph used in the ERJ-145 
programme for Catia software developed by the French company Dassault (employed in the ALX 
and Sikorsky programmes), to the Virtual Reality Centre (VRC). The knowledge acquired in the 
use of Catia was fundamental for the implantation of the VRC.7 Its use in the development of the 
new family of ERJ-170 and ERJ-190 regional jets enabled a more effective decision-making 
process, with early identification of problems, mistakes and design flaws. It enabled a reduction 
of 50 per cent in the time of the activity cycle (from completion of the design of the aircraft to 
certification) and the time-to-market. The development time frame of the ERJ-170/190 was cut to 
38 months instead of the 60 months taken by the ERJ-145 programme, representing a cost and 
time saving for manufacturing of between 5 and 10 per cent.8  
Chart 3. Time schedule of the development stages of the ERJ-170/190 
Description of Phases 
1998 1999 2000 2001 2002 2003 2004 
Phase 1 – Initial Definition  
Phase 2 – Partner Definition 
Phase 3 - Design Development and Roll-out 
Roll – Out 
Flight Tests 
CTA Certification (Brazil)/ FAA (U.S.)/ JAA 
Delivery of First Aircraft 
Phase 1 – Initial Definition  
Phase 2 – Partner Definition 
Phase 3 - Design Development and Roll-out 
Roll – Out 
Flight Tests 
CTA Certification (Brazil)/ FAA (U.S.)/ JAA 
Delivery of First Aircraft 
Note: CTA (Technological Airspace Centre, Brazil), FAA (Federal Aviation Administration, United 
States), JAA (Joint Aviation Authority – European equivalent to FAA), OECD (Organisation for 
Economic Co-operation and Development). 
Source: Embraer 
7 Embraer built the VRC in partnership with SGI Silicon Graphics Inc., which represented the biggest investment of 
the company in IT, at a cost of  US$ 2.6 million. The Centre began operation on 7 February 2000. 
8 Until end-2001, besides Embraer, only Petrobras in the petrochemical sector and GM (General Motors) in the 
automotive sector operated with such a system in Brazil, and only partially. 

Transfer of Technology 
One of the main advantages to the company in assembling the Virtual Reality Centre was 
that it expedited the development process of aircraft using the same technology as the biggest 
aerospace industries in the world. Thus teams involved in projects will no longer be required to 
build replicas of each model developed, in real size or in scale, for tests – a significant saving of 
project time and costs. This system allows the designer to accomplish a "virtual tour" in each 
section of the aircraft, perform tests and model structures, for example. CRV technology can be 
applied in several areas such as in design and manufacture, human model simulation, marketing 
(some sales were confirmed after the buyers made the virtual tour within the aeroplane), design 
review, hangar manufacture, kinematics, ergonomics and corporate presentation, among others. 
This system also allows the certification authorities to better evaluate the aircraft as it is being 
All these changes had a significant impact on the labour force. Figure 3 below shows the 
evolution of Embraer’s workforce over the 1990s, particularly the significant reduction in the 
number of employees during the crisis period. With recovery in the second half of the 1990s, the 
employment level increased again. It is important to highlight what happened with employment 
of more qualified personnel. During the restructuring phase, although the Technology and 
Engineering Department, considered the strategic nucleus of the company, was spared from 
outsourcing, many engineers and highly qualified technicians were laid off. Obviously, with their 
departure the knowledge accumulated over the years was lost. Due to the high training costs and 
recycling time it takes for one (aeronautical) engineer to be able to act in other areas, when the 
sector boomed again in the late 1990s it was not easy to re-employ them.9  
However, with the recent recovery of the sector many engineers and technicians have 
returned to Embraer. On the other hand, many services such as cleaning, catering, security, 
certain areas of information technology (IT), pilot and other employee training, transportation 
and some services associated with the design all started to be outsourced. The outsourcing of 
indirect activities resulted in savings of approximately US$ 80 million. In the first semester of 
2000, Embraer had 9,000 direct employees. Of these, 1,500 (16.7 per cent of the total) were 
engineers, and, according to estimates of the local metal workers’ union, outsourced activities 
accounted for 4,000 jobs. 
It is expected that investments in the new family of regional jets will raise sales to US$ 4 
billion over the next four years, making Embraer is one of the few Brazilian brands to enjoy 
prestige and a dynamic participation in the medium- and high-tech world market. It plans to 
invest in a new plant, to be located in the city of Gavião Peixoto, in the area of Araraquara, where 
military aircraft production lines, new versions of jets for corporate use and the construction of a 
test runway for Embraer aeroplanes will be located. The investment is expected to generate 3,000 
new jobs. Two equipment and component suppliers, Tamesa and CMB, have confirmed their 
installation of two new plants near the new Embraer factory. Close proximity to one university 
(Unesp) and to the engineering school of another (São Carlos Federal University) was taken into 
9 Also, given the crisis that affected the entire Brazilian economy in the 1990s and the few R&D activities in most 
Brazilian industries, many engineers had great difficulty in finding a new technical job. Indeed, there are several 
reported cases of qualified engineers from Embraer changing their occupation and downgrading their activities 
(working as salespersons, for instance). Some managed to be hired by other companies, some created their own 
businesses and others were recruited by foreign aerospace firms and migrated. 

Transfer of Technology 
consideration for the choice of location, as was the availability of local fibre optic infrastructure, 
and fiscal incentives. 
The final net results of these changes in the aircraft innovation system are difficult to 
measure. However, it is fair to say that it has probably had mixed results. With the prospect of 
production, growth and development of new products, it is estimated that 4,000 new jobs (both 
direct and indirect) will have been created during the period 2000–2002.  
Figure 3. Embraer: Total employment, 1970-2000 
Source: Embraer 

Transfer of Technology 
This chapter discusses the role – real and potential – of the local innovation system of São 
José dos Campos in Embraer’s strategy. As a result of the high growth of the aircraft sector, the 
Vale do Paraiba region (composed of the towns of Caraguatatuba, Cruzeiro, Guaratinguetá, 
Taubaté and São José dos Campos) accounted for more than 15 per cent of the country’s exports 
in 1999. This region has been named "The Technology Valley" because it has the largest 
concentration of high-tech industries in Brazil.  
The São José dos Campos region hosts several plants belonging to local and multinational 
firms that are of strategic importance in global and local production chains. These firms include: 
Embraer and Avibrás in the aerospace business, Volkswagen, Ford and General Motors in the 
auto industry, Ericsson in telecommunications, and the petrochemical plant of Petrobrás. In less 
than 40 years a local production and innovation system geared towards the production of aircraft 
has been developed. This chapter discusses some aspects of this system, in particular local 
institutions that provide R&D infrastructure, firms that supply goods and services to Embraer and 
recent institutional arrangements being introduced in the region that are geared towards 
increasing local capabilities. 
1. Scientific and technological infrastructure 

The successful creation of an aircraft cluster in the São José dos Campos region is largely 
the result of the Government’s efforts to create a robust scientific and educational infrastructure 
aimed at meeting the high-skills requirements of the aircraft industry. The Technological 
Airspace Centre (CTA) and National Institute of Space Research (INPE) are the leading 
institutions in this area. The CTA, which is a branch of the Department of Research and 
Development (DRD) of the Ministry of Aeronautics, consists of four institutes: the Aeronautic 
Technology Institute (ITA), which is a teaching organization; the Aeronautic and Space Institute 
(IAE); the Institute of Advanced Studies (IEA); and the Institute of Industrial Liaison (IFI). In 
2000, CTA employed approximately 4,000 researchers to work on development projects for the 
aeronautic, space and defence systems in the areas of advanced materials, physics, chemistry, 
electronics and computer sciences. Computer simulations, a wind tunnel, and soil and flight tests 
complement basic research. As most research is linked with industry, CTA has acquired 
capabilities in metrology, quality, standardization, reliability and R&D management. INPE is 
designed to conduct research in space and atmospheric sciences and space applications. It offers 
graduate and post-graduate programmes and has research programmes for satellites and their sub-
systems, including tests, tracking and control integration.10  
10  The Technological Airspace Centre (CTA) and National Institute of Space Research (INPE) are leading 
educational institutes located in São José dos Campos, offering graduate and post-graduate courses in different areas 
of the aerospace sector to 600 and 130 students respectively. ITA has post-graduate programmes in aeronautical and 

Transfer of Technology 
The region also hosts other important training institutions, such as a local branch of 
SENAI (National Industrial Learning Service), which is part of the National Confederation of 
Industry (CNI) and is geared towards providing training for workers. A partnership agreement 
between SENAI and Embraer provides training to 40 students per semester until 2010. The 
objectives of this youth apprenticeship programme are to train young relatives of Embraer 
employees in the fields of mechanics and electronics in order for them eventually to be employed 
by Embraer. In return, Embraer will build a modern telematics laboratory at the SENAI branch in 
São José dos Campos.  
2. Locally subcontracted small and medium-sized enterprises  
As mentioned earlier, Embraer designs and develops aircraft projects and integrates and 
assembles systems, structures, the fuselage and components. It was also pointed out that the 
competitive strategy of Embraer is based on coordinating a global network of risk partners, world 
suppliers and local subcontractors.  
Apart from the risk partners already discussed, Embraer has about 450 to 500 supplier 
companies for the ERJ-145 programme. Most of first-level suppliers are located abroad. Up to 
2001, about 95 per cent of the suppliers were located abroad: 73 per cent in the United States, 25 
per cent in Europe and the remaining 2 per cent in other countries. Of 43 first-level suppliers, 
there is only one Brazilian firm, EDE that produces the main landing gear (table 13).  
In the ERJ-170/190 programme the total number of suppliers was reduced to 40 
companies, most of which are located abroad (95 per cent). As Embraer designs new forms of 
relationship with suppliers, United States firms are losing their share (53 per cent), while 
Japanese firms are now participating (8 per cent) and European firms (27 per cent) and 
companies of other countries (8 per cent) are gaining relative importance (table 14). 
mechanical engineering, electronics and computer science, airspace infrastructure, industrial engineering and 
organization, and physics. Since its inception in 1961, some 830 students have graduated with master degrees, 110 
with doctoral degrees, and 120 specialists. INPE offers post-graduate courses in meteorology, remote sensoring, 
space engineering and technology, applied computing, space geophysics and astrophysics. It has produced 690 
graduates with a master degree and 150 with PhDs since it was set up in 1968. On a smaller scale, human resources 
for the cluster have also been provided by the Mechanical Engineering School of University of São Paulo - São 
Carlos (USP), the University Vale do Paraiba (UNIVAP) and the Federal University of Minas Gerais, which also 
offers graduate courses for engineers, specializing in aeronautics. 

Transfer of Technology 
Table 13. First-level suppliers for the ERJ-145/140/135 programme 
Class and suppliers 
Components supplied 
(Distribution %)  
E.G. & G. Rotron  
Electronic compartment and cooling fans United 
United States
Mechanical products  
Circuit breakers  
United States
Wires and cables  
United States
Hydraulic pumps  
United States
United States
Contact points and fuses  
United States 
ABG Semca  
Pressurization equipment 
AIIied Signal  
GPWS/wind shear detector, pneumatic start-up and CVR/FDR  
United States
Wheels and brakes  
United States 
United States
Main landing gear  
Auxiliary landing gear and flap control  
Aerodynamic brake stick 
United States
Stick pusher. pedal adjustment actuator and fire shut-off valve  
Crane. Hydro Aire  
Brake controls  
United States
Raw material  
Aeronautical aluminium  
United States
Motor AE 3007  
United States
Motor front  
United States
Crew oxygen  
Ice detector and stall protection  
United States
Altimeter and speed indicator  
Pilots Seats  
Windshield and bad weather  window  
United States
Struthers Dunn  
United States
Systron Donner  
Fire detector  
United States
Central maintenance computer and motor vibration monitoring  
Parker Hannifin  
Hydraulic, fuel and flight command systems  
United States
Proximity sensor  
United States
Warning units, alarms and illumination  
United States
Hamilton Standard  
Air conditioning and pneumatic system  
United States 
United States
Jet Electronic  
Altitude indicator and emergency battery  
United States 
Lucas Aerospace  
Power generation  
United States
Marathon Power Technologies  
United States 
Pacific Scientific  
Fire extinguisher  
United States
Communication with passengers  
United States
Metallic structures  
Wings, engine nacelles, wing fairings/fuselage junction and main landing 
gear doors 
Horizontal and vertical empennage  
Luggage compartment service and main doors, front section and pylons  
Sundstrand/ Labinal  
United States
Source: Estimates supplied by Embraer.  

Transfer of Technology 
Roughly, the relative weight of inputs for the production of Embraer’s aircraft is as 
follows: 60 per cent equipment (e.g. engines, avionics and air-conditioned systems), 34 per cent 
metallic structures (subsets, wings and careenage), 4 per cent electric components (wires, cables 
and systems) and mechanic systems (e.g. brakes and wheels) and 2 per cent basic inputs (e.g. 
aluminium, titanium, kevlar and carbon fibre). Risk partners are responsible for 36 per cent of the 
total (in value terms), international suppliers for 57 per cent and national suppliers, mostly small 
and medium-sized enterprises (SMEs), for 7 per cent. Considering the final cost of the aeroplane, 
the local content is approximately 4 per cent, distributed in the following way: 2 per cent consists 
of engineering services, usinage and manufacture of composite materials by local SME and 38 
per cent is the value added by Embraer (e.g. wages, product development and depreciation). 11  
Perhaps of greater significance is the fact that the growing importance of Embraer and the 
way its strategy has been designed are attracting several firms to locations near Embraer’s 
manufacturing plants. Embraer already buys several important services (e.g. engineering, 
software, management, thermal treatment), avionics and other industrial inputs from its local 
suppliers. Inter-firm relationships established in this region present different levels of integration 
and commercial and technological transaction flows, but with a high degree of vertical 
integration and coordination. Today, the local aircraft industrial cluster comprises approximately 
40 SMEs organized around Embraer. 
Most local suppliers are locally-owned and were set up by Embraer’s former employees 
and fostered by Embraer itself. These local SMEs (e.g. Cemic, Akros, Digicon, Elebra, Eleb, 
ETA, Mectron, Neuron-Eletrônica, Fibra Forte, Aeroserv, Qualitas, N&N, Tectlecom and Alltec) 
depend on local R&D centres and participate in the aircraft production chain through a direct 
subcontracting system with Embraer. There are also some other local suppliers that participate in 
the production chain through subcontracting with other risk partners. Table 15 shows some 
examples of firms in the São José dos Campos area, in Campinas (70 kms. from São José) and 
Porto Alegre in the south of Brazil, that are subcontracted by Embraer and its risk partners to 
provide high quality technical services and manufactured goods. 
There are also some important firms that are part of the productive chain, supplying parts, 
component and technical services, that are located in other Brazilian regions, such as GE/Celma 
(Petrópolis – RJ), Aeronaut and Aeroeletrônica (Porto Alegre – Rio Grande do Sul), Rolls Royce 
(São Bernardo do Campo-SP), and NEIVA which belongs to Embraer (Botucatu – SP). All this 
important network of highly competitive firms has originated from policy design rather than from 
market forces. 
11 The definition of the local content index follows BNDES criteria. Relative shares were calculated taking as the 
base the final price of an aeroplane in 2000. Financial information was taken from Arthur Andersen’s accounting 
reports for 2000 and 1999. For details see Bernardes (2000). 

Transfer of Technology 
Table 14. First-level suppliers of the ERJ-170/190 programme 
Category and suppliers 
Component Country 
(Distribution %)  
Hardware (4%)  
Smart probe  
United States 
Stick shaker  
United States 
United States 
Windshield wiper  
United States 
Hamilton Sundstrand  
Electric system  
United States 
Wires & cables  
United States 
Push buttons  
United States 
Landing gear  
Barber Colman  
Windshield heater  
United States 
Flight controls  
United States 
Pacific Scientific  
Fire protection system  
United States 
GEAE - GE Aerospace  
Power plant (engine & nacelles)  
United States 
Air Industries  
Mechanical hardware  
United States 
Mechanical hardware  
Mechanical hardware  
United States 
Mechanical hardware  
United States 
Mechanical hardware  
United States 
Equipment (60%)  
Fuel system  
United States 
Hamilton Sundstrand  
Air management system  
United States 
Static discharger  
United Kingdom 
Passenger address system 
United States 
Antennas VHF  
United Kingdom 
Antennas VOR/ILS  
United States 
Allied Signal  
United States 
Allied Signal  
United States 
Air Precision  
Parker Hydraulics  
Hydraulic systems 
United States 
Composite material  
United States 
Pilkington Aerospace  
Pax window transparencies  
United States 
PPG Industries, Inc.  
Windshield transparencies  
United States 
Honeywell (Grimes)  
External and cockpit lighting  
United States 
Lighted acrylic panelling  
United States 

Transfer of Technology 
Table 14. First-level suppliers of the ERJ-170/190 programme (continued) 
Category and Suppliers 
Component Country 
(Distribution %)  
Raw materials (2%)  
Alcoa Mill Products  
Aluminium plates & sheets  
United States 
Aluminium plates & CTS  
Titanium plates & sheets  
Russian Federation 
Aluminium extruded shapes  
United States 
Pechiney Aviation  
Aluminium extruded shapes  
Alcoa Forged Products  
Aluminium forged parts  
United States 
Otto Fuchs  
Aluminium forged parts  
Aluminium forged parts  
United States 
Structures (34%)  
Wing stub 
Fixed leading edge  
Fixed trailing edge  
Control surfaces  
Centre fuselage I  
Centre fuselage III  
United States 
Pilot / co-pilot seats  
Rear fuselage  
Horizontal empennage  
Vertical empennage  
CFII / wing fuselage fairing project  
Throttle / autothrottle  
United States 
Centre fuselage II  
Wing skins  
United States 
Saint Gobain  
United States 
Hamilton Sundstrand  
APU/tail cone  
United States 
Tools and Manufacturing Services  
Dynamic Solutions  
Tool project  
Matrinor S.L.  
Fairing tools  
(Several Companies)  
Tools Manufacturing 
Source: Estimates supplied by Embraer  

Transfer of Technology 
Table 15. Local firms subcontracted by Embraer and its risk partners 
Type of Activities Subcontracted 
Aeroserv RSJC 
 Assembling and structural services  
 Aircraft configuration services  
 Aircraft configuration services 
Akros RSJC   Embraer 
 Project engineering services 
 Project engineering services 
 Project engineering services 
Porto Alegre  
 Complex technologies and structural 
assembling in metallic and composites 
materials, superficial and thermal treatment. 
 Tool engineering 
 Hamilton Sundstrand 
 Technical support  
 Engineering services 
 Engineering services and technical 
 Engineering services  
 Engineering services  
 Engineering services 
RSJC = Region of São José dos Campos 
Source: Bernardes (2000) 
3. Support institutions  

Thus, for decades support institutions have played a key role in the creation of Embraer, 
as well as in the development of the São José dos Campos aircraft innovation system. These have 
included several municipal, state and federal agencies, especially those at the Ministry of 
Aeronautics, the Brazilian Socio-economic Development Bank and FINEP, the agency for 
technological development of the Ministry of Science and Technology.  
What follows is a description of the initiatives introduced in the 1990s, when, in the 
absence of federal programmes, most of the institutional support involved basically municipal 
and state as well as private agencies. In 1992, the Pólo Vale Foundation was set up with the 
objective of fostering the setting up of technology-intensive SMEs. It had the support of the 
Commercial and Industrial Association of São José dos Campos (ACI) in partnership with the 
city government of São José dos Campos, and the government-sponsored service to support 
SMEs, Sebrae and Univap (the University of Vale do Paraíba). Its institutional mission was to 
create and manage a technological cluster in the area through a programme for incubating 
technology companies. In 1993, the Pólo Vale Foundation signed a protocol of intent with the 
Ministry of Science and Technology (MCT) whereby it would become the local branch of the 
Softex programme – the most important programme of the federal Government aimed at fostering 
the establishment of software firms.  

Transfer of Technology 
The Foundation was disbanded at the end of 2001 because of financial problems, even though 
it had produced some positive results. These included: 
1.  The setting up of a new venture in February 2000 by Petrobras’ Revap (Henrique Lage 
Refinery), which resulted from the merging of five SMEs from the oil, chemical, 
biotechnology, instrumentation and industrial automation industries.  
2.  The setting up in 1993 of a firm of 10 employees in the aerospace sector, Engenharia 
Qualitas, specializing in the production of software and programming projects, quality 
control, aircraft maintenance and systems logistics for the aeronautical sector (see box V),  
Box V. A success story in Pólo Vale  
Initially dedicated to the domestic civil and military aviation market, Engenharia 
Qualitas has signed contracts with foreign companies such as Aertec of Spain for the 
implementation of an airport maintenance system. In the domestic market, the firm has 
customers in the civil aviation market, including Helibras (the helicopter producing firm), 
Embraer, and Pantanal Linhas Aéreas, a local carrier. In 1999, it signed a contract with 
Embraer for an estimated US$ 100,000 to develop systems for maintenance engineering 
and monitoring of costs for its entire fleet. In the aviation defence segment its main 
customer is the army. Sales reached approximately 500,000 real in 1999 and 1 million real 
in 2000. 
Source: Authors 
In 1998, the Foundation for Research Support of the State of São Paulo (Fapesp) allocated 
about US$ 30 million, over a period of six years, to support basic research and 
industry/university linkages. Fiscal incentives, such as local tax rebates, were also offered to new 
investments. These actions are strategic since a majority of the new enterprises are SMEs that are 
in no condition to meet operational requirements and, furthermore, have fragile self-financing 
In 1997, the municipal government of the city set up an agency – the Economic 
Development Secretariat (SDE) – with the objective of fostering local development and attracting 
new productive investment to the area. It targets the aerospace sector in particular, and it has 
developed (jointly with Embraer) a plan for the setting up of an aeronautical industrial complex. 
It is organized in an area of 200,000 m2 where some 15 companies will be set up.  
SDE and Embraer, with the support of the Federation of Industries of the State of São 
Paulo (FIESP), are also developing another project, a consortium for exporting, comprising 
SMEs in Paraíba Valley that supply parts and components to Embraer. Firms participating in the 
export consortium specialize in the areas of milling, metal processing, sub-assembly and 
treatment of materials. The main objectives of the consortium are both to make exports feasible 
by minimizing fixed costs and to increase the domestic production of components in the 
aeronautical supply chain. Twenty-six SMEs that potentially could take part in that consortium 
have been identified and 17 have been selected to participate in the pilot phase (see table 16). As 

Transfer of Technology 
a result, a new venture has been created: High Technology Aeronautics (HTA).  It is estimated 
that there is an export potential of between US$ 7 and 10 million/year, and that 35-40 per cent of 
the idle capacity of these firms could be used for manufacturing for export. The local 
government, together with the companies and entrepreneurs and workers associations, has been 
playing a major role in the promotion and development of the infrastructure for logistical and 
technology projects, which are strategic to the aeronautical production system. Also under way is 
a project with FIESP for the modernization of the Port of São Sebastião. 
Also worthy of mention is the Programme for Expansion of the Brazilian Aerospace 
Industry (PEIAB), which was established by Embraer itself with the aim  of strengthening the 
local aeronautical chain and raising the domestic content from the current 37 per cent to 50 per 
cent of value added. The programme is designed to focus on motivating partners to: (i) boost 
industrial capacity in Brazil, by setting up their own industrial units there or in association with 
national companies; and ii) contract parts of their industrial packages with Brazilian companies, 
offering and supporting those that are presently Embraer suppliers. The idea is to develop 
programmes with the federal, state and municipal authorities aimed at bringing to Brazil 
manufacturing and technological capacity currently not available in the country. 
Table 16. Firms participating in the High Technology Aeronautics (HTA) Venture  

Firms Origin 
Localization in the state 
of São Paulo  
São José dos Campos 
Project engineering 
São José dos Campos 
Autômota Industrial 
Parts and components 
Carpini & Marques Indústria 
Parts and components 
Compoende Equipamentos para Ensaios e 
Local Tremembé 
Serviços Especializados 
Elaine Ferreira Pereira 
São José dos Campos 
Parts and components 
LEG- Engenharia e Comércio 
São José dos Campos 
Parts and components 
LS Neves & Cia 
São José dos Campos 
Parts and components 
Metinjo Metalização Industrial Joseense 
São José dos Campos 
Parts and components 
São José dos Campos 
Parts and components 
New Plotter Engenharia  
Local Caçapava 
Poly Cad Engenharia e Comércio de 
São José dos Campos 
Project engineering 
SPU Indústria e Comércio de Peças 
Parts and components 
Status Usinagem Mecânica 
São José dos Campos 
Parts and components 
Tecplas Indústria e comércio de Fibras 
São José dos Campos 
Parts and components 
Source: HTA - High Technology Aeronautics 
The Association of the Brazilian Aerospace Industries (AIAB) was set up in 1993 with the 
objective of promoting a long-term policy of competitiveness for the sector. It is an organization 
of 25 firms targeting local technology development. In 1998, it produced a document on policies 
of competitiveness for the Presidency of the Republic, and in 1999, it presented a project for 

Transfer of Technology 
technological development to the Programme for Support of Technologic-Scientific Development 
(PADCT) of the Ministry of Science and Technology. This project, which was approved, 
identified critical technologies and opportunities for businesses and is being implemented 
through partnerships between universities and local firms. 
The local union, the Metallurgical and Engineers Union, has also been taking an active 
part in discussions on the direction of regional development, the processes of technological 
restructuring, privatization and its impact on skills. In turn, the institutional apparatus is geared to 
support research, basic, intermediate and higher technical education, and the formation of an 
associated technology culture for high-tech production. The local educational institutions have 
been able to meet the demand for highly skilled personnel. Their physical proximity to supplying 
companies and assemblers is also a positive factor. All this produces an industrial and innovative 
atmosphere that is extremely favourable to technological development. 
The São José dos Campos area also enjoys logistical advantages due to its strategic 
location on the Presidente Dutra Highway between the two main centres of economic 
development in Latin America. It is 84 km from São Paulo and 321 km from Rio de Janeiro, has 
a 38 km natural gas pipeline delivery network and a 31 km optic fibre network at the disposal of 
companies located along the Presidente Dutra Highway. There is a basic band 
telecommunications station for transmission of voice, data and images, offering services such as 
international video-conferencing. Moreover, nearby are the Ports of São Sebastião (111 km), 
Santos (160 km), and the Port of Conchas on the Tietê-Paraná River is approximately 300 km 
from this area. The modernization of the São José dos Campos airport located 120 km from the 
capital of São Paulo, now being licensed to receive international cargo, was another important 
development for the region. Estimates are that monthly exports though the new airport could 
reach 2,000 tons, while imports could reach 1,000 tons. This corresponds to two daily flights of a 
Boeing 747-400 cargo aircraft.  
4. Recent changes: Attracting foreign suppliers  

Embraer’s overall strategy has resulted in successful sales and export performance over 
the years, as already discussed; imports also account for a large share of overall production, 
consistent with the worldwide trend in this industry. In the past, imports represented 60–70 per 
cent of production. More recently, however, with the rapid increase in production and world 
sales, an improvement in the trade balance has been observed, as shown in figure 4 below. 
The new supply policy of Embraer has three main objectives: 
1.  Domestic production of parts, components and sub-systems, through the attraction of partner 
companies of the ERJ-170/190 programme to the vicinities of the São José dos Campos plant; 
2.  Reduction in the number of external and local suppliers, establishing new norms and 
parameters for the composition and integration of its supply chain. The ERJ-145 programme 
had around 400 suppliers, while the new ERJ-170/190 family will have approximately 40 
suppliers; and 
3.  Building new types of supply relationships and managing flows between the suppliers of 
systems, parts, components, structures and technological services, through a pattern of 
"technological packages".  

Transfer of Technology 
Figure 4. Embraer: Sales, exports, imports and trade balance, 1975-1999 
(Million real) 
75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99
Trade Balance
Source: Embraer 
In practical terms, the first-level suppliers will be responsible for the aggregation of a 
group of sub-systems that will make up a "technological package" of the aircraft, to be supplied 
and integrated into the final phase of the assembly line at Embraer. 
The historical experience of technology transfer by Embraer to national suppliers has 
brought mixed results. The AMX programme is a case in point. During the 1980s, Embraer had 
identified and nurtured, through the special PIC programme (Industrial Supplementary 
Programme) of the Ministry of Aeronautics (Maer), about 20 domestic companies (among them, 
Elebra, Tecnasa, Aeroeletrônica, GE/Celma, Rolls Royce motors, EDE, Modata, ABC dados, 
Pirelli, Engetronic), mostly located in the area of São José dos Campos, to supply components 
and electronic systems for the consortium between Embraer and the Italian company Aermacchi. 
At present, of the initial group of companies only four remain: Elebra, Aeroeletrônica, 
GE/Celma, and Tectelcom (formerly Tecnasa, presently under bankruptcy proceedings). In this 
case, there was a deliberated regression in technological development, as well as losses in 
technological know-how and international markets.  
The new Embraer philosophy and technological strategy is focused mainly on the 
essential competencies. In the past, software and technological systems were developed largely 
within the company but now they are ordered, purchased or developed jointly with "soft houses". 
One example is Fibra Forte, a small company (of five employees) located in the São José dos 
Campos area, staffed with ex-employees from Embraer, which develops the engineering software 
used in the management of project activities. 

Transfer of Technology 
The development of the new family of Embraer jets – ERJ-170, ERJ-190-100 and ERJ-
190-200 – opened up opportunities for attracting new foreign investment and foreign companies 
in Brazil. The transfer of some suppliers of the programme to the area of São José dos Campos, 
close to the company’s factory, is part of its strategic plan to operate under a just-in-
/kanbam12 philosophy from the year 2001 onwards.  
Information supplied by Embraer confirms that 17 of its international partners are interested 
in setting up local subsidiaries in Brazil to benefit from the proximity to Embraer (see table 17 in 
Annex); these companies include: 
•  C&D Interiors, one of risk partners of the ERJ-145 programme;  
•  Parker, which has a factory in Jacareí where it produces systems for the automobile industry; 
•  The German company Liebherr, which reached an agreement with the Equipment Division of 
Embraer (EDE) for opening a new company, ELEB, in São José dos Campos; and  
•  Latecoere that has already signed contracts with companies located in São José dos Campos 
for the supply of engineering services and technical support. 
The report of the Embraer PEIAB team estimates that the new investment already 
confirmed will result in the direct generation of 1,850 new local jobs with forecasted annual sales 
of US$ 320 million. In this new stage, industrial investment of the order of US$ 280 million is 
planned: US$ 80 million in engineering services, generating 250 jobs; US$ 150 million in local 
production of parts, creating 1,000 jobs; and US$ 50 million for the installation of partners in 
Brazil, resulting in another 600 new jobs (see box VI). 
Box VI. Potential for local production 
Embraer believes there are several intermediary products (and technologies) that 
could be manufactured locally, which at present are imported. Among them,  
 Sub-set and structure assembly (fuselage rings and wing);  
 Connection bars, autoclave services, thermoforming and vinyl gluing;  
 CNC stamping of 4 and 5 axes, acrylic moulding and plate anodizing;  
 Milling, tapestry and manual impregnation;  
 Chemical finishing; and 
 Special processes: Shot-pin conforming.  
As for technical services, in general, Embraer estimates that local production could 
be developed in the areas of:  
 Project engineering in general;  
 Systems and process controls, administration and use of equipment;  
 Architecture and integration of mechanical and electronic systems, for example; and 
 Quality and instrumentation services and software, among others. 
Source: Embraer 
12 Kanbam: methodology of production optimisation. 

Transfer of Technology 
Today, Embraer is one of the few Brazilian companies with ample capabilities for 
innovation in the complete technological learning process. It accords great importance to the 
process of consolidation of technological knowledge, its transformation and dissemination 
through the company’s communication channels. In addition, Embraer has highly qualified 
personnel through the mechanisms of learning-by-doing, especially in the manufacturing process, 
in the assembly of fuselages and in systems’ integration. The dynamics of learning uses complex 
products, new materials, software and avionics resulting both in efficient operating practices and 
more effective maintenance and adaptation, which in turn result in product improvements. And 
finally, it promotes learning-by- interacting that derives from the interaction and institutional 
administration between the partners and the suppliers linked by information, goods and services.  
The cycle of technological innovation is now perceived as a business dynamic not 
exclusively restricted to the routines of R&D. This is because the technological learning 
processes have demonstrated the importance of interdependency and intercommunication. In 
other words, the organization needs to create an interdependence between technical production, 
human resources, financial, economic and marketing spheres while at the same time also 
satisfying market demands. This implies the merger of many functional activities at Embraer. A 
further strategic change for Embraer is needed, based on implementing a management model that 
emphasizes learning, innovation and knowledge. In this respect, studies for the implementation of 
a project for creating a "corporate university", i.e. a private university owned by the firm that will 
graduate scientists and engineers with the appropriated skills to its needs, has already been 
initiated under the responsibility of the human resources department. 
The focus adopted by the new administration is characterized by sophisticated analysis 
using indicators of performance, profitability, client satisfaction, and the monitoring of change 
and future market transformations. This requires the establishment of a set of formalized and 
institutionalized mechanisms to generate, register, analyse and interpret information that is 
considered strategic and vital in the context of high competition, swift obsolescence of the 
technological frontiers and market uncertainty. The competitive strategy of the company has been 
articulated mainly through studies concerning aircraft demand conducted by outside consulting 
companies. In 1998, a Market Intelligence area was created with the aim of internalizing these 
studies within the culture and competitive strategy of Embraer itself. Basically, they include the 
study of market trends through the quantification of the global demand of aircraft using "top 
down" technical analysis, which consists of evaluating elements such as fleet size, number of 
aeroplanes in operation and fleet condition, sales development, backlog, sold and undelivered 
units, and sales forecast. The other method for quantification uses the "bottom up" approach, and 
consists of a direct approach to the customers, and their real interest in a new product. 
Embraer is responsible for the employee training, technical monitoring and for the 
technological learning processes of its subcontractors. It does this by sending Embraer engineers 
to them to impart the necessary know-how (see box VII). 

Transfer of Technology 
Box VII. Cooperative of Engineering Services (SERCO) 
The 1995 experience of the Cooperative of Engineering Services (SERCO), 
comprising ex-employees of Embraer and other previously State-owned firms in the 
military area (such as, Avibras and Engesa), is one of the most interesting in São José dos 
Campos. The services rendered by the Cooperative provided a crucial alternative for 
Embraer’s survival, since there was a surplus of professionals on the market due to the 
crisis in the civil aerospace and military defence sector in the first half of the 1990s. 
SERCO is made up of work nuclei organized by segments of commercial performance; it 
consists of eight services nuclei distributed among the cooperative partners: aerospace and 
infrastructure, quality and human resources, civil works, safety and occupational medicine, 
machinery and IT structures, electro-electronics, industrial automation and export and 
import services.  
According to a study conducted by Mendonça (1997:44), in 1996 SERCO had 130 
cooperative partners registered in the municipal government as autonomous professionals. 
The Cooperative signed contracts with multinational corporations that participated in the 
ERJ-145 programme, rendering design services and development inspection. Embraer hired 
services from this Cooperative, ranging from microfilming of drawings and documents to 
maintenance and checking of documents. The monthly average revenue was in the range of 
US$ 250,000 in 1996. With the sustained recovery of the aeronautical sector, SERCO’s 
revenue grew twentyfold reaching a total of US$ 5 million in 1998. The substantial growth 
of this Cooperative is related mainly to the boost it received from Embraer and its suppliers 
and from the global air transport sector, at which the services that meet the requirements of 
new markets, such as IT and electronic documents processing, are aimed. 
Source: Authors 
Embraer’s successful strategy of competition and innovation in the 1990s occurred during 
a period rupture in government support for CTA and other local technological institutions. The 
Brazilian Government cut down its resources for government-sponsored science and technology 
institutions and this had some impact on the local innovation system. As a matter of fact a 
problematic cooperation pattern has emerged between Embraer and the local R&D institutions. 
Embraer’s cooperation and research relationships with CTA used to be more organic in the days 
of total government control, but currently are limited to aircraft certification and approval. Even 
with other universities, such as the São Carlos School of Engineering and the Polytechnic School, 
contacts are only on an informal basis, contrasting with European and North American 
experiences where a more structured relationship of firms and R&D centres is found.  

Transfer of Technology 
In the 1990s Embraer managed to capture an important share in the world market for 
aircaft and became a member of a very select club of competitive firms in this sector in a period 
when the Brazilian federal Government’s policy towards the industrial sector was almost non-
existent. Without entering into a wider discussion about general industrial policy, it is important 
to note that all the successful experiences of the aircraft industry point to large government 
support in several different ways. This is the case with Boeing and McDonnell Douglas of the 
United States, the Airbus European Consortium and the Canadian firm Bombardier.  
However, there was an important Brazilian Government programme, which helped 
Embraer in the 1990s. Besides the virtues of the ERJ-45, its price and financing scheme were 
important in American Eagle’s decision to purchase the aircraft. The sales operation had the 
support of credit lines provided by the Brazilian Economic and Social Development Bank 
(BNDES) through its Finamex programme for export financing. The financing arrangement was 
the decisive factor in the success of the deal, covering up to 100 per cent of the value of the 
operation at internationally comparable interest rates and with a repayment period of up to 15 
years. The loan of US$ 1 billion granted by BNDES for the export of 40 ERJ-145 aircraft was the 
largest ever approved in the entire history of the bank. This scheme was part of a government 
export support programme – Programa de Financiamento às Exportações (PROEX) created by 
the Government of Brazil on 1 June 1991, by Law 8187/91. It provides export credit to Brazilian 
exporters, either through direct financing or interest equalization payments. Under the direct 
financing scheme, the Government lends a portion of the funds required for the transaction. 
Under interest equalization, underlying legal instruments provide that the National Treasury 
"grants to the financing party an equalisation payment to cover, at most, the difference between 
the interest charges contracted with the buyers and the cost to the financing party of raising the 
required funds (Resolution 2380/97 of the Brazilian Central Bank, 25 April 1997).  
The success of Embraer and the use of these policy mechanisms led to a dispute between 
Embraer and Bombardier wherein Bombardier accused the Brazilian Government of subsidizing 
the manufacture of aeroplanes. On 18 June 1996, Canada requested consultations with Brazil at 
the World Trade Organization (WTO), under Article 4 of the Agreement on Subsidies and 
Countervailing Measures and Article 4 of the Understanding on Rules and Procedures governing 
the Settlement of Disputes, regarding "certain export subsidies granted under the Brazilian 
PROEX to foreign purchasers of Brazil’s Embraer aircraft".13  
The possibility for the type of investment outlined in Chapter V materializing is certainly 
dependent on some important changes in government industrial policy. The federal Government 
has been allowing state governments to compete almost entirely through the offer of fiscal 
incentives (tax breaks or significant reductions in the state level taxes), without any interference 
by the central authorities, to attract foreign firms to their regions. However, such competition 
between the state governments plays limited role in attracting the type of new investment needed 
by Embraer.  
In order to analyse policy alternatives it is useful to discuss briefly the role that the 
Government played in supporting Embraer's establishment. The federal Government supported 
Embraer’s sales through a programme of financing its exports. As a developing country firm, 
13 See Canada’s request for consultations at WTO (WTO document WT/DS/46/1). 

Transfer of Technology 
Embraer had experienced difficulties finding international banks and financial institutions willing 
to provide the financial engineering needed to sell aeroplanes. In this type of market, sales tend to 
be coupled with a financing package. The importance of the programme of financing exports 
(PROEX) of the Brazilian National Economic and Social Development Bank (BNDES) was that 
it not only provided the financial package, but also, and equally important, a framework under 
which local interest rates were equated with international interest rates. As mentioned above, this 
kind of incentive was heavily contested at the WTO by Embraer’s immediate competitor 
Bombardier of Canada and by the Canadian Government. 
The other significant policy initiative of the federal government, that partly helped 
Embraer, has been the fiscal incentive to stimulate technological upgrading. Under this policy, 
industrial and agricultural firms are allowed to rebate the outstanding income tax on account of 
R&D expenditures and the value added tax on equipment acquired for R&D activities, as well as 
accelerated depreciation allowance for equipment and instruments acquired for R&D.  
There are also some credit lines by Finep, the technology bank of the Ministry of Science 
and Technology, but this is not an excellent option, given the high interest rates that characterize 
the Brazilian financial system. As already mentioned, there have also been several attempts both 
from the state of São Paulo and from the city of São José dos Campos to provide help.  
One of the more important policy mechanisms that could help the development of the 
local innovation system would be a series of mechanisms to foster the growth of small high- 
technology firms around Embraer. In fact all major competitors of Embraer benefit from this type 
of support provided it is not inconsistent with WTO rules. 
It may be concluded that federal policies and state actions contributed to the success of 
the modern phase of the Brazilian aircraft industry. The federal Government offered solid and 
continuous support to Embraer at the time when it was a government-controlled enterprise 
through budgetary allocation of sufficient financial resources for S&T infrastructure and 
procurement. To a large extent, it was through procurement that technological learning was made 
viable and feasible. This government policy, particularly that of the Ministry of Aeronautics, 
imposed on outside partners associated with Embraer the requirement of local production to 
foster people-to-people technology transfer.  
In Embraer's present situation as a private company, the federal Government continues to 
support Embraer’s sales through its programme of export financing and it has been able to 
implement a supporting programme, namely the Programme for Expansion of the Brazilian 
Aerospace Industry. 
In terms of international trade rules, civil aircraft is also the subject matter of a plurilateral 
Agreement on Trade in Civil Aircraft, part of the Tokyo Round Agreements of the General 
Agreement on Tariffs and Trade (GATT), that applies only to its signatories. Brazil is not a 
signatory of the Agreement but it has observer status. Due to the fact that civil aircraft is subject 
to this plurilateral agreement, certain provisions of the Agreement on Subsidies and 
Countervailing Measures (SCM Agreement) (Article 6.1 (a) and (d)- Serious Prejudice -, and 

Transfer of Technology 
Article 8.2 (a) Non-Actionable Subsidies)14 did not apply to civil aircraft. However, the 
provisions of these Articles have lapsed on 31.12.1999. Subsidies otherwise applied to the 
aircraft industry are subject to compliance with the provisions of SCM Agreement.  
Finally, Embraer’s experience in cooperative agreements involving transfer of technology 
could be considered an interesting example of successful acquisition of technological knowledge 
in conformity with international trading rules.  
14 Article 6.1 (a) and (d) – Serious Prejudice – and Article 8.2 (a) Non-Actionable Subsidies of the WTO SCM 
Agreement explicitly exclude civil aircraft from these provisions. 

Transfer of Technology 
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Transfer of Technology 
LEMOS, M., DINIS, C., SANTOS, F., CROCCO, M. and CAMARGO, O. (2002)"Liberalization 
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Transfer of Technology 

Table 17. Partners of the ERJ/170/190 Programme Intending to Invest or to Settle in Brazil 
Supply Contractual 
% National 
of origin 
 Parker  USA  
Flight Control, Fuel  Installation of plant close 
The company will count with its local subsidiaries in SP and Jacareí. 
and Hydraulic 
to Embraer  
It evaluates the construction of a new building in São José dos 
  amilton USA  
System/  Seeking new 
Establishment of an office in Brazil; Contract signed with Dynamic 
APU. Tail Control opportunities and 
in Campinas for rendering of engineering services and technical 
System, Air Control  domestic partners  
support in the amount of Real$ 180,000 until Dec/2000.  
Group assembly  
GE  controls Celma, and is analysing the viability of assembling 
motors and rendering maintenance and repair services. It is also 
studying the conditions for purchase of motor components directly 
from Celma or Brazilian companies.  
Central Fuselage I Production of parts and/or 
Establishment of Latecoere do Brasil. Has entered contracts with 
Central Fuselage III  engineering services in 
Dynamic in Campinas, for rendering of engineering services and 
/ Doors  
Brazilian companies  
technical support of US$ 160,000 until Dec/2000. Signed a contract 
with Suprisul - São José dos Campos - for lease of IT equipment, 
total in the amount of US$ 425,000. Contract with Akros (S.J. dos 
Campos) for rendering of engineering services US$ 690,000/year for 
5 years. It is evaluating the companies Aeroserv and ELEB (S.J. dos 
Campos) as part of its network of suppliers.  
 Gamesa Spain 
Rear fuselage and Use of Brazilian  -- 
The company evaluates new national companies for the supply of 
companies for material 
composite materials for the ERJ-170/190. It maintains a contract 
purchase and/or services 
with Dynamic in Campinas for the allocation of engineering 
limited to US$500,000/yr. 
equipments and technical support over US$ 7,000 until Dec/2000.  
any   Landing gear  
Production of the Landing 
Entered a joint venture with EDE (former division of Embraer) 
forming a new called company ELEB.  
Sobraer S.A.  
Brazil Slat/Centra  
Production of parts and/or 
Implantation of an industrial unit in S.J. dos Campos. Sobraer will 
Fuselage II 
engineering services in 
accommodate the junction of the pylons in the rear fuselage supplied 
subsidiary of 
Brazilian companies  
for the ERJ-135/145 programme and its final assembly, in a process 
Sonaca S.A.)  
that will be transferred progressively from the Belgian head office to 

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the Brazilian subsidiary. Presently made in Belgium, the final 
assembly of its segments supplied for the ERJ-135/145 programmes 
is made possible through services rendered by a contract signed with 
Serco (S.J. dos Campos), foreseeing the use of 35 employees/month 
for 1 year, with a total of 50,000 work hours. It studies the viability 
of the production, in Brazil, of approximately 250 milled parts of the 
Central Fuselage II of the ERJ-170/190 programme.  
Installation of a Plant in  10% in the  C&D do Brazil was Established in 2000, in Jacareí. Their activities 
the Area of São José dos  first year 
will begin with support to the ERJ-135/145 programme, foreseen to 
and 20% 
begin of production of Overhead Bins and PSU structures for first 
quarter of 2001. The accumulated investments in industrial plant, 
from the 
improvements, equipment and personnel and development of 
second year  infrastructure are estimated at US$ 3,100,000.  
Wing (fixed leading  Studying partnerships  4% 
Kawasaki is analysing the feasibility of looking for domestic 
edge, fixed trailing with domestic companies  
partners to reach a 4% national content.  
edge, pylon, control 
Expansion  of  the  repair 
Installation of support centre for training of operators in Latin 
workshop at Embraer and 
intention of establishing 
support centre for 
operators of Latin 
  Canada   Covering panels  
Factory  implantation  in 
The decision to install a plant in Brazil depends on the minimization 
of the tax burden. Company studies point to investments of US$ 
18,000,000 in the implantation of the Brazilian factory.  
Figeac Aero  
Supply  of  Covering  Implantation of a  -- 
The intention of the company is to invest US$ 12,000,000 in the 
Panels and Wing Rib  subsidiary in Brazil  
assembly of a subsidiary in Brazil for the supply in partnership with 
Embraer of Covering Panels and Wing Ribs.  
  eromot/Cycl Israel  
Implementation  of  Investment in new  -- 
A contract was signed between Cyclone and the Brazilian Aeromot 
one Aviation 
new technologies in  technologies together with 
(Rio Grande do Sul) for the implementation of technologies for 
Products Ltd.  
aviation production   national companies  
structural assembly of metallic and composite materials, milling 
forming of metallic plates, superficial and thermal treatments. 
Investments of around US$ 10,000,000 to US$ 15,000,000 are 
Reactivation of its industrial unit in São Paulo, seeking initially to 
industrial park for the 
meet the ERJ-135/145 programme, and later, the expansion for 
production of tires for the 
supply to the ERJ-170/190 programme. The intention is to produce 
aeronautical industry  
about 20 different sizes of tires to meet the aircraft requirements of 
Embraer, such as: Brasília, AMX, ALX and Tucano. The production 
expectation is around 25,000 tires a year in 2003, with a sales 

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forecast of US$ 6,000,000.  
of  Adaptation of an  -- 
The company is adapting an industrial unit in São José dos Campos, 
Transparencies / 
industrial unit in São José 
seeking initially the production transparencies /windows for the 
dos Campos  
ERJ-135/145 programme, and later, the expansion for supply to the 
ERJ-170/190 programme. This unit has a built area of 1,950 m2, 
where it intends to have from 60 to 70 employees dedicated to the 
aerospace sector. The technology transfer should occur, according to 
Embraer, in a year.  
  lano  USA  
and  Establishment of 
The Elano company is subsidiary of GE Aircraft Engines. With the 
Manufacture of 
partnerships with 
objective to meet to the needs of the Embraer programmes, Elano 
tubes and metallic Brazilian companies, or 
intends to establish partnership with Brazilian factories, or in case of 
ducts for aviation installation of own 
viability, invest in the establishment of own subsidiary in place that 
engines and air 
subsidiary in Brazil  
is economical and logistically more viable to meet the Embraer 
conditioning systems 
and aircraft 
Supply of Electric In phase of viability 
Labinal is accomplishing viability analyses for the establishment of 
partnership with Brazilian company or installation of a subsidiary in 
Source: Embraer - PEIAB Brazilian Aerospace Industry Expansion Plan 

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