President, Mogno Consulting (Former CEO, Embraer)
2001 CEO OF THE YEAR
The recession of the 1980s put the Brazilian aeronautics company Embraer in a difficult situation that seemed insurmountable. “The situation was dramatic. Total revenues were $170 million, losses were $300 million, and the debt was $700 million,” recalled Mauricio Botelho, a mechanical engineer and the CEO and president of the company from 1995 to 2007.
In 1994, with bankruptcy threatening, the company was privatized after six failed attempts to sell it. For Botelho, this sale was the most important decision the company had made in the last 20 years because it eliminated the obstacle that had stymied its international growth: the fact of it being a state-run company. A trip outside Brazil required the signature of a minister. “To open an affiliate would have required the approval of the senate. It was a nightmare. It couldn’t respond to the global market,” he said.
Since 1996, with Botelho at its head, the company correctly read the change in direction the regional aviation industry was undergoing, moving from turboprop engines to jets. International sales of regional jets became the program that redeemed Embraer. By 1999, Botelho had converted the company into Brazil’s largest exporter.
September 11, 2001 marked another company milestone, when it learned to always stay close to the customers and to act quickly to defend the company’s interests. With the attacks on the Twin Towers in New York, the market literally disappeared. “Thousands of airplanes were left on the ground. Flights were cancelled, but we had the supply chain still operating. We faced enormous uncertainty, with confirmed orders and thousands of dollars of supplies. We were producing 10 aircraft per month – the highest production in history – and the goal was to manufacture 22 by the end of the year. In August, we had already delivered 18 planes.”
“Everyone was confused, but Embraer was one of the first companies to react. In two weeks, we had evaluated the situation. We knew how it would be reflected on the company and what steps we needed to take at once. We renegotiated with the suppliers and with the workers, and by the end of September we were in control.” It was very painful, recalled Botelho. They let 2,000 people go, 15 percent of the plant. But, they prioritized the company’s need to stay liquid. “To have been conscious of what could be done and what was necessary proved to be fundamental for the progress of the company,” he said. Other companies in the same circumstances did not do that and sustained irreparable losses.
When the financial crisis of 2008 struck, Embraer already knew that the best way to manage severe problems was to focus on the customers and to understand how they would be affected. For that, what they saw coming was an enormous impact on revenues and they adapted quickly to the new reality, he said. They adjusted all the models they had been developing to the new conditions. “Most traditional companies that didn’t react on time had to restructure from the bottom up and others, like the business jet segment, are still suffering,” he said.
One last key characteristic of the company is its enormous capacity to generate aeronautical technology. Embraer does not import its technology. Its developments are in large measure, local. “There is a very limited foreign contribution. Now there are many foreigners in the company, but they are more involved in the commercial side than the technical one,” he said.
Right from the company’s beginnings, its engineers have trained at the Instituto Tecnológico Aeronáutico, (ITA), which, with courses similar to that of MIT, has served Embraer’s human resource needs. With expansion, they trained the staff they needed but could not find, contracting between 100 and 200 engineers per year, and these engineers continued studying for another year and a half. The courses were given by foreign professors and the best technicians available, and the program ended with a master’s degree from ITA. In the 12 years the program has been operating, it has trained 1,500 professionals. Embraer has 4,000 engineers, 1,000 of them with a master’s degree or a doctorate. “It is a tremendous strength. They are well-trained people with the skills the company needs. In the program, they know what is required.” Embraer also has a clear vision of the scope of its academic training. “We don’t develop science. We transform the science into usable technology,” Botelho concluded.
Embraer has gone from bankruptcy to sales of $6 billion per year, and to being number 101 among the biggest companies in Latin America in sales. This could be the proof that development can be designed by good engineers.
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