Victor R. Caivano  /  AP
Embraer's employees work on several Legacy 600 executive jets at the company's factory in Sao Jose dos Campos, Brazil, Wednesday, June 27, 2007. (AP Photo/Victor R. Caivano)
updated 9/26/2007 10:50:05 AM ET 2007-09-26T14:50:05

Workers toil round the clock in Embraer's sprawling assembly plant, riveting plane fuselages and installing miles of electrical cable, as the Brazilian aircraft maker scrambles to meet delivery deadlines for its hot-selling passenger-friendly jets.

Embraer, a former state-owned company that nearly collapsed in the 1990s, added nearly 4,500 Brazilian workers and a graveyard shift this year to boost production at its vast complex of hangars next to an airport built decades ago for Brazil's military.

The company has a record $15.6 billion backlog this year, with orders pouring in for its commercial jets that seat passengers comfortably with no middle seat on medium-range trips, and for its newly expanded executive jet line.

Demand for the midsize jets Embraer makes has risen sharply in the U.S., Europe and Asia as airlines shift their regional fleets to jets that consume less fuel than models like Boeing's 737 or Airbus' A320 but are larger than the cramped 30-to 50-seat regional jets that passengers usually detest.

But Embraer, the world's fourth-largest commercial plane maker after Boeing Co., Airbus and Canada's Bombardier Inc. is struggling not to be overwhelmed by its success.

Second-quarter profits for Empresa Brasileira de Aeronautica SA plunged nearly 50 percent due largely to higher production costs, and executives were peppered with questions by analysts on delivery prospects and when the financial bleeding will end.

Embraer's chief executive, Frederico Curado, conceded that the company underestimated the production challenges that emerged with increased demand, made worse last year after suppliers of wings didn't come through on deliveries, forcing Embraer to take over wing production.

The company was also hurt by the strengthening of Brazil's currency against the U.S. dollar this year because almost all Embraer sales are in greenbacks.

But Curado predicted improved financial conditions for the company in upcoming quarters. He added in an interview that his top task is ensuring Embraer rolls out a jet nearly every other day so airlines like JetBlue, Northwest Airlines, China's Hainan Airlines, Air France-KLM and even tiny Montenegro Airlines get their planes on time.

"My focus is clearly on making sure we deliver on the commitments we have," Curado said.

The company's backlog is less than the $18.2 billion backlog of its main competitor, Bombardier, but analysts generally agree Embraer has the market cornered on passenger comfort at least for now.

"One of the biggest advantages Embraer has is cabin size compared to Bombardier," said Richard Aboulafia, vice president of analysis for the Teal Group, a Washington, D.C.-based aerospace and defense industry consultancy.

By contrast, Aboulafia said, Bombardier's jets, "feel like a long thin tube, like flying in a pencil."

The gleaming Embraer jets leaving the assembly line about a two-hour drive from Brazil's industrial heart of Sao Paulo stand in stark contrast to the planes that Embraer cranked out by the hundreds after the company was created by Brazil's military dictatorship in 1969.

Embraer gained fame in the 1970s and 1980s with its sturdy twin-engine turboprop Bandeirante for commercial and military use. But the company virtually imploded after Brazil became a democracy and the government reduced state funding.

After privatization in 1994, the company inaugurated its first mid-range jet, the 45-passenger E145. And five years later, Embraer unveiled plans for four new jets seating 80-110 passengers for short and medium range routes so airlines could stop risking unfilled seats on larger planes that use much more fuel.

Embraer's fortunes took off after JetBlue Airways Corp. ordered dozens of the jets, putting them in use on the company's shorter U.S. routes in 2005. The Brazilian company's backlog, stuck in the $10 billion range for years, jumped significantly as other airlines followed suit.

Embraer's success has raised speculation that the company could face competition and lose market share if the world's two biggest plane makers — Boeing and Airbus — decide to build smaller planes to compete in the niche carved out by Embraer and Bombardier.

Curado thinks competition from China is more likely. China Aviation Industry Corp. is developing the ARJ-21, a regional passenger jet with up to 85 seats. The maiden flight of China's first homegrown commercial jet is scheduled for next March, with mass production to begin in 2009.

Curado questioned when the China Aviation could provide support for its own planes outside China, predicting it would take decades for the company to become a serious international jet player. But Bombardier is cooperating with China Aviation on the development of a jet that would seat between 90 and 149 passengers.

In the meantime, Embraer is adding new models to its line of executive jets to cash in on the expanding market. Orders for its Phenom executive jets typically seating between four and six passengers stand at more than 500, up from 400 at the end of the first quarter, with deliveries to begin starting next year.

Curado hopes the executive jet segment will make up more than 20 percent of Embraer sales in five years.

The company suffered a blow last year when the U.S. Army decided against using Embraer jets for a new spy plane because Lockheed Martin Corp. couldn't fit all of the electronics in the E145.

Embraer came back with a new idea for military cargo jet to replace aging C-130 Hercules planes used by Brazil's air force and others around the world.

The company estimates it would cost $600 million to launch its C-390 Military Airlifter program with deliveries beginning as early as 2012, but Curado said no decision will be made for at least a year while executives gauge military interest.

"It is only a concept, a paper concept, it happens to be a very interesting one," Curado said. "We are investing a limited amount of money for the predesign stage to define the idea, and are talking to potential customers and fine tuning that idea."

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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