You are on page 1of 28

IBSA and the Aerospace

Industry in Brazil

Mario Marconini
South-South Economic Cooperation: Exploring IBSA (India-
Brazil-South Africa) Initiative
Johannesburg, 28 June 2006
Trade Balance – 1950-2004
Trade Balance - 1950-2004

40

30

20

10

-10

Marconini IBSA Aerospace Joburg 28.06.06 2


Trade as part of GDP
Market Opening, Various Countries, 2002
Brazil: no
longer the least 80

open
Similar to 70

high-GDP
countries; or, 60

Countries
notoriously 50
closed;
1.7 times more 40

closed than the


world average 30

2.2 times more


closed than 20

Mexico;
2 times more 10

closed than
China;
0
U.S. Jap Ind Brz Col Aus Arg Wld Fra Rus Chn Nes Mex Chl Ger Saf Kor Can
2.75 more 18,3 18,9 20,8 24,3 30,6 33,5 33,7 40,4 46,2 48,3 49 51,1 52,4 55,2 55,8 56,6 66 67,1
closed than
Canada Source: The World Bank, WDI Data Query

Marconini IBSA Aerospace Joburg 28.06.06 3


Regional Trade Flows, 2004
Others
Eastern Europe 7%
United States
2% 20%
Middle East
4%
Africa
7%

Asia
17%
European Union
24%

Rest of Latin Am erica


9%
Mercosul
10%

Marconini IBSA Aerospace Joburg 28.06.06 4


Trading Partners
Exports to the U.S., 2004 Exports to China, 2004 Exports to the E.U., 2004
Prim ary
8% Manufactures
18%

Sem i-
Manufatures
18%
Manufactures
41%
Primary
48%

Sem i-
Prim ary
Manufatures
59%
23%

Manufactures
74%

Semi-
Manufatures
11%

Exports to India, 2004 Exports to South Africa, 2004


Prim ary
16% Prim ary
22%

Manufactures
40%
Sem i-
Manufatures
5%

Manufactures
Sem i- 73%
Manufatures
44%

Marconini IBSA Aerospace Joburg 28.06.06 5


Brazil-India
Brazil-India, T rade Balance and Flow, 1985-2004
600 1.400

500
Trade Balance

1.200

Trade Flow
400
1.000
300

200 800

100 600

0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 400
-100
200
-200

-300 0

Trade Balance Trade Flow

Gra ph 9: Brazil-South Africa, Trade Ba lance and Flow , 1985-2004

900 1.400
800
Trade Balance

1.200
700

Trade Flow
600 1.000
500
800
400
300
600
200
100 400

0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 200
-100
-200 0

Trade Balance Trade Flow

Marconini IBSA Aerospace Joburg 28.06.06 6


Brazil-India
Million

Braz ilian Exports to India, 1985-2004


700

600

500

400

300

200

100

0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Primary Semi-manuf ac tured Manuf ac tured


Million

Bra zilia n Ex ports to South Africa , 1985-2004


1.200

1.000

800

600

400

200

0
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Primary Semi-manuf ac tured Manuf ac tured

Marconini IBSA Aerospace Joburg 28.06.06 7


IBSA in relative terms
Export Import Market Size
Growth
1997-
98/2003-04 More than US$ Between US$ Less than US$
100 20 and 100 20 million/year
billion/Year million/year
More than South Korea, India, South Algeria, Costa
100% Mexico, China Africa, Russia, Rica, Iran
Thailand
Between 63- U.S., Canada Saudi Arabia Chile, Colombia
100%

Less than 63% E.U., Japan Morocco,


Venezuela,
Argentina
Marconini IBSA Aerospace Joburg 28.06.06 8
Brazilian Aerospace Sector
Aeronautics - manufacturers and suppliers in the production of civil aircraft, airplanes and
helicopters, propulsion systems and electronics;

Defense - the production of aircraft and systems for military purposes; and,

Space - manufacturers and suppliers of satellites, launchers and special surveying systems
both for military and non-military purposes

Nautics

Total Firms 35
12
Firms per area
7 2 Aeronautics 28
7
Defense 11
0
Space 19
5 2

Space Defense

Marconini IBSA Aerospace Joburg 28.06.06 9


Brazilian Aerospace Sector
One of most dynamic sectors
Direct relationship with national
security;
High technological linkages and
spillovers;
One of the country's main exporters;
and,
Productivity levels and growth
perspectives.
Marconini IBSA Aerospace Joburg 28.06.06 10
Brazilian Aerospace Sector
Revenue Participation per area in 2003

Others; 0,7
Space; 0,13
Defense; 11,84

2000 2001 2002 2003


Annual Revenues 3.200 3.400 3.010 2.530
Total Exports 2.835 3.110 2.710 2.230

In US$ million

Aeronautics;
87,33

Marconini IBSA Aerospace Joburg 28.06.06 11


Brazilian Aerospace Sector
2001 2002 2003 2004
Exports 5.025 4.220 3.413 4.525
Imports 3.300 2.190 2.199 3.411
Balance 1.725 2.030 1.214 1.114

In US$ million

Aerospace Sector Exports

2002 % 2003 % 2004 %


EMBRAER 2.493 59,1% 2.052 60,1% 3.170 70,1%
Other firms 1.727 40,9% 1.361 39,9% 1.355 29,9%
Total for the sector 4.220 3.413 4.525

In US$ million

Marconini IBSA Aerospace Joburg 28.06.06 12


Brazilian Aerospace Sector
1941 – Ministry of Aeronautics
1945 – Idea of a Aeronautical Technological Center (CTA)
1946 – Organizational Commission
1947 – Military Engineering in Rio transferred to São José dos
Campos
1950 – First ITA class
1954 – CTA created, also Research and Development Institute
(IPD)
1969 – Embraer created as state-company
1971 – Bandeirante and air force contracts start
1975 – Embraer first export: Uruguayan Air Force
1979 – Embraer: presence in the U.S.
1983 – Embraer: presence in Europe
1990 – Embraer major financial crisis; downsize 13 to 9.9K
employees
1994 – Privatization of Embraer
Marconini IBSA Aerospace Joburg 28.06.06 13
The Embraer Phenomenon
Empresa Brasileira de Aeronáutica
13,000 direct, 3,000 indirect of 18,000 jobs
80% of aerospatial MSMEs’ revenues
Virtually all integrated with Embraer chain
11 service suppliers formed a venture
Embraer and partners in aeronautics and
defense
Only space: Orbisat and Orbital
Multi in helicopters: Helibras
Marconini IBSA Aerospace Joburg 28.06.06 14
The Embraer Phenomenon
High R&D, strategic partnerships, government
support
Main thrust of restructuring: integration into
international market for regional jets
Biggest Brazilian exporter in 1999-2001: over $2
billion
Four market segments:
Commercial: 37-50 seater and 70-106 seater
Corporate: private jets
Defense: same ERJ-145 platform for intelligence,
surveillance, reconnaissance
Services: after-sale, replacement parts, maintenance
Marconini IBSA Aerospace Joburg 28.06.06 15
The Embraer Phenomenon
Two directives:
to seek flexibility and competitiveness by means of the
coordination of partner networks in the development of
airplanes
to organize production according to aircraft "families".
Three types of partners:
Risk partners. supply large aeronautical systems and join
Embraer's projects as investors;
Suppliers. do not take part in the development of
projects, only supplying components and other inputs;
Subcontracted. SME’s created and conducted by former
Embraer staff

Marconini IBSA Aerospace Joburg 28.06.06 16


The Embraer Phenomenon
Characteristics of Embraer's Productive Chain Participants by Category
Risk Partners Suppliers Subcontracted
Participatio Co-development with Respond to specifications by Receive Inputs and
n Embraer. Take on risks Embraer Specifications from Embraer
and sell services by
man/hour.
Family 145 4 (Structure and Interiors) 350 (Avionics, Electronics, Engineering Services of
Propulsion, Inputs, Mechanics- Projects/Systems;
Hydraulics) Other services and chemical
treatment
Family 16 (Avionics, Electronics, 22 suppliers overseas Ditto
170/190 Propulsion, Mechanics-
Hydraulics, Structure,
Interiors)

Location Most overseas Most overseas Brazil

Purchasing Exclusivity contract; Exclusivity contract (payment in Contracts of 1 to 2 years


Policies Investment amortized 75 days); contracts of 1 to 3 (payment in 30 days);
with sale of airplanes years (payment in 30-90 service orders.
(payment in 110 days) days)

Marconini IBSA Aerospace Joburg 28.06.06 17


The Survey
Second semester of 2005
12 firms contacted
Distrust with the project
Additional information and
clarifications
Linkage of project to government
Sources of financing for the research
Recourse to high technology
Economic relevance: Embraer
Marconini IBSA Aerospace Joburg 28.06.06 18
The Survey
Firm State Operating Area
Aeromot RS Aeronautics, Defense and Space
Atech - Tecnologias Críticas SP Aeronautics, Defense and Space
Avibrás SP Aeronautics, Defense and Space
Cenic SP Aeronautics, Defense and Space
Embraer SP Aeronautics, Defense and Space
Helibrás MG Aeronautics, Defense
HTA, High Technology SP Aeronautics
Aeronautics
Mectron SP Aeronautics and Space
Omnisys SP / RJ Aeronautics and Space
Orbisat SP / AM Space
Orbital SP Space
VEM RJ / RS Aeronautics

Marconini IBSA Aerospace Joburg 28.06.06 19


Survey Findings: General
Positive impression re: industry future
Need to attract world-class suppliers
Space less developed than India or
China
Develop indigenous technology
½ traded with India or South Africa
Exports: dynamic developed markets
Imports: quality of products
Supplying firms: need for certification
Marconini IBSA Aerospace Joburg 28.06.06 20
Survey Findings: General
Aviation systems: oligopolies
Alternatives in India and Russia
Little prospecting yet
¾ never heard of IBSA
¼ heard of it but highly skeptical anyway
Embraer: exports to both
Aeromot: sales to S.A. but not India
Orbisat: sales to S.A. but not India
None see significant increase in IBSA business

Marconini IBSA Aerospace Joburg 28.06.06 21


South-South Cooperation
½ – cooperation projects
China – CIBERS satellite
Russia – satellite launchers
½ – France and Germany
¼ - knew of India project
½ – considered infeasible with IBSA
Embraer already has global network
Better to have productive chain at
home
Marconini IBSA Aerospace Joburg 28.06.06 22
South-South Cooperation
Space sector
Interest with India: satellite manufacture, launching
technology, optical radars, image sensors, launching
vehicles.
Interest with South Africa: military aircraft parts
G-20 type of grouping on subsidies
Technical barriers, not a problem
Exception: emissions and noise in E.U.
IBSA for bargaining technology transfer
Financing crucial: government could help to
provide level playing field
Country Image: Embraer’s effect

Marconini IBSA Aerospace Joburg 28.06.06 23


Capabilities
Embraer: long-haul market would be a "suicide“
Significant political incentives
Radars, detection of oil spots in S.A. ocean
Political blockage: Brazilian government crucial
Lack of funding, interest, priority
Orbisat: Radars in Embraer’s aircrafts
Market access, doing business in India
Difficult to comprehend, decision-making hierarchies, corruption
Infrastructure: governmental support, unavailable funds
R&D: deficient in geostationary satellites and launchers
Lack of investment in higher education
High interest rates and short loan duration
Embraer: distances and freight not important
Technical requirements and high values and quantities, very important
Orbisat: effective partnership with India: satellites and radars
Lost to Israel in India due to lack of presence and contacts in Indian
government

Marconini IBSA Aerospace Joburg 28.06.06 24


Value Addition
¼ - aircraft “from the South”
Long-haul – segmented, highly
competitive, well established, highly
oligopolized (4 multis)
R&D – only element of IBSA cooperation
Market agreements, joint research,
technological swaps
Only in defense and space – not aeronautics

Marconini IBSA Aerospace Joburg 28.06.06 25


Government Involvement
Skepticism
Do internationally what has not been done internally
Yet,
Project in defense and space
Financing at competitive rates and durations
Nationalization of segments
Intermediaries with foreign governments
Stimulate small enterprises in specific projects
Create special entity or regulatory agencies
Presidential visits: events, fairs and
commercial visits, more beneficial

Marconini IBSA Aerospace Joburg 28.06.06 26


Threats
¼ - IBSA cannot improve
bargaining
¾ - IBSA cannot replace the
developed
½ - IBSA cooperation – improbable
½ - IBSA technology transfer
feasible
½ - IBSA technology transfer
Marconini IBSA Aerospace Joburg 28.06.06 27
Ten Conclusions
1. Brazil’s sector integrated into the world
2. Little to gain in aeronautics
3. Cooperation only in defense and space
4. Long-haul is really a “long-haul” shot
5. India seen as very difficult for firms
6. Skepticism re. government initiatives
7. Better to nationalize world-class production
8. Government can support and mediate
9. IBSA cannot change the developed
10. IBSA cannot replace the developed
Marconini IBSA Aerospace Joburg 28.06.06 28

You might also like