How Brazil Gave Birth to One of the World's Greatest Jet Makers

SPEAKER_2 (0:02)

Bloomberg Audio Studios, podcasts, radio, news.

Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:23)

And I'm Joe Weisenthal.

Tracy Alloway (0:24)

Joe, this is it. This is your long-awaited Embraer episode.

Joe Weisenthal (0:29)

We're finally doing it. There are certain episodes we talk forever about doing that we never do.

The Jones Act, the Dredge Act. Oh no, we did do a Dredge Act episode. The Jones Act being the big one. The other one is we've never done it.

Tracy Alloway (0:42)

You know, the Dredge Act episode was like a Shadow Jones Act episode.

Joe Weisenthal (0:46)

It's true, we've never done an Onion Futures episode. But at long last, we're going to be talking about Embraer.

Tracy Alloway (0:53)

Yeah, and this is such an interesting company. I know we brought it up a few times before, but the thing about it is when you think about aerospace and the layout of that particular industry, you usually think Boeing versus Airbus. And we've certainly talked recently about the competition between those two companies. They are the two biggest airplane manufacturers, aerospace manufacturers, but there's a third one.

Not quite yet. There's a third one, and it is a lot smaller than Boeing and Airbus, but the fact that it exists at all is kind of phenomenal. I don't think a lot of people would have expected that the world's third biggest aircraft manufacturer is in Brazil.

Joe Weisenthal (1:39)

That's exactly right. Because for one thing, A, you never hear about them.

B, generally speaking, there are not many Latin American successfully global advanced manufacturing companies, period. There are other big Latin American companies, obviously, but not in manufacturing.

Tracy Alloway (1:57)

Most of them have to do with agriculture or commodity exports.

Joe Weisenthal (2:01)

So yes, it's a very unlikely story, the fact that this company exists at all, and it's not just that they exist. Because the first time that they came up on the show, it was in the context of a conversation about the troubles of Boeing.

They're really good. They're really respected in the industry.

Tracy Alloway (2:18)

Very well regarded.

Joe Weisenthal (2:19)

Very well regarded. They make high quality products. They're in demand from carriers all over the world.

And so it's not just that it exists. It's not just that it's from LATAM. At least in its niche, it's considered to be one of the best in the world.

Tracy Alloway (2:32)

Absolutely. And so I think it's a worthwhile subject to explore. How did Embraer come into being?

What is its product offering? What is the appeal? It's a global market. How has it managed to make inroads there? And what, if anything, it says about industrial policy and current efforts to develop technologically advanced industries.

Joe Weisenthal (2:57)

This is the key thing, because we talk a lot about industrial policy right now, in part because the United States and also to some extent Europe, we're in the midst of this sort of industrial policy fever. And there's this enthusiasm for spending money. And there's this enthusiasm for re-industrializing and building up at least some capacity in certain critical things, whether it's electric vehicles, whether it's batteries, whether it's solar panels, whatever it is. So I think it's important to sort of have an understanding of prior waves of industrial policy, because all governments from time to time want to build their own champions or want to be less reliant on some other country that they import from.

And so it's really good to sort of get an understanding of some of the success stories and what actually happened.

Tracy Alloway (3:48)

Absolutely. All right, so this is a special episode, which means we have two guests to talk about this. We're gonna start with someone who's been on the podcast before. Richard Aboulafia is of course the managing director over at AeroDynamic Advisory, and we're gonna start with him.

Richard, thank you so much for coming back on Odd Lots.

Richard Aboulafia (4:06)

Oh, it's a real pleasure. Thanks for having me on.

Tracy Alloway (4:09)

So when I think about the landscape of aerospace, I mostly think about Boeing and Airbus, but of course there is a third, and it happens to be Embraer.

Richard Aboulafia (4:21)

Yes, that's right. The much smaller, but very, very impressive and deeply influential company of Embraer.

Joe Weisenthal (4:31)

So what is this company? What do they make? And when you say impressive, what do you mean by that?

Richard Aboulafia (4:36)

Well, the fact that they were created and were able to deliver aircraft that the market wanted and have been through multiple different incarnations over the years, a respected provider of aircraft to both airlines, business aviation customers, and even military customers. It's pretty remarkable when you think about it, given the very high barriers to entry in this business.